Q4 2021 HealthStream Inc Earnings Call
[music].
Good morning, and welcome to help streams fourth quarter 2021 earnings conference call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen only mode. At the request of the company. We will open the conference up for question and answers after the presentation.
I will now turn the conference over to Mollie Condra, Vice President Investor Relations and Communications. Please go ahead Ms Condra.
Thank you and good morning, Thank you for joining us today to discuss our fourth quarter and full year 2021 results.
Also as a conference call with me are Robert a Frist, Jr. CEO and Chairman of Hill Street, and Scotty Roberts, CFO and senior Vice President.
Also like to remind you that this conference call may contain forward looking statements regarding future events and future performance upheld stream that could involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward looking statements information concerning these risk 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 a non-GAAP financial measure.
A table, providing supplemental information on adjusted EBITDA and reconciling to net income attributable to help St is included in the earnings release that we issued yesterday and they referred to in this call.
And we have an exciting event at the end of the fourth quarter that we highlighted as our first bullet in the earnings release.
The bullet stated our CEO contributed $2 $4 billion. That's just personally owned health stream stock to the company in order to facilitate the grant of shares of common stock to over 1000 employees under our 2016 omnibus incentive plan, which resulted in a corresponding $2 4 million dollar charge.
For stock based compensation and related expense in the fourth quarter.
Given that event I'd like to extend a special welcome in this conference call to our employees many of whom are new shareholders. The company and they might be listening to one of our quarterly conference calls for the first time.
It's exciting to see so many of our employees realize the opportunity to become an owner of the company that they've helped to build.
So with that start I'll now turn the call over to Bobby Frist.
Thank you Mollie good morning, everyone welcome to our fourth quarter and full year 2021 earnings call. We got a lot to cover sort of jump right in two.
2021 was a year of record setting revenue and record adjusted EBITDA for our company.
Our employees achieved these records despite the challenges of the pandemic through it all we stayed focus on being the platform, we're partners and customers turn to empower the healthcare workforce.
Throughout the pandemic that focus has continued to pay off for our company our customers and our partners.
As we get into more detail about last year's results and this year's guidance you will see why I am more confident than ever that it will continue to pay off.
Let's look at a quick recap of financial and operating results before our CFO Scottie Roberts takes us deeper into the numbers. We ended 2021 with revenues up 5% and adjusted EBITDA up 15%.
We ended the year with over $5 million each stream subscriptions contracted we also completed two acquisitions were awarded two patents and our innovative products were recognized with four prestigious awards.
In this call we will elaborate further on how these and other developments lay the groundwork for what we believe will generate shareholder value.
Before we do that we need to take note of the context in which we're operating by most accounts the pandemic in the United States appears to be in retreat.
Even with the last omicron Spike COVID-19, hospitalizations have decreased 18% nationwide over the last two weeks on Thursday of White House officials said the U S is getting closer to a time when COVID-19 is no longer a crisis.
We are hopeful that that time arrives soon as those most greatly impacted tend to be the frontline workers and health care organizations that we serve.
The long run impact is still being determined, particularly among the healthcare workforce.
Onboarding, retaining and engaging the health care workforce has never been more important to the health care organizations are job at health team is to help them achieve these goals and I believe we are well positioned to do just that through.
Through both our established products and through new innovative products like Jane that we've introduced recently.
Like many companies we have adopted a hybrid workplace approach, where most employees primarily work remotely our employees have proven to be effective and they have embraced this new more flexible work model.
Hello stream like most companies.
Has experienced high turnover, but we've also experienced enormous hiring levels at the same time the net effect for the full year 2021 is there a head count has increased just not as much as we would like.
Fortunately, we are attracting and hiring fantastic talent, which speaks highly to the strong corporate culture. Our employees have built it is also encouraging that our net new higher number was up considerably in the fourth quarter versus any one of the first three quarters of 2021 and.
And finally building on our record setting performance in 2021, we are pleased that our financial guidance for full year 2022 reflects continued invest much and solid financial growth.
At this time, Scotty Roberts will provide a more detailed discussion of the financial metrics for the fourth quarter and the full year of 2021, along with further comments about how we view our financial outlook for 2022, I'll turn it over to Scotty.
Thanks, Bobby I'll jump right in and start with an overview of our financial results and then go over guidance expectations for 2022.
First as mentioned earlier.
The third time over the past seven years, our CEO gift Theyre, just personal stock to the company.
Which was used to facilitate a stock grant over 1000 employees.
This grant excluded executives and vice president of the company.
Actual impact of the stock Grant was <unk> 5 million of noncash compensation and $185000 of employer taxes and administrative costs.
Despite being fully funded personally by our CEO GAAP requires this transaction to be accounted for as a compensation expense of the company, which negatively impacted our financial results for the quarter by reducing operating income by $2 4 million net income by $1 9 million.
Yes about $6 per share.
And adjusted EBITDA by 185000.
Please let me take a quick aside to put this into context, when I talk about bobby's generous contribution negatively impacting our financial results I wanted to be clear that I'm only talking about the accounting treatment.
Bobby dominated his own personal shares in an amount that offset the shares and related expenses that I've characterized as having a negative impact.
To be sure we believe Bobby's contribution had a positive impact to shareholders and to employees.
Shareholders benefit from having a CEO personally contribute his own stock in order to compensate engage and incentivize employees.
Who are now owners and tied to the outcome of their company.
Employees, obviously benefit by becoming shareholders themselves will now enjoy the value of what they work so hard to create.
Okay now back to our financial results.
For the fourth quarter revenues were $64 3 million, which is up 4% over last year.
And of course, a $4 million reduction associated with deferred revenue write down.
We experienced an operating loss of $2 5 million, a net loss of $4 million.
And our net loss per share of <unk>.
These financial results were impacted by the stock grant accounting treatment that I just mentioned.
Adjusted EBITDA improved to $12 million, which is up 12%.
Workforce solutions revenues were $50 9 million and were up two 4% and revenues from provider solutions were $13 $5 million and were up 10, 8%.
The combination of organic growth and revenues from acquisitions more than offset a $6 $6 million decline from the legacy resuscitation products.
Excluding the legacy resuscitation revenues.
Consolidated revenue growth was 16, 6%, which was comprised of six 2% organic and 10, 4% from acquisitions.
Gross margin was 64, 3% compared to 63, 2% last year.
The impact of the employee stock grant accounting treatment reduced gross margin by approximately $1 9 million.
140 basis points.
Adjusting for the impact of the stock Grant accounting treatment gross margin would have been 65, 7%.
Operating expenses, excluding cost of revenues were up 10% or $3 9 million over last year.
Approximately $1 5 million of this increase is from the employee stock grant accounting treatment and.
Another $1 $2 million from increased depreciation and amortization.
And the remainder is from other expenses, including those associated with acquisition.
Additionally, we experienced higher bad debt charges in the quarter of approximately 600000 less.
Most of which were related to a customer bankruptcy.
Adjusted EBITDA was $12 million, increasing by 12% over last year.
And adjusted EBITDA margin was 18, 7% compared to 17, 4% last year.
We ended the year with cash and investment balances of $51 9 million, which is down by $8 7 million since last quarter.
During the fourth quarter, we deployed $4 million of cash to fund the <unk> acquisition and.
We used $5 1 million for share repurchases.
DSO for the quarter was strong improving to 41 days compared to 50 days last year.
For the full year, our cash flows from operations improved by 18% to $42 4 million compared to $35 9 million last year.
Free cash flows were down slightly coming in at $17 million compared to $17 4 million last year and this reduction was impacted by higher capital expenditure payments during the year of $6 5 million.
Our capital expenditures incurred.
We're primarily which primarily consist of capitalized software development were $6 6 million for the quarter and $23 4 million for the full year.
On November 30, we announced the authorization of a share repurchase program.
Up to $20 million of our outstanding common stock and as of December 31, We had acquired shares valued at $5 1 million under the program.
The repurchase program will terminate on the earlier November 29, 2020 to Orland.
Or when the maximum dollar amount under the program has been extended.
We may suspend or discontinue making purchases under the program at anytime.
We plan to closely monitor factors, such as market conditions, our liquidity working capital and cash flow projections when.
When making decisions regarding the program.
On December one we completed the acquisition of <unk> technologies for $4 million in cash. This acquisition did not have a material effect on the quarter's financial results.
Now reflecting on the full year. Please.
We achieved several meaningful milestones, including record revenues of $256 7 million and record adjusted EBITDA of $52 7 million.
We also completed two acquisitions comply line in January and <unk> in December .
We ended the year with over 5 million contracted subscription subscriptions to eight stream.
On behalf of myself and fellow leaders of the company I want to say, thank you to all of our employees who made this such a successful year.
Now moving on to guidance expectations for 2022.
Consolidated revenues are forecasted to range between 267, five and $273 million.
Workforce solutions revenues are forecasted to range between $214 five and $218 million.
Provider solutions revenues are forecasted to range between 53 and $55 million.
Adjusted EBITDA is forecasted to range between 50% and $53 5 million.
And we expect capital expenditures to range between 26 and $29 million.
Okay.
While we expect another solid year in 2022, the pandemic is not over and our business may continue to experience. The same obstacles. We've worked through the past two years.
During the second half of 2021, and the pandemic continued to present challenges for our customers.
The Delta and omicron variance, coupled with labor shortages that take staff.
And rising costs of temporary labor.
Factors resulted in delayed purchasing decisions by customers and had a direct effect on our sales bookings, which fell short of our expectations.
The shortfall in bookings as reflected in our guidance and projected growth rates.
Okay.
We expect the labor market will continue to be competitive again. This year in 2021, we had higher than normal employee turnover rates.
While also hiring more employees than on our history.
Our total head count increased by 3% during 2021 and most of this growth happened in the fourth quarter.
Managing our employee retention rate swap filling open positions are important to the execution of our objectives for this year.
Our forecast the same staffing levels to increase between five and 7% to support investments in sales marketing and product development.
We also assume that certain expenses, such as travel and trade shows will gradually be reintroduced into our cost structure.
Both of these were curtailed over the past two years, and then 2019, the approximated $5 5 million while.
While we don't anticipate spending at this level in 2022. These costs are expected to be significantly higher than they were in 2021.
Another area, we are increasing investment.
Cloud hosting here.
Our technology infrastructure has been steadily migrating to the cloud, which increases our operating expenses is expected to reduce our capital needs for servers and co location services over time.
Our planned investments back into the business are central to our strategy of becoming a single platform company, that's capable of integrating proprietary and third party applications in a way that increases their value to and adoption by the health care market.
Our gross margin profile improved in 2021, and approximated 64, 5%.
We expect to maintain gross margin in the mid 60% range for 2022.
Okay.
We have a long history of using M&A to drive growth and expand our product portfolio.
In 2020, we acquired three companies that currently comprise our scheduling and capacity management application suite.
The book ended last year with an acquisition to start the year in January and wanted to end the year in December .
Regardless of the size of acquisition.
The sourcing and completing acquisitions is a core competency of our company and.
And our M&A program has an established playbook for doing just that.
We plan to continue to pursue growth opportunities through M&A.
Just as we always have we will continue to be disciplined in order to find the right strategic fit at an appropriate valuation that we believe will create returns.
While we maintain an active M&A opportunity pipeline our guidance does not include the impact of any acquisitions that we may complete during 2022.
And finally, our capital deployment for 2022 will be focused on supporting future growth initiatives and improving shareholder value. Our capital expenditures are expected to increase over last year and an incremental investments will be focused on the continued development of our <unk> platform and ecosystem as well as a number of core applications.
In addition to $15 million remains available under our share repurchase program we.
We anticipate funding these capital needs through our existing cash balances.
Cash flows from operations and if necessary a revolving credit facility.
Thanks for your time this morning, Bobby I'll turn the call back over to you.
Thank you Scotty you've got several business update I'd like to provide an.
And we'll look at that.
And just a second but first want to remind you how we are talking about our business today because it is changing.
We've come a long way since pioneering internet based training, so governance risk and compliance needs in health care, we obviously still do that but how we do it along with many other things we do know continues to evolve as.
As you know we've been developing the platform strategy is the foundation for our entire enterprise, we call. The technology platform eight stream and increasingly it will be it will enable the applications and the platform strategy.
We have three primary application suites, they are learning and development, Credentialing, and privileging and scheduling and capacity management.
Walk through some updates on eight scream at each of these three application suites.
First eight stream, we added about 118008 stream subscriptions in the fourth quarter, bringing our total to $5 4 million subscriptions. This represents an increase of 21% over the same period last year.
The growth in subscriptions is encouraging and another thing I want to highlight is the growing opportunity of the H dream ecosystem on our last call I described some of the innovative new technologies that are eight stream platform, including how the H <unk> enables management of a person's license data across multiple applications.
I want to talk about another critical element of our eight stream platform strategy the ecosystem itself.
In general I think of an ecosystem as a community of participants to interact with one another and their environment in order to prosper and grow in terms of the atrium ecosystem participants are our partners and our customers and our environment is the health care workforce space, how we interact together to ensure growth as our platform strategy at work.
Admittedly, that's a little abstract so let's take a stream certified partners at specific ecosystem example.
What we've found is that some partners prefer to sell their products directly to customers, but their ability to do so successfully.
Is dependent on the integration with our technology platform.
So we developed a certification program allows partners, who meet defined standards to achieve eight stream certification.
A customer sees that a product is eight streams certified they know that product can be delivered through our <unk> platform.
<unk> screamed certification helps drive sales of the partner's product provides greater choice of solutions to our customers and our results in a revenue share to us and added utilization of our platform.
This example, you can start to see how the self reinforcing interplay between ecosystem participants benefits everyone involved it makes the ecosystem stronger.
Now I'd like to provide some updates with regards to our three application suites, let's.
Let's start with learning and development are most well respected application suite.
In fact, the company's origins trace back to improving learning and development through technology, which is what these applications focus on today.
The past two years have been characterized by a great deal of innovation across this area, including the release of our patented AD driven clinical competency application known as Jane the establishment of a new industry standard in resuscitation certification with the American Red Cross resuscitation suite and the combination of our comply <unk> and safety solutions.
What we believe is the most dynamic compliant and safety solution in the market today.
We continue to see momentum with Jane solution, which officially launched in 2019 as a reminder, Jane represents a patented intelligence that accelerates and personalizes the competency development of nurses.
We shared in the second quarter of 2021 that we saw an average of one sale each week throughout 2020.
Our total 52, new accounts one throughout 2021 that increased over one five sales each week with our first large system customer purchasing in early 2021.
Throughout the course of the pandemic, we have seen customer use of Jane accelerate one customer said Jane allowed us to quickly evaluate and prepare nurses for transition into new care areas in response to Covid.
Given the amount of cross training and Upskilling, our customers have had undertake across their nursing population are Jane solution has really made that much easier with the ability to personalize development.
How's our customers to more quickly and easily identify competency gaps and to develop directly to those gaps.
Creasing the amount of time nurses spend away from the bedside.
To round out learning and development updates for the quarter I'd like to focus on one of our resuscitation offerings since the launch of the American Red Cross suite in the first quarter of 2019, we have sold to health care facilities of all types and sizes from across the continuum of care across all 50 states, including some of the industry's largest acute care health care systems and.
<unk>.
As of December 31, 2021, approximately 400000 certifications from the American Red Cross have been earned through the <unk> network.
In addition, we have deployed over 7600, <unk> sodium <unk> into the market and less than three years. These.
These are <unk> that customers use to demonstrate the skills component of the resuscitation training.
We believe it is remarkable that solutions that did not exist in the market just three years ago have gain such widespread adoption.
Also pleased that our customers continue to rate the implementation process for the American Red Cross resuscitation suite very highly providing an average score of $4 seven out of five during the fourth quarter.
We look forward to continuing to delight, our customers by bringing even wider array resuscitation offerings to the market this year.
Three years ago, we announced the launch of credential strained.
Our new SaaS based application for managing the full spectrum of Credentialing privileging and enrollment needs in health care organizations.
For the full year of 2021 167 customer accounts contracted for credential stream, averaging about three two new contracts per week.
These accounts represent a mix of new customers and existing customers, who chose to migrate from our legacy Credentialing and privileging platforms to the new credential stream application suite.
The customers we contracted in the fourth quarter include large health systems like banner health.
Southeast Health and Paramount health options were.
We're excited to be gaining adoption of this best in class solution. Our team built after taking the time to understand and improve on the best parts of the legacy solutions, we acquired through M&A.
While we are still early in the journey on our scheduling and capacity management solution. We are pleased with the progress on several fronts. We currently have about 400 customers across scheduling and capacity management application suite.
Flex good retention of the customers we acquired and includes the addition of 30 new customers during the course of 2021.
Filling open sales positions was a challenge during 2021. So we're encouraged to see that this sales team began 2022 with almost all of the open positions filled effectively doubling the sales organization as we had planned.
Our product strategy and roadmap for scheduling and capacity management continues to take shape. For example, nurse grid mobile continues to be the number one rated app for nurses with a four nine star rating and more than 70000 reviews. That's up from 40000 reviews, the time of acquisition.
That's all occurring in Apple App store today over one in 10 nurses are active users on the nurse grid mobile app.
With 365000 monthly active users.
Up 105000 since the acquisition in March of 2020.
46% of those nurses logging every day to manage and share their schedules create social connections with their colleagues and peers swap shifts and volunteer to fill open shifts and.
In 2021 nurse grid mobile facilitated over 32000 ship swaps and we used to fill 27 opened shifts demonstrating its potential for addressing the nurse staffing shortage crisis impacting health care organizations.
As you can tell we believe nurse grid can provide improved to be a real differentiator in the market for our scheduling and capacity management application suite.
Now a few business updates as we wrap up and then head into questions and in January of this year, We announced the addition of <unk> to our board of directors, where she had serving as a member of our audit Committee.
She had served on six public companies and as audit Committee member and as a financial expert of all six boards. While also serving as the CFO of Quorum health grew from $19 99 to 2001.
Additionally, she bring cyber security governance expertise to the board as she holds a CRT cyber security certificate and cyber security oversight from the National Association of corporate Directors and Carnegie Mellon University. We're pleased that she has joined our board and expect that she will add a valuable perspective to our discussions that she advises our company.
Slower are there different types of issues like do you want to take on new products. When there's so much stress in your workforce, we did see a little of that in the fourth quarter, where we effectively felt really confident we're going to win the business in fact, the chief medical officers would say.
This is something that we'd like to do is just not now the time to implement something that changes the work environment at all and so it did cost us some business, we're kind of in that case incumbency was favorite just because it changed management.
I think the impact will be lingering, we think we factored that into our forecast the 4% to 6% revenue growth.
So we think that we handle what we how we think our sales will recover through the year and as you know this year's results are particularly heavily dependent on last year's selling results, where we did see that negative impact in the first say quarter or two of this year or what will determine the end year impact on our forecast so.
So we will have a lingering effect, which again is already factored into the growth oriented guidance that we were able to give but would have been nicer. If the growth rate was a little higher but we think we've accommodated the challenges we'll face in selling.
That's really helpful. Thank you.
And then I guess, maybe a follow up to that for the customers that did defer decisions.
With incumbents whatnot.
Is that something where you could they could come back here in Q1 or Q2 or are you typically waiting till the next renewal, which could be a year to three years out maybe just walk us through that process.
Well a lot of things there.
The guidance on a forward basis, and then the ongoing impact of slightly lower sales, although our staffing levels are returning that was one negative contributor last year.
And now our staffing levels are returning which is good that's particularly in the sales organization. So.
But we think we factored both carefully into the guidance, we just gave.
I think you already signed off on that so we just open it up for other questions.
Thank you. Our next question comes from the line of Vincent Colo keel from Barrington Research. Your line is now open.
Yes, Bobby you mentioned that you had.
Have a good hiring quarter in Q4 versus the prior three.
Does that did you increase wage inflation.
<unk> increases to do that versus the last quarter.
So far.
Not so much although I think as we move into this year, we're trying to plan thoughtfully about how it will increase.
What we've been able to do is find eager and excited people to backfill or a lot of internal promotions. So manager a six person department less we've been able to find an internal candidate where it would be a promotion on our pay rates for them to move up. So I think what's happened is some upward mobility within our organization, resulting in higher pay for those individuals' while some.
The individuals that left the company, maybe find higher responsibility and higher pay by leaving and so but the net impact so far on us has been fairly conservative.
I think we're trying to factor into our budget.
And this year a little bit more.
Pay increases in certain areas, where that'll be necessary to get what we need done, but so far we've been able to hire people or promote from within.
Two fulfillment and the result has been fantastic like 167 promotions inside of our company and people taking on more sponsor ability for more pay.
But taking the position of their say prior boss too.
<unk> made more than them. So they again, they got higher pay but it was kind of a budget neutral for us.
And can you can you give us some color on the resuscitation suite you plan to add in 'twenty two.
We've got a robust roadmap there over time, we've added products like the stable product, which you may have heard us talk about in the past.
We have a robust pipeline of innovations with the Red Cross as scheduled and then a.
<unk> high velocity, but they're very small and much simpler to implement that may handle the process for us.
A group of physicians or or a small clinic or a smaller organization. So.
The velocity number of transactions may be reflective of a mixture of the very small quick to implement in faster faster revenue and the overall growth rate, though it might be impacted by this length of time. It takes two to roll out some of the larger enterprise wins.
Okay. That's helpful and then just going back over that.
2021 bookings and I appreciate that.
Our maturing debt.
It was below that.
Factored in.
Into guidance given you good visibility there can you just remind us maybe the progression.
Bookings throughout 2021 in terms of.
Versus your initial expectations like how the first quarter second quarter third quarter sort of compared to the fourth quarter.
Yes, I mean, just in general.
Second and fourth quarters are generally expected to be higher than the first and third quarter. So if you think of a progression throughout the year I'd say the second quarter is generally a higher period of closing contracts in the fourth quarter.
Generally of those two the second the fourth the fourth quarter is the largest and obviously early fourth quarter deals that can get implemented by January February or March next year have an impact on our revenue in the next year. So.
I would say our biggest relative missed because of the way we budget is.
Aligned with those patterns on a on a relative and maybe even absolute basis, the largest miss was the fourth quarter.
But that said it was a it was a good quarter it just again relative to expectations.
The biggest it was still I believe the biggest.
But it just.
Wanted more.
So.
As you play that out by January .
Clothes that all the contracts, we know there how to project the revenue from them very precisely and we can layer that into our multi year forecast and then come up with our essentially our budget and our guidance and so.
I would say that.
Our biggest expectations.
And generally in the fourth quarter.
Okay.
And my final question is kind.
I know Scott you talked about the title.
Appreciate it from acquisitions I think it was <unk> 10.
10% or so in the fourth quarter.
Yeah.
Can you.
Talk to us maybe at a higher level in terms of the 2020 acquisitions in the two January and December of last year.
In terms of just remind us like how you how you view the growth longer term growth profile or growth opportunities with those acquisitions from a cross sell or up sell perspective sure sure. It takes time, but let's let's outlined it a little bit.
If you think about.