Q4 2020 HealthStream Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the South stream, Inc. Fourth quarter and full year 2020 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to asking the question during the session you'll need of press star one on your telephone please be advised for today's call for.
Is being recorded if you require any further assistance. Please press star then zero out.
I'd now like to hand, the conference over to one of your speakers today, Mollie Condra, Vice President Investor Relations and Communications Ma'am. Please go ahead.
Thank you good morning, and thank you for joining us today to discuss our fourth quarter and full year 2020 results.
Also in the conference call with me today are Robert a frist junior CEO and chairman of health stream, and Scotty Roberts, CFO and senior Vice President.
I would also like to remind us that this conference call may contain forward looking statements regarding future events and the future performance of health stream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements.
Information concerning these risks and other factors that could cause the results to differ materially from those forward looking statements are contained in the company's filings with the SEC, including forms 10-K, 10-Q, and our earnings release.
Additionally, we may reference measures such as adjusted EBITDA, which is of non-GAAP financial measure of.
The table, providing supplemental information on adjusted EBITDA and reconciling to net income attributable to help stream is included in the earnings release that we issued yesterday and they referred to in this call.
So at this time I will now turn the call over to Bobby Frist.
Thank you Mollie good morning, and welcome to our fourth quarter and full year 2020 earnings call. There's a lots of cover today.
The call of 2020 of unprecedented hardly seems the scratch the surface.
I think we can all agree with your unlike any other and of course, that's callable synopsize the things that happened in the year of talk a bit about future. Despite the adverse conditions of the pandemic the health streamers never stopped living our mission and vision and we're focused on improving the quality of health care and it seems that never has that been more important than at this time.
Our employees are really focused on execution the.
Our call I'd like to look forward to talking about how we were busy the last 24 months, especially this last year of laying the groundwork for what we believe will generate long term shareholder value.
As part of the discussion I'm going to update you on each of the key transitions that we've discussed in the past several calls.
And and characterized and re characterize them.
But the only 10 months ago, we're reaching an inflection point, where the major business. The risks associated with these transitions like market acceptance product adoption and technology viability are behind US we'll talk more about these transitions in a moment, but first let's look at financial guidance, which we were pleased to reinstate now.
We expect revenue to be in the range of 242 and half of my end of 252, and a half men and adjusted EBITDA to be in the range of $34 million on the low end of $38 3 million on the hiring.
The view one of the most remarkable things about this guidance for.
Rejecting the potential for revenue growth. Despite the $38 4 million revenue decline in legacy resuscitation products from 2020 to 2021 and the for three to $5 3 million negative impact of acquisition related deferred revenue write downs.
A lot of overcome and I'm proud of our team for working hard to put us in a position to have a good shot at showing top line growth on a year over year basis. Despite these really tough headwinds and.
One other thing that you'll note is that we are guiding to adjusted EBITDA instead of operating income this year.
At this point, we believe adjusted EBITDA guidance, coupled with revenue guidance provides a better indicator of the company's financial performance.
And it will be a useful to current and potential investors in our calculation of adjusted EBITDA I want to point out that we exclude the accounting impact of deferred revenue write downs from acquisitions given.
Given that we've recently completed five acquisitions, we believe that providing guidance through a metric that excludes the fluctuations associated with this accounting treatment will help to provide a more consistent view over time now.
Now I want to take you.
Through what we intend to accomplish through these business transitions that we've mentioned and talked about in the prior quarters actually over over a two year period.
And a little bit about our growth philosophy and the way we think about these objectives in general in.
And this means we're gonna be given directional information the covers not just the 'twenty and 'twenty, one, but a little bit into 'twenty 'twenty, two which is a longer view than we normally provide.
So building on the anticipated results for 'twenty, 'twenty, one, which I just gave you want to talk a little bit of what what it returned to normalcy might look like for us in 2022.
So it's just some expectations of about 2022 after having just talked about guidance for 2021.
The first.
Our goal is to deliver organic high single digit revenue growth rates and so I think that's an important statement to make given.
What's happened in the last 24 months with these changes in our revenue model.
Second of.
Our goal is approximately 65% gross margin profile and I think that's still a few points higher than we delivered in the fourth quarter and we feel directionally comfortable but that's where we're headed in the coming 24 months of 65% growth margin profile.
Third we would expect in 2022 to see of returns of adjusted EBITDA margins of 15 to 20 per cent of revenues.
That's the maybe one of the more important metrics for us to look at as we climb through the the challenges presented by the revs.
Revenue declines associated with the legacy resuscitation revenue products.
Achieving of perhaps more importantly sustained use of Jack that requires consistent investment innovation I think it's important to note that in 2021, while we're also fighting through the changes both organically and Inorganically of the decline of our substation revenues. We are investing very actively in the businesses that we acquired.
And we're.
We're fortunate to begin there with the solid balance sheet to do that no debt and $65 million credit facility of that remains fully available to us.
The other thing this allows us to invest in organic R&D initiatives as well as making the appropriate investments to help our recent acquisitions achieved their potential.
We acquire companies to ensure the health stream remains the innovative and disruptive technology platform that our customers and investors expect it to be.
Now, let's talk about these three transitions.
In each of our quarterly calls for the last couple of years I provided updates with regard to each as I said last quarter of lot of the challenges previously associated with these transitions are now behind us.
Some of the transitions will go on for years, but we're reaching an inflection point.
Where some of the key business risks associated with transitions are behind us or imminently behind us as there's only 10 months remaining in the 36 month horizon that that I articulated a few years ago.
So let's go through one of the time.
The first we have transition of our sales and marketing efforts from the legacy resuscitation products to our new resuscitation offering.
As a reminder of the Red Cross Resuscitation suite program is comprised of the BLS ALS and pals competency development curricula and we launched it in January of 2019. It brings updated highly adaptive competency based development solution to health care professionals. It offers certification of health care professionals successfully demonstrating proficiency.
Of life, saving resuscitation knowledge and skills.
For our customers focus of necessarily shifted in the last year to responding to developments related to COVID-19 in treating COVID-19 patients.
We have continued to see new sales for the suite.
For the full year 2020 over 180, new contracts were signed for the Red Cross suite.
This is quite an accomplishment given its relative newness for the market.
Some of these customers included for example of Norton Health care and Cedars Sinai Medical Center.
The other customers like air methods, who chose to expand their services, even more broadly across the organization and the year.
The second transition involves the adoption of and migration to our new Verity stream application suite in the first quarter of 2018, we announced the launch of Verity stream, our new application for managing the full spectrum of Credentialing privileging and enrollment needs in health care organizations.
During the fourth quarter of 2000 2030, non customer accounts for contracted for the Verity stream application suite brings.
Bringing our cumulative total to approximately 345.
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 application suite.
Some of the customers we contracted for the fourth quarter include the University of Utah Health Honor Health system and St. Charles Health system.
Importantly, all new customers, including the distinguished ones I, just mentioned come onto our new enterprise solution severity stream platform application suite.
Third transition involves our customers upgrading to the extreme platform.
Which is the central technology that powers all of the activity in the <unk> ecosystem increasingly our products applications and content offerings are connecting to the new H Dream infrastructure.
In the fourth quarter, we added approximately 380000 net new H stream subscriptions, bringing our cumulative total to approximately $4 2 million subscriptions.
Our quarterly updates with regard to these three business transitions began at the start of 2019, approximately 24 months ago from today.
We are therefore about two thirds of the way through what I. Originally described as a likely 36 month journey.
As I mentioned many of the major transitional risk previously associated with these transitions are now behind US for example, we now see strong market acceptance of the Red Cross suite and its certification as we now have customers in all 50 states.
We have seen compelling product adoption of our Verity stream application suite with approximately 345 customers in many notable referenced of all accounts.
We have seen firm technology viability of.
The eight stream platform as evidenced by the large scale deployment of applications, which utilize services from the new H Dream Paas architecture.
What's important to understand is that in each case the viability of what we are transitioning to is now part of our core business, we will talk about them less and less of transitions moving forward and more and more about how these other solutions are contributing to realizing the revenue growth gross margin and EBITDA objectives that I highlighted earlier in the call.
At this time I'm going to turn it over to Scotty Roberts to provide a more detailed discussion of financial metrics for the fourth quarter and then come back around for some closing comments and questions.
Good morning, and thanks to everyone joining us today.
During this morning's call I plan to review our financial results for the fourth quarter provide more information about our M&A activity as well as discuss guidance expectations for 2021, and I'll briefly touch on the impact of COVID-19.
The discussion of our financial results will be for continuing operations, only and comparisons will be against the prior year fourth quarter.
Unless otherwise stated.
For the fourth quarter revenues were $61 8 million or down 1% of.
Operating income was $1 1 million and down 66%.
Income from continuing operations was <unk> 9 million or down 74 per cent.
EPS from continuing operations was three cents per diluted share.
From 11 cents per diluted share in the prior year.
And adjusted EBITDA was $10 7 million were down 4%.
After pausing our M&A plans earlier this year, we had an active quarter to close out of the year.
During the fourth quarter, we acquired shift the Wizard and sauce and my clinical exchange.
And in January of the acquired comply of line.
We're excited about the future opportunities these companies to provide us and our customers.
Given the two of these three acquisitions closed in the final month of the quarter the impact on the quarter's results I. Just highlighted included revenues of $2 1 million, which is net of deferred revenue write downs of point 9 million.
It also included $1 2 million of the diligence expenses and point of 7 million of of the amortization expense.
I'll provide more information about how these acquisitions impacted our 2021 forecast in a few minutes.
Revenues from the work Force solutions segment totaled $49 7 million for the fourth quarter.
And were down 2% of $1 2 million compared to the prior year.
Revenues from the legacy resuscitation products declined by $5 7 million during the fourth quarter.
For the full year revenues from the legacy products for $38 4 million compared to $58 9 million in 2019.
And they are expected to be zero in 2021.
The other work force revenues increased by $4 5 million or 12 per cent and.
It was comprised of an increase from platform and content subscriptions of $2 4 million or 7%.
The $2 1 million from the acquisitions completed in the quarter.
Revenues from the American Red Cross stimulation suite program, which includes both subscriptions and stimulation equipment. It was also a strong contributor to the fourth quarter revenue growth.
Revenues from the provider solutions segment totaled $12 1 million for the fourth quarter.
And grew by 3% over the prior year, which was primarily associated with the acquisition of credential My Doc that we completed in December of 2019.
Our gross margin improved to 63, two per cent compared to 63% last year.
<unk> and the lower margin legacy resuscitation revenues and increased revenues from other higher margin products continued to yield improvement in our overall gross margin.
Operating expenses, excluding cost of revenues were up 10% for three and a half million over the prior year.
This increase reflects our investments in product development incremental expenses from the acquired companies and diligence costs.
While the increase the investments in these areas. We continued the benefit from lower expenses, resulting from travel restrictions and trade show cancellations of approximately $1 7 million as a result of COVID-19.
The combination of these factors led to our operating income declining about $2 2 million or 66% to $1 1 million.
And adjusted EBITDA declining for about half of million or 4% to $10 $70 million.
As Bobby mentioned, we've updated our definition of adjusted EBITDA to adjusted for the impact of deferred revenue write downs associated with the fair value accounting for acquired businesses.
The impact of deferred revenue write down so it's quite 9 million during the fourth quarter of 2020 and 51000 during the fourth quarter of 2019.
Yeah.
Our cash flow from operations were $35 9 million this year compared to a record high of $65 7 million last year.
The reduction in cash flow from operations was primarily due to the lower cash receipts of about 23 million, mostly coming from the reduction of legacy resuscitation products and higher overall expenses compared to the prior year.
DSO increased to 50 day as compared to 39 days in the fourth quarter of last year.
Acquisitions completed during the fourth quarter and increased our DSO by six days.
Despite facing uncertainty and challenges caused by the pandemic, we were able to maintain a strong financial position over the course of the year.
We implemented measures to control expenses and maintain liquidity, enabling us to operate without significant disruption for financial strength.
While continuing to pursue strategic opportunities to deploy capital.
We used the $102 million of cash to fund three acquisitions during the fourth quarter of <unk>.
Capital expenditures were $7 5 million during the quarter from $21 million for the full year.
In addition share repurchases approximated $3 6 million for the quarter.
$20 million for the full year.
We ended the year with cash and investment balances of $46 5 million.
Now, let's turn to our financial expectations for 2021.
While there remains uncertainty about the extent of timing and duration of COVID-19 has continued impact on our operating results and financial condition, we are providing financial guidance for 2021 as follows.
Consolidated revenues are forecast to range between 242, and a half and 252 and a half million like the workforce revenue is forecasted to range between 195 and $203 million.
And provide of revenue is forecasted to range between <unk> 47 in the half and 49 and half of million.
Revenues within the work force segment include contributions from the acquisitions, we've completed since October.
The net of deferred revenue write downs between four three and $5 3 million.
We are forecasting adjusted EBITDA EBITDA to range between 34, and $38 3 million.
As a reminder, adjusted EBITDA as the non-GAAP financial measure used by management and we believe it is also useful to investors in assessing the company's performance.
Okay.
We anticipate the capital expenditures, which includes the capitalized software development and content to range between 25 and $27 million.
It's important to note the 'twenty 'twenty, one revenues will reflect of $38 $4 million reduction from the legacy resuscitation products.
Which also negatively impacts adjusted EBITDA compared to 2020.
Over the past two years, we've marketed and sold the American Red Cross Resuscitation suite.
And expect increasing contributions to revenue and adjusted EBITDA from these products in 2021.
At the same time, they are not expected to fully replace the lost revenues or profits from the legacy resuscitation products. This year.
In terms of profitability, we're targeting of this inflection point to occur around the second half of 2022, if we remain successful in gaining market share for the solution.
Okay.
We've also continued to diversify our product portfolio with higher margin solutions to improve profitability.
Proprietary applications, such as the already stream, which is our credentialing and privileging application.
Innovative workforce development solutions, such as our partnership with the American Red Cross.
And the newly acquired staff scheduling applications are examples of investments that we've made to improve gross margins.
For 2021, we anticipate gross margins to be in the mid 60% range, which we believe is the level that we can maintain throughout the year and three of 2022.
As mentioned the capital deployed over the past year was primarily focused on acquiring assets and technologies and the scheduling of space.
We believe can enhance our profitability metrics over time.
To improve our market position, we plan to reinvest expected returns from these acquisitions and make incremental investments in the sales marketing and product development.
We anticipate these investments along with the impact of deferred revenue write downs intangible amortization integration costs and transition services will result in the $2 million to $3 million reduction to our adjusted EBITDA.
Which is reflected in our guidance.
Absent the impact of the deferred revenue write down and absent our decision to actively reinvest in these companies. We acquired last year. We believe these companies taken in the aggregate, which show a net profit as opposed to net losses for the year.
Our forecast assumes the customer purchasing decisions for our products gradually returned to pre pandemic levels over the course of the year and the new bookings and renewals performed better than they did in 2020.
It also seems like gradual return of our own pre pandemic spending such as travel and trade shows which essentially ceased after the first quarter of last year.
Collectively our forecast includes meaningful investments in sales marketing and product development in 2021.
Which are expected to result in the decline in adjusted EBITDA compared to 2020, but believe will support revenue growth and adjusted EBITDA improvements beyond 2021.
Our forecast does not include the impact of any acquisitions that we may complete during 2021.
Other than the comply of line acquisition, which was completed in January.
Now, let me wrap up by providing some additional thoughts about COVID-19 impact on our business.
While our forecasts assume a gradual improvement in sales in renewables the pandemic negative financial impact on our customers may continue to cause uncertainty in their purchasing purchasing decisions for our products.
We continue to closely monitor our liquidity, including weekly cash was customer payment patterns and bankruptcy loans.
We did not experience any significant bad debts during the past year, but our DSO increased in the fourth quarter.
The remained within an acceptable range of our expectation.
Although we have experienced so much slower collections from customers economic conditions may worsen and our customer's financial condition may deteriorate.
Which could negatively impact our future cash flows.
Finally, we ended the quarter with approximately $46 5 million in cash and the investments. We also renewed our revolving credit facility in the fourth quarter and increased the borrowing capacity to $65 million.
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 through acquisitions.
Although for the near term will be focused on integrating the companies. We've recently acquired.
We also have approximately $10 million remaining under our share repurchase program.
We believe our multiyear objectives to grow revenues improved gross margins and deliver incremental EBITDA.
The long term best interest of shareholders and the company.
That concludes my remarks for today. Thanks for your time and I'll now turn the call back over to Bobby.
Thank you Scotty.
Closing comments here before we go the questions. It's really been of great year for our technology innovations of health stream are driving innovation is one of our core values that we express our nearly 1000 employees in our constitution and we believe that we're living up this value I'll give you. Some examples in the fourth quarter alone.
<unk> of our products altogether.
The 15 Excellence awards from the Brandon Hall Group, which is considered the leading preeminent research organization of the country focused exclusively on learning and technology.
Among this list of the American Red Cross resuscitation suite, and our implementation of it which won both the best advance in gaming or simulation technology and best advance in learning management technology.
Our nurse residency programs also won two awards one for best advance in Onboarding technology and another for best advance in emerging learning technology. So really excited to celebrate these these technical innovations are now being recognized industry wide as the leading in our industry.
In the fourth quarter, we awarded two patents for our next generation clinical solutions and there's we've been working on developing intellectual property.
The portfolio and we're succeeding so in the fourth quarter. We were awarded two patents for our next generation of clinical solutions that are specifically designed to help health care providers drive the outcomes and recognize the efficiencies.
The first patent covers a proprietary system of methodology for using data to build role based specialty pathways for such patient education and certification. So it kind of complements alongside of the Red Cross resuscitation suite to deliver innovation in this area of critical training and education.
We are currently using this patent in connection with our partner <unk> to provide specialized training the perioperative nurses for example.
We also received a patent around the natural language capabilities of our proprietary AI engine, which I look forward of telling you more about soon we're pleased to see the national recognition of this caliber bestowed the hell stream and to our solutions, we've been putting a lot of energy into their development over the years. So it's very exciting and rewarding to see that happen.
The operational has been very busy during 2020, we acquired for companies and we added a fifth just last month for <unk>.
Side of the welcome all five companies to the <unk> family and I'd like to take an opportunity to say something about each one.
Three of the five acquisitions nurse grid shipped Wizard in hand sauce for focus on hospital scheduling together they form of brand new solution group for Us, which we referred to as health stream scheduling. The solution group is led by <unk> Senior Executive Scott Mcquigg and it forms the third leg of our company's three legged stool.
And some of you may be wondering what I mean by this matter of for and maybe you heard me talk about it before.
We're already figured it out, but we review our workforce development solutions is forming one leg of the stool our provider solutions is forming another leg and scheduling as the final leg of the balance of the stool.
Each of these three solutions importantly share a lot in common for example, each represents the enterprise software designed to help our health care customers fulfill the mission of providing care.
Each of the three solution groups are also positioned to leverage one another as they connect through and leverage the core foundation of our past technology platform known as extreme.
Working together customers will be able to make sure that they have the right people at the right place and time, providing patient care in the right way.
We've worked hard to assemble all three legged stool and the platform the powers them and connect them and Interconnects for them and Youll, probably hear me use this matter for for our business again in the future the.
In many ways.
While the revenue has the potential for slight growth in 2021.
The company I feel is fundamentally stronger because its a more diversified set of revenue streams of the higher gross margin profile. So we're kind of excited that that although on the surface things may look similar to the prior year.
Really it's a stronger more diversified and more interconnected company, that's well positioned.
So back of the acquisitions, we're excited to add my clinical exchange the supply of lines of health stream and we haven't talked a lot about the so I'll take the second of all of those my clinical exchange fits our model of ecosystem expansion really well through the SaaS solution, the interface with hospitals and with nursing and medical students applying for internships at those hospitals.
By collecting and processing student data my clinical exchange is able to help thousands of students get the internships. They seek in these hospitals by presenting their credentials the hospitals in the form the hospitals require.
Albeit a small one at this time this marked our first expansion the the nursing and medical student markets.
Also it also has the benefit of being familiar to US is it the software solution the directly benefits our hospital customers.
And then comply line as the name indicates aligns directly with our core compliance business and historically one of our strength is in the compliance area through.
Through its SaaS based policy management solution that allows hospitals to manage and update very policies. They required to remain in compliance and assure the providing the best care possible. This is the heavy lift the most hospitals as most of the maintained well over a thousand dynamic policies and procedures at any given time.
Pleased to now be in a position to help them with this task as it kind of overlays of lot of the regulatory and educational products that we offer.
As we've grown both organically and Inorganically. We've also been fortunate to add senior leadership around key areas of business in January of Kevin O'hara of joints, how stream as a senior Vice President of General manager of platform solutions and that's of course eight stream.
For those of you the bedroom following the company for a while Kevin's name May sound familiar he's actually returning to health stream of Skus and executive here for almost a decade. He left in 2011 to become the CEO of an innovative startup and after leaving it to the success in selling it we're very fortunate to have them returning to oversee the growth development integration of our H stream platform.
Also in January Scott Fenstermacher joined the executive team as our senior Vice President of sales Scott The outstanding sales leadership from 2012, when he joined health stream to build and lead the ICD 10 solutions team.
Since that time he has been instrumental for the company's growth and made it an easy decision to promote him to our enterprise head of sales.
We also want to take this opportunity to honor and thank Dr. Martin Harris for his decades of Distinguished service on our board of Directors. Dr. Harris served as Chief Information Officer for the Cleveland Clinic for 20 years and more recently joined Dell Medical School at the University of Texas Austin, Dr. Harris's Lastly on the board will be at the end of this week and we wish him all of the bed.
And the future endeavors, which we are sure it will benefit the practice of medicine and quality of care for years to come.
I want to close the couple of things and acknowledgements throughout the pandemic, we have never been more honored to support the brave health care professionals, providing care for those who need it.
Even as we've just crossed over the grim milestone of half of million Covid related deaths in the U S. There are and appears to be reason for optimism as the number of new cases of declining in vaccines are increasingly becoming accessible for more and more people. Hopefully this period will soon become of chapter in our history from which we move forward until then we continue to recognize them.
Support the Iraq, Paris work of each and every frontline worker.
In particular, I want to recognize health care workers in Texas, who have been forced to contend with the loss of electricity and water over the past few frigid day.
Perseverance of epitomize the value of grit, the will move us past the last 12 months of tragedies.
Finally, I want to thank our employees for your persistence and hard work remaining focused in the face of these great challenges and delivering what I think is a relatively exciting forward look into 'twenty and 'twenty, one 2022, and exciting new products and technologies that have the chance to change the industry and improve the quality of the health care. Thank you to our nearly one.
As of health stream employees at this time I'd like to turn it over to questions from our Investor community.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. Thank for your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from the line of Ryan Daniels with William Blair. Your line is open. Please go ahead.
Yeah, Hey, good morning, everyone and thanks for taking the question. This is Jared Haase in for Ryan I wanted to start just talking to them about the the 2022 outlook that you had mentioned and I appreciate to get some of that color in terms of the the high single digit organic growth outlook. Bobby I'm curious if you could maybe just talk a little.
More about some of the specific drivers that you're seeing the kind of gives you the visibility of the comfort in providing that outlook and if you could maybe talk.
Kind of around sort of the expectations for each of those three legs of the stool as you alluded to a moment ago.
Well I can't do all of that but I can do some of it and we're fortunate to be in a position to the redeveloped guidance with some degree of confidence for 2021, which we stated and then we thought it is important to say what it might look like as we fight through this year of.
Of the final year of the year over year comparisons of the decline of $38 4 million of the resuscitation suite from and and and so there are many things that give us confidence about the kind of general guide posts, we've outlined for 2022, and we thought it'd be important to convey them. So the single digit growth. There's a lot of reasons for comps and that there's there's a lot of things that are there.
Kind of built into our model from the acquisitions of just perform that give us confidence in kind of return of things like the deferred revenue write down obviously, we'll work through the accounting treatments and that'll.
Shows from some growth, but more importantly, organic growth and a lot of product areas.
We feel confident we feel more confident as demonstrated by recent sales activities from some of our newer platform. So the.
The first and foremost and also contributing to one of the other goals and objectives of the 65% gross margins is the success of adoption and market penetration of the Red Cross Resuscitation suite program.
So the.
180 contracts in the year is quite an accomplishment of new customers returning customers. We've moved in my view of material market share do what was once considered almost the controlled market by single entity to a new entity, that's credible scientific evidence behind their products and is a fierce competitor in the market. So.
We have continued optimism for that core part of this work force development portfolio.
And then there's also sort of organic products that we haven't talked about as much but we made investments many years ago to build this new AI engine and it's called Jane and we've seen recent success at scale of the new Jane platform and so we've signed one of our first multimillion dollar contracts for Jane.
And early this year.
And it's a again a relatively new product that's a derivative of technologies, we acquired up to four and five years ago. So it's finally coming to market and it's a powerful differentiated applications that you'll be hearing more about Jane in the coming months, but you asked what gives confidence in some of these sort of.
High margin organically created.
But drive from some of acquired companies years and years ago.
The application set that we think has the potential of an impact on the market and so watch for more news on Jane in the coming months, but again, we signed our first multimillion dollar contract on Jane.
Just about a month ago. So early this year.
And so and then finally, the Verdi stream you know we've talked about all of these transitions and the Verity stream transition story will go on for a long time.
I'll take us for a while to move customers off of the acquired companies but.
The real risk and the reason, we started talking about that migration and transition as the business risk.
Two and a half years ago was because we.
We acquired several companies got of market, leading position, but we had to build the replacement platform and we had to prove its viability and move customers to it and today with over 345 contracts on the new platform. The one which we are migrating to and several examples of customers successfully migrate it I think the type of.
The risk that comes with.
The new product is maybe market failure of market failure to be adopted or the technology viability.
Israel.
Israel, and but now I kind of you heard me there the day declare that while the transition the actual movement of customers from old platforms, new won't be over 10 months. The real risk was that the new platform simply didn't meet the needs of the market and it does we of 345 contracts satisfied reference simple customers and we're gaining market share on the Verity stream platform.
So those are three of the reasons now we have acquired these three companies to build of scheduling business and we enter a market and again, a market leading position, but across three diverse platform and so we have our work cut out for us and the third leg of the stool, but we also remain optimistic that that area for US is an area that makes sense to focus all of them.
Nurses are one of our largest audiences in our entire network several million of nurses are on the <unk> network.
And we have the innovation of the nurse grid platform, along with the market share and market, leading concepts of shipped Wizard and Ann soft. So we have a lots of work with their I mean, yeah of Optum.
Optimism that you did see a lot of investment of 2021 I believe over 30, new positions are being added to those investments instead of seeking operational synergies were actually appear.
The hiring of about 30 or more new employees to add the sales marketing technology development of this third leg of the stool. If you will so 2021 of your investment which is why we had to talk a bit about 2022.
So <unk>.
Reasons for optimism organic products that are seeing market success.
Hartner shifts that were once in great doubt and had questions hanging over them are seeing market adoption and migration to the the new platform and the eight stream platform.
We're getting more and more interconnected.
It's not it's an immature platform, but it's a proven the technology is working now components of the Paas architecture, and they're not as concepts anymore, they're actually working and adding 380000 subscriptions to that pass architecture.
It gives me great.
Optimism that we can provide the kind of guidance we did so.
High single digit revenue growth for 2022.
Coming off of year of of.
Of our guidance range, which provides for the potential for growth again, which is to me outstanding that our teams of essentially backfill of 38 point for millions of revenue loss of this year through organic and inorganic efforts.
And so and then the 65% gross margin again, we are of software company. We did have higher cost in some software companies because of lot of our application sets.
So sell content, which is from partnerships, we have royalty costs, but but on the whole we see this move from high mid fifties to the mid sixties.
In the gross margin profile of the company being something that we can objectively try to maintain and achieve in the next 24 months. So I I see continued improvement there and have confidence in that because of the kind of nature of the shift in our the way we've done our partnerships.
And then.
The.
And so for the for those reasons I have a lot of confidence as we think about 2021 guidance. We just provided in detail and what I guess I'll frame of goals and objectives for 2022.
Got it yeah, that's all Super helpful and I appreciate all the color and you can definitely see they're quite of few tailwind here just the support the business going forward. So I will go I havent landed there and hop back in the queue, but thanks for all of that color.
Thanks.
Thank you and our next question comes from the line of Matt Hewitt with Craig Hallum Capital Group. Your line is open. Please go ahead.
Good morning, Thank you for taking the questions and we did notice in your guidance last night in the press release that you were there there is the potential for growth which was for.
Pretty commendable given the headwinds that you're facing.
The first one the last couple of quarters, Bob you've talked about maybe of hospitals being a little reluctant given the pandemic and everything that they were already facing too.
Purchase new software transition from one platform to another as the vaccines are being administered and as you know the the rate of infection appears to be declining how are those conversations changing and what are your expectations as we get into.
You know even closer to the summer months and into the back half of the year.
Well I mean first we see our customers the hospitals and health care providers and the surgery centers and all.
Turning to operate.
In a manner that allows them to.
Provide for Covid and traditional services and they're just learning their their of their learning to deliver the services and vaccinate people and be a part of the solution set while also doing the the more normal.
The programs in our service lines and surgeries that they did in the past so.
You know I'm I'm not declaring by any means it's over and there's lots of concerns about it.
New variants and other challenges they face but.
You know.
Resilience has been amazing.
They fought through all of this and in Unvaccinated state themselves and now I think there is some growing confidence that with our health care work force vaccinated.
The emergence of of the new vaccines are the rate of deployment increasing of the vaccine just that there's this new sense of of of opportunity.
Our surveys of the nurse workforce show, an incredible burn out and for T. M.
And that was a month ago, but I'm I'm sensing even in the last month of little bit of a shift in that where people can see some light at the end of the tunnel. So half of our operations certainly aren't normal again, but they are entertaining that the the operating futures different telemedicine to be more permanent part of the landscape for example.
And then maybe an area, where we need to focus in on some of our opportunities on the education training of those areas. So the every challenge for us its opportunities and I'm not declaring a return of normalcy. There are plenty of risks in front of us, but we do see operations kind of proceeding like Okay. This is what's hit us now.
Now we need to move forward and continue to modernize how we operate how we train and educate how we manage the time and schedules of our employees, how we credential and privilege and onboard our new physicians and so we see a bit of return to like we just are going to operate through all of this so I think and you heard a lot of.
Our carve outs in our guidance about this kind of gradual return to normalcy and that's how we built all of our models is for example travel expenses coming back in the second half of the year, because we think we'll be able to go visit our customers again.
As theyre, indicating now that theyre more back the operating and administering the vaccine is just one more vaccination they've done vaccinations for decades. So.
Now the returns on the operational mode instead of of planning mode and so.
The return to normalcy is what we're hoping for in the next 18 months.
Got it thanks, and then you know.
The last couple of years, you've done a lot of heavy lifting with with these platform upgrades.
And I'm curious as you've known the you indicated this in your prepared remarks as you've shown that these new applications. These new platforms are.
Our functional they work the they can help the customer does the sales cycle shortened because of that or is it hard to do to differentiate between the the newness of the application of the platform versus what we've been dealing with with Covid. So it's really hard to tell whether the sales cycle shortens because of <unk>.
Or the other of combination of the two.
Yeah, I don't I'm not going to project shortened sales cycles right now, there's just too much too much uncertainty.
I would say that it gets as our Paas architecture matures in the next two years.
It gets easier and easier to launch organic products and the.
The attempt to <unk>.
Servicing them out of them to our network more rapid more rapidly and so and as our application suites get more connected the H dream. It gives them more ability to iterate faster and drive new product concepts and so part of the smoothed. The path is hopefully of kind of a speed of your ecosystem.
And then if you think of the profile of the company, what's really been achieved throughout all of this is actually just Ah well optically the the growth, let's just say it looks at that the $250 million range is kind of the.
Within the range and kind of near what we achieved this year it looks kind of optically flat, but really what's happened is amazing it's a far more diversified.
Quarter $1 billion company.
Three legged stool instead of two.
What was once a major dependents on the single vendor is now of dependents on an emerging vendor partnership and the retention of the old relationships. So it's important to note that while we are losing this the nearly 60 manner. This year of $38 4 million of revenue from the the old age a layered all partnership.
We have maintained the strategic relationship with them that will generate revenue in the future from the new way of the new relationship the structured and so again diversified even within the portfolio. We now are are.
Able to provide success.
In the eyes of the Red cross of gaining market share in the eyes of a jay helping deliver their product of the market and so.
But not being part of the sales and marketing of the product so.
It's just a much more diversified business model in total across the 250 million of revenue and that's been achieved in the face of this challenge of Covid.
And the declining rapidly declining $60 million product, but there's less reliance on it and there's a there's a whole new segment in our business.
That allows us to all new business focus area. The allows us to to hedge against the future risk. So I think it's a fundamentally stronger more diversified company.
Got it and then one quick one here and then I'll hop back into the queue and I don't know if this is for you Bobby or Scotty of if you can answer this but now with three legs of the stool just from a modeling perspective should we anticipate the three different segments workforce solutions provider solutions and the the new piece or will you just.
Day with the too.
At least for the near future. Thank you Yeah, I think for the near future. It stays the same and you know my my my hope and ambition and kind of like Salesforce Dot com is that eventually the unifying factor of all of our businesses. The H stream Paas architecture, and essentially we have a future where we see one architecture.
And then application set that connect to it and so if anything the.
Directionally it would be my hope someday that were more of a single platform company and with lots of of diversified revenue streams that are connected to it instead of segments and so.
Directionally.
That's more of where we're headed than more segments. I think we're headed towards that eight stream platform and of unifying metric like the extreme subscriber base and.
And interconnectivity between the application sets down to the past architecture. So if anything our businesses are becoming our focus areas and applications that are becoming more symmetrical and not more segmented.
Okay. Thank you very much.
Yes.
Thank you and our next question comes from the line of Richard close with Canaccord Genuity. Your line is open. Please go ahead.
Great can you hear me okay.
Yes, okay.
Okay excellent had some communication issues. This morning, so that's good.
With respect of maybe.
Maybe for Scotty.
I think you mentioned this but did they did.
Did it necessarily.
Got it all but.
With respect to the deferred revenue write down and that's an add back on the adjusted EBITDA did you quantify.
The size of that that's expected here in 2021.
Yeah, Richard Hey, How're, you doing yeah, we did and it's actually in the earnings release too. There's a reconciliation table two of our.
Our guidance for that for that measure and it's between four three and for.
$5 3 million, that's the impact we are expecting for 2021 okay great.
Great I appreciate the and I apologize I don't have internet access for this morning sort of sort of scrambling.
Bobby with respect to the the three.
Three areas.
Work Force and then the providers solutions on the scheduling.
How do you think about the total addressable markets.
Your growth versus what the market is growing in those various segments.
Richard I see a lot of room for innovation in each of the three areas and Interconnectivity and so and then derivative opportunities that come from the fact that we're in those three lines and so of.
Core audience for example, that's common to a lot of those applications is the nursing workforce, we have a market leading position and nurses logging into our platforms and there's a lot of derivative opportunities that come from that so as we think more of an ecosystem with data mobility between the different application sets, we've talked about provider solutions.
The learning and development and have the workforce development and in the scheduling we just see a lot of the lot of opportunity that increases the net opportunity and the benefit the customers and these health systems with the.
Talk about some of the Interconnectivity and there's just dozens of examples of where we're headed but simple things like credentials earned in the workforce development network automatically populating into the Credentialing and privileging platform is a good example.
Our scheduling system, that's informed by the competency profile of the matched the skills and competencies of of the nurses to the patient acuity or just better matching algorithm someday in scheduling the art.
Potential and so we think that those kind of opportunities present financial opportunity as well as.
We integrate the data and leverage the the ecosystem itself and so within each of the three focus areas I think there's plenty of room to just kind of gain market share because our policy of innovative but the real power comes if we're successful connecting all of these to our growing set of paths architecture, H dream and achieve some of the long.
The term objectives of of more rapid iteration of application design.
The more leveraging of core technology infrastructure instead of replicating in each of the three legs of the stool.
For data mobility, and the example of the Prudential flowing from one system to another automatically giving competitive advantage to our platforms, our applications and benefit to our customers and so you know obviously I'm optimistic now these are niches of these are not.
Yes, ehr's size opportunities or but but I think their materials of the workflows of how all of these organizations operate and material to the core asset of their is their work force how to retain and develop them and so I think there's a lot of the satisfaction with the current status and many of these areas and so on the I think when you are.
Of the satisfaction of old archaic systems like the way time management is done or scheduling has done is just.
Is archaic and I think theres room to innovate and deliver value and value to kind of equate the financial opportunity. So.
Relative to our size, we see a lot of opportunity and plenty of the pursuit of the next few years to show the kind of growth we've talked about now in our guidance.
Okay, maybe as the follow up to that.
With respect to the <unk> the.
The go to market and sales.
Process.
I mean are you is the buyer.
Essentially the same person or is it different parts of the hospital administration that is dealing with each of these offerings.
I guess, how centralized is it or is it decentralized in terms of the purchasing it.
Oh, you know what.
And then the three legged stool there probably.
The product sets and application sets the target of seven different buyers.
And so it is the distributed across the budgets. There are a few key players that are more common across the six or seven areas. So some of the more niche areas of the compliance for example.
And hospitals handle compliance in different ways.
But the Chief Nursing officer say as the common decision maker and the scheduling business and all of the workforce development solutions sets like the the Jane platform of the Red Cross Resuscitation suite program.
So there are some common buyers and then there are some some focus areas. So we.
So we have a really strong revenue cycle of education program that targets. The VP of finance and we have a small sales team focused on reaching the financial operations of the hospitals, we have a much larger sales.
Sales operation and focus on building relationships with chief nursing officers and to take the appropriate products and then provider solutions sold into the medical office, maybe the Chief Medical Officer and other decision makers like them are targets for those solutions. So.
In some ways I like that we're tapping into the six or seven areas of the budget by six or seven different business leaders.
And then there are a few common buyers like the chief Nursing officer that are that are a little bit more important than others and successful adoption of our product sets of I do think for example, the CFO of interesting plays the role and scheduling because of the cost of contingent labor. So important the successful financial management of hospital, but also to the Chief Nursing Officer.
Because you weren't satisfied nurses and how you manage their schedule and their work life balance.
And so those two together we believe of the key buyers for example in the scheduling business the Chief financial Officer as kind of a relatively new for us we've been selling of the VP of finance our revenue cycle, but the.
And scheduling you have to get to the the Chief Financial Officer, the Chief Nursing Officer.
So I don't know if you view that as positive negative I view it as a attacking their budget opportunities in many places with specialized sales organizations is a is the competitive advantage.
Okay.
That's helpful and then.
On the provider solutions.
Obviously, you have had by and in terms of.
New and new customers as well as existing transitioning to bear the stream.
But as you sit back here like I guess, maybe three or four years from the acquisitions that you've made to get into the credentialing side of things the Sun.
Then the integration and rollout of the new product and the.
Is the growth opportunity there.
Hum.
Has that has that has developed has the growth opportunity essentially disappointed you from the standpoint of did you think there was more opportunity in there or just any thoughts in terms of just looking back and seeing how that market either has met expectations.
<unk> exceeded or not.
Net expectation.
Yeah, I think of the transition.
It's difficult to build of a replacement platform requires a lot of investment and kind of fortitude by the team the C. It through and get it ready, but you know in the last 12 months, we're starting to see the benefits of of that hard work as we start to win of a better share.
Of the Rfps and I kind of gain in market acceptance of adoption of that platform. So I think the returns are still in front of us so what I'd like the gotten there sooner, yes was it harder than anyone wants it to be yes, it's hard to acquire three or four companies assemble one brand and build replacement product keep your customers and migrate them to the new platform and so it has taken a little longer.
Get to and it's great.
Efforts from our teams to get US there, but I do feel like the opportunity is still in front of us on that whole set of applications of the suite itself has grown to be much more comprehensive than just a credentialing for example, as it moved into <unk>.
Privileging and Onboarding and now performance management.
Dimensions around physician performance management, so low.
Lot of the data that's coming those platforms of the suite has expanded to be one of the most comprehensive and managing kind of of the Onboarding performance management of positions over time and not just the credentialing and privileging. So we're really excited about about the expansion view of that application set it is relative niche, though compared to like the scale of the HR.
Like I don't think Credentialing and privileging is of that kind of a multibillion dollar revenue opportunity, but again relative to our current scale, it's plenty of growth opportunity to deliver sort.
Actually larger company and in this case of area of application set we think there's plenty of room to keep showing a really solid growth.
Okay do I have time to ask one more of our sure.
So the.
Given the.
The response of their own provider solutions in and obviously there you did have a big uplift there in terms of rolling out of.
SaaS.
Five of SaaS product as.
As we think about the scheduling and theres been three or four now acquisitions on that front.
As you think about the integration the existing products that you acquired.
And then thinking about you know over the next year or so in the investments.
How big of an uplift is that I mean are you sunsetting of those products over time.
This year.
You're integrating them and this is going to be a new SaaS.
SaaS platform songs and similar to Verity strain.
Should we think about that yeah, I think similar but with lessons learned of of the Verity strength journey and then the other cool thing is that.
We'd already seen in the market some demands when we bought nurse grid there were demands the integrated with an sauce from some of our field kind of.
Before we owned and sauce and so some of the work through a partnership had already begun on integration of seeing the leverage points of opportunity. So it's kind of cool that theres a bit of a jumpstart based on market forces of making those platforms leverage each other.
The first 24 months I mean, obviously you heard me say, we're gonna out of 30 or so of personnel to two of those acquired companies to really round out sales marketing product development.
And so you'll see a stronger push earlier into energizing the sales organization and as I mentioned, just now some of the work of a vision for integrating the technologies. For example, I think we'll integrate nurse grid benefits and technologies and the and saw some in the ship Wizard first and I would say with them this year.
We would see benefits of those systems talking to each other where the nurse great application brings a strategic and competitive benefit to both ship lizard and source of beyond that we're assembling the leadership team. We have of 35 page playbook on how we did it with Verity stream.
To build the brand and platform the technical decisions on its path.
But in all cases, we'll be wiring these applications to the atrium platform in the coming 24 months and that's in our forecast will be connecting them to each other nurse grid and source of nursery of the ship lizard.
And we've already begun the segment, which of the applications are more appropriate for which scale and size of upward of opportunity the branding of it and how it works.
It will take us a little longer to figure out, but we're putting these necessary investments him and we have a again of 35 page playbook confluence of of the Verdi stream team on how to pursue this in.
And we're really excited about it so I think.
I think we've got the right three assets together and the right team is forming around this opportunity and like any of that gets its own transition.
That will result in new applications and software and branding probably of emerging in the next 24 months.
Okay. Thank you very much.
But I think Richard your comment of thinking of it like Birdie stream is a good analog it's the way we thought about when we acquired the assets the.
We were going to invest not look for synergies right now we're going to look for.
Strategic advantage for the applications and then invest in strength in what were relatively small sales organization and the stronger one and getting the technical benefits of connecting the H stream, which is the maturing past architecture. So I think it's right to think of it but hopefully the journey can be a little less painful and a little faster than the Verity stream journey.
Because we are better at it and we've learned how to do it.
Thank you for.
Thanks, Thank you and our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead.
Yes Scotty.
The question for Scott what is the revenue contribution you're expecting for from acquisitions in 2021.
Hey, that's how you doing Oh, we didn't guide specifically to those acquisitions in the latest release and conference call, but if you look back at.
Last quarter, we talked briefly about.
Shipped wizard contributing historically around $4 million. So they were a growing company.
You know, we're going to obviously fell a little bit of the brunt of deferred revenue write downs from the acquisitions that shift Wizard.
Our trailing 12 months of about $4 million when we acquired it and then in the <unk> announcement that we did back in December or late November what kind of gave some forward looking expectations.
All of that transaction as well.
It was in the.
$16 million to $19 million, that's net of deferred revenue write down so.
It's somewhere in the mid twenties, when you add back for the for.
The revenue write downs.
And then the other acquisitions are much smaller in scale there'll be some contribution there.
Quantifying the speaking to it separately.
Okay. Thanks for that and then.
Bobby.
Not to beat the dead horse of the Verde. So to speak of did you mentioned of a portion of the already clients migrated to the new platform.
No we havent the day, we had.
Lots of customers to go but we're seeing steady conversion that you mentioned the 39 this quarter. So we're seeing conversions and new market share gains on the platform, but nowhere, we're probably not going to reported because of the margin profile is similar and it's going to take a long time to migrate everyone of them right now to have plans to force in the migrations.
So we're just kind of treated as one software unit, but all of the new sales of new customers and transitioning customers are seeing increasing benefits of moving the new platform. So.
I think the concept of this is the transition.
The we've kind of re characterize it as the transition of customers from old to new platform will take time, but the financial implications of that are not huge because they're both for good relatively high margin software application sets.
And then one last one for me the the.
Health care business, one of the historical growth rate looks like in that business.
Well I don't know, what we filed on the historical business, but the.
It's.
And so I don't know, what we filed them that so that'll show up in the accused in the case I imagine historical financials, but the.
They are.
Our solid more of a margin profile in large customer acquired business for us and the innovation of growth was kind of come from the shift was your platform. So.
I don't have that number for events or.
Basically I haven't.
Does the any historical sort of that one yet.
Okay, you should see something in our financials as we file our 10-K here pretty soon.
That's it from me thank you.
Thank you guys.
Yeah.
Thank you and I'm showing no further questions at this time I would like to turn the conference back over to profit fresh for any further remarks.
Thank you look forward of reporting the next quarter earnings call here shortly they come up breath of the rather quick as we do year end and then moving to first quarter. Thank you guys and we look forward for the next call.
Ladies and gentlemen. This concludes today's program you may all disconnect everyone have a great day.
Thank you.
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