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spk02: Ladies and gentlemen, thank you for standing by, and welcome to Healthstream's third quarter 2020 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. It is now my pleasure to introduce Vice President, Investor Relations and Communications, Molly Condra.
spk00: Thank you, and good morning. Thank you for joining us today to discuss our third quarter 2020 results. Also in the conference call with me today are Robert A. First, Jr., CEO and Chairman of Healthstream, and Scotty Roberts, CFO and Senior Vice President. I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause 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. So with that start, I'll turn it over to Bobbi Frist.
spk04: Thank you, Molly. Good morning, everyone, and welcome to our third quarter 2020 earnings call. I'd like to start this morning by commenting on some exciting news. On October 12th, we announced our acquisition of ShiftWizard. It's a Raleigh, North Carolina-based healthcare technology company. It's a really exciting company. It provides award-winning, SAS-based, enterprise-class solution for scheduling and workforce management to healthcare providers and healthcare organizations. Really excited to welcome ShiftWizard's customers and employees to HealthStream, effective October 12th. Really exciting day of adding this new capability to HealthStream. The addition of ShiftWizard expands our growing portfolio of solutions for nurse and staff scheduling, which began earlier this year with the acquisition of NurseGrid. We believe the complementary positioning of ShiftWizard and NurseGrid will enable integrations that yield even smarter schedule management and enhanced nurse engagement. Together, ShiftWizard and NurseGood create a solid footprint in an emerging area for the company, the area of enterprise nurse and staff scheduling. I look forward to sharing our progress on that front in the coming months, and in a moment, Scotty Roberts will provide more details about the acquisition. Let's back up a little bit and shift to the broader healthcare landscape and healthcare news. Just kind of contextual for all of these results are, of course, an update on the COVID-19 And, you know, we're in a tough time right now. The number of confirmed COVID-19 cases in the United States more than doubled since our last earnings call. There are now over 8.6 million cases and over 226,000 deaths, which include over 1,700 healthcare workers. At HealthStream, we continue in our mission to support the U.S. healthcare workforce, the heroes who are literally putting their lives at risk to provide care to others. One way we lived this mission during the third quarter was to host our first-ever National Nurse Well-Being Week. This amazing virtual event was held September 28th through October 2nd and included a week of engaging activities, speakers, and sessions with practical advice from peers and experts about enhancing nurses' well-being. After learning through a survey conducted through our NurseGrid app that 85% of the 12,000 nurses who responded to the survey indicated they were struggling with burnout, we knew that it was time to hold an event and begin releasing content to help improve their well-being. Over 1,400 nurses signed up and participated in Nurse Wellbeing Week, and we want to thank each and every one of them for making it a success. Unfortunately, many of the ways we characterize the pandemic in our last two calls continue to apply. The impact of COVID-19 continues to be widespread, rapidly evolving, and generally characterized by uncertainty. Directly relevant to our business is the adverse impact the pandemic is having and will likely continue to have on the healthcare industry. Our business is focused on providing workforce and provider solutions to healthcare organizations along the continuum of care, such that an adverse impact on healthcare organizations is likely to result in an adverse impact on our company. While we do not believe that COVID-19 had a significant negative impact on our revenue during the first six months of 2020, we began to see the impact in the third quarter and expect continued impact over the remainder of this year and potentially next year due to lower expected sales volumes as customers delay or defer buying decisions. As you know, in multi-year subscription models such as ours, decreased sales volumes in the current period generally lead to negative revenue impact in future periods, and that is what we are beginning to see. Importantly, while sales have slowed in some instances, they have certainly not stopped. Customers are showing receptivity to a shift from on-site visits to from our sales organizations to virtual meetings and product demonstrations, and there continues to be interest in our product offerings. We, like our customers, continue to innovate and adapt as we meet the challenges of the pandemic head-on. I do not want to understate the challenges facing healthcare providers, as those challenges are all too real. Nearly three-fourths of hospital executives report moderate or extreme concern about the financial viability of their organizations without an effective treatment or vaccine for COVID-19. according to a national survey published last week by Kauffman Hall. The same survey reported that one-third of healthcare executives saw operating margin declines in the second quarter of 2020 compared to the same period of 2019. At the same time, I do not want to understate our resolve or the resolve of our customers to emerge from this pandemic. Our customers will continue to do what they do best, provide quality of care, and we will continue to support them. In some critical ways, the pandemic has served to reinforce our continued direction and strategies, of building a PaaS ecosystem, as evidenced by record volume utilization of our platform in the quarter. Even as the pandemic and its consequences necessarily slow the rate at which we might proceed otherwise, we are making steady progress. I therefore want to provide updates with regard to the three business transitions that we introduced and discussed in previous calls. All three transitions are designed to move us towards being a higher margin, more profitable company in the coming months and years. First, We've transitioned our sales and marketing efforts from the legacy resuscitation products to our new resuscitation offering. As a reminder, the new Red Cross Resuscitation Suite program is comprised of BLS, ALS, and PALS competency development curricula, and we launched it in January of 2019. It brings an updated, highly adaptive, competency-based development solution to healthcare professionals. It offers certification to healthcare professionals and successfully demonstrating proficiency of life-saving resuscitation knowledge and skills. While our customers' focus has necessarily shifted in the last several months to responding to developments related to COVID-19 and treating COVID-19 patients, we have continued to see new sales. In the third quarter, we added 57 new contracts for the Red Cross Resuscitation Suite Program, which included many hospitals and health systems like Piedmont Health, Beaumont Health, Lakeland Region Health. In fact, we had organizations throughout the continuum of care contract for these solutions, including American Addiction Centers and outpatient imaging affiliates, among many others. So this transition, we feel, is going well, and our teams are focused on making it successful. Fifty-seven new accounts is definitely something to celebrate in one quarter. The second transition involves the adoption and migration of our new VerityStream platform. In the first quarter of 2018, we announced the launch of VerityStream, our new platform for managing credentialing and privileging in healthcare organizations. During the third quarter of 2020, 48 customer accounts were contracted for the VerityStream platform, bringing our cumulative total to over 300. These customers represent a mix of new customers and existing customers who chose to migrate from our legacy credentialing and privileging platforms to the new VerityStream platform. Some of the customers we contracted in the third quarter include Ohio State University Health Systems, University of Minnesota Physicians, and the Wyckoff Heights Medical Center. Importantly, all new customers, including the distinguished ones I just mentioned, came into our new enterprise platform solution, the VerityStream platform. So we're beginning to have growing confidence, of course, in the new platform. We're really excited about its progress in the marketplace. The third transition involves our customers upgrading to the HStream platform. which is the essential technology working behind the scenes that powers all activity in the healthcare ecosystem. In the third quarter, we added approximately 340,000 net new HSTREAM subscriptions, bringing our cumulative total to approximately 3.82 million subscriptions. Our quarterly updates with regard to these three business transitions began at the start of 2019, approximately 22 months ago from today. We are therefore past the midpoint of what I originally described as a likely 36-month journey. As we think about the remainder of this journey, there are some challenges that remain in front of us. For example, revenue from the legacy resuscitation products, which were $9.7 million in Q3 and estimated to be $6 million in Q4, will drop to zero in Q1 of 2021. That's a $38 million year-over-year drop, so certainly a challenge in front of us next year. A lot of challenges previously associated with the three 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 49 states. We have seen compelling product adoption of our VerityStream platform with over 300 customers and many notable, referenceable accounts. We have seen firm technology viability with our H-Stream platform as evidenced by the large-scale deployment of applications which utilize the new H-Stream PaaS architecture. So many key questions around the market acceptance, product adoption, and technology viability continue to be addressed positively. I like it that we've passed the midpoint of these transitions and many of what I would call the existential questions. Will these things be accepted? Will they work? have been put behind us. And we're now more in an execution phase of these transitions. How fast will they be adopted? How much can we sell? And I think that's a much better place to be as we enter next year, really feeling secure in the three transitions. We're past the midpoint, and we're talking about adoption, acceptance, and rate of sale. So I'd like to highlight a few points about some key financial metrics during the journey. First, while operating income may be impacted by acquisition-related amortization and deferred revenue write-down accounting requirements from the acquisitions, EBITDA and free cash flow have remained relatively strong during these transitions. Second, in the past quarters, we have seen an improvement in gross margins as expected and predicted, indicating that our higher margin products are being received well in the market. Finally, we are fortunate to have entered the three transitions and the pandemic, with a solid balance sheet, no debt, and a $50 million credit facility that remains fully available to us. We believe that we are well-positioned to continue allocating capital to invest in the future of the company. For the time being, that means maintaining capital investments in product development and pursuing an active M&A strategy. At this time, I'd like to turn it over to Scotty Roberts, who will provide a more detailed discussion of financial metrics for the third quarter. Scotty.
spk05: everyone listening in today. The discussion of our financial results will be for continuing operations only and comparisons will be against the prior year third quarter unless otherwise stated. For the third quarter, revenues were down 3% or $1.6 million to $60.9 million. Operating income was down 16% to $3.1 million. Income from continuing operations was down 24% to $2.6 million. EPS from continuing operations was $0.08 per diluted share and was down from $0.11 per diluted share in the prior year. And adjusted EBITDA from continuing operations was down 3% to $11.1 million. Revenues from the workforce solution segment totaled $49.2 million for the third quarter and were down 4% or $1.8 million compared to the prior year. Revenues from the legacy resuscitation products declined by $3.7 million. while revenues from all other workforce products increased by 1.9 million, or 5%. This increase was comprised of 2.6 million, or 7%, from growth in platform and content subscriptions, but was offset by declines in professional service revenues of 0.7 million, or 43%. Revenues from the American Red Cross simulation suite program, which includes both subscriptions and simulation equipment, also contributed to the third quarter revenue growth. Revenues from the provider solution segment totaled $11.7 million for the third quarter and grew by 2% over the prior year. This growth came primarily from the December 2019 acquisition of Credential MyDoc. Our gross margin improved to 61.7% compared to 59.4% in the prior year. The improvement in gross margin was due to changes in revenue mix, including growth in higher margin products in the workforce solution segment and less revenues from the low margin legacy resuscitation products. We are pleased to have achieved and exceeded the targeted gross margin of 60% that we set forth earlier this year. Operating expenses excluding cost of revenues were up 3%, or $1.1 million, over the prior year. Expenses increased as a result of higher product development costs, amortization expense, due diligence costs associated with the acquisition of Shift Wizard, as well as incremental operating expenses associated with two prior acquisitions, Credential MyDoc and NurseGrid. These two acquisitions increased our operating expenses by $1.2 million during the third quarter. As mentioned earlier, Last quarter, the expense control measures put in place in response to COVID-19, such as reduced travel, trade show cancellations, foregoing employee and executive salary increases, and limiting our 401k match have benefited our financial performance. As a result, third quarter expenses were lower by approximately $1.7 million, and the year-to-date expenses were lower by approximately $3.4 million. While we believe these expense control measures are prudent in light of current conditions, we intend to strike a balance to ensure that our operations are financially stable for the future and that we continue to achieve our growth objectives. Several of the expense control measures have a direct impact on our employees who are vital to our success. Faced with the challenges caused by the pandemic, our employees have remained focused and have made numerous contributions to advance our company during these unprecedented times. Although we have foregone salary increases for 2020 and previously limited the 401 match to 1%, we elected to provide our employees, except executive officers, with a supplemental payroll payment and increase the 401 match from 1% to 2%. The supplemental payroll payment approximates the amount of salary increases that were foregone. The impact of these two items increased operating expenses and reduced operating income by approximately $1.9 million during the third quarter. These factors led to our operating income declining by $0.6 million or 16% to $3.1 million and adjusted EBITDA declining by $0.3 million or 3% to $11.1 million. Our cash and investment balances ended the quarter at $149.7 million up from $144.5 million last quarter, and working capital was $104.1 million. Cash flows from operations were $30.8 million this year compared to $52.5 million last year. The reduction is due to lower collections of about $20 million, which is primarily a result of the reduction in legacy resuscitation billings and receipts. That said, operating cash flows more than doubled in the third quarter compared to the first and second quarters of this year. And our day sales outstanding improved to 43 days versus 47 days in the second quarter. That was up compared to 40 days in the prior year third quarter. Our capital expenditures were 5.2 million during the quarter and are 13.5 million year to date. In the first quarter of this year, we announced the authorization of a share repurchase program of up to $30 million of our outstanding common stock. Through the third quarter, we have repurchased $16.3 million pursuant to the program, which included approximately $6.3 million of repurchases in the third quarter. On October 12th, we announced the acquisition of Shift Wizard, which offers a SaaS-based solution to healthcare organizations that integrates key workforce management capabilities, including scheduling, productivity, and forecasting. The consideration paid for ShiftWizard was $32 million, and we used cash on hand to fund it. We plan to report the operating results of ShiftWizard within our workforce solutions business segment. Now I'd like to provide some details on how the COVID-19 pandemic has impacted our financial results and operations thus far and our outlet going forward. We continue to believe that the extent, timing, and duration of COVID-19's negative impact on our output on our operating results and financial condition will be driven by many factors, including the length and severity of the COVID-19 pandemic and the impact of the pandemic on economic activity, particularly with respect to healthcare organizations. As a result of the unpredictable and evolving environment related to the COVID-19 pandemic, we are not providing 2020 guidance. As Bobby mentioned, the number of COVID-19 cases continues to rise to record levels throughout the country including more rural areas that were not significantly impacted several months ago. Healthcare organizations across the country, many of whom are our customers, will continue to face both operational and financial challenges caused by the continued COVID-19 outbreaks and the oncoming flu season. While we believe many healthcare providers are adjusting their operating models to manage such spikes in COVID-19 cases, they may continue to experience financial strain as a result, which could also have an impact on our business. The pandemic's negative financial impact on our customers continues to cause uncertainty in their purchasing decisions for our products. This quarter, like last quarter, we experienced a slowdown in our bookings within both of our business segments. The fourth quarter has historically been our strongest quarter for new bookings, and with continued uncertainty about our customers' purchasing decisions, we remain cautiously optimistic in our expectations. To the extent conditions worsen or do not improve, we expect it will have a negative impact on our sales activities and future revenues. Although we have experienced lower sales and are beginning to see this translate into lower revenues, it has not caused a material negative impact on our financial results so far this year, and our operating income is better than expected. The restriction of travel, cancellation of trade shows, and freezing employee salary increases resulted in lower operating expenses and helped improve our operating income, as previously mentioned. We expect these cost reductions to extend into the fourth quarter and likely into next year. We view them as short-term benefits to our operating performance, although we are uncertain if or when these expenses will return to normal run rates. During the third quarter, our cash flows and DSO improved compared to the first and second quarters. Although this may be indicative of improved financial conditions of our customers, including the financial support customers may have received from the federal government, economic conditions may worsen and our customers' financial condition may deteriorate, which can negatively impact our future cash flows. Although we're not providing guidance for 2020, I want to expand a little more on the Shift Wizard acquisition and how it is expected to influence our financial results beginning in the fourth quarter. ShiftWizard is a growing company with approximately 20 employees. It had trailing 12 months revenues of approximately $4 million and an operating loss of approximately $500,000. To help accelerate ShiftWizard's growth and market penetration, we plan to make additional investments in sales and product development. While we expect positive financial returns from ShiftWizard over time, in the near term, we anticipate the acquisition will be dilutive to our operating results. As with past acquisitions that we have completed, we expect operating income to be negatively impacted by deferred revenue write-downs and the amortization of acquired intangibles. We ended the quarter with approximately $150 million in cash and investments, and as mentioned, we completed the acquisition of ShiftWizard this month. for $32 million in cash. We maintain our $50 million revolving credit facility, which provides us additional flexibility to deploy capital, including mergers and acquisitions, share repurchases, dividends, and working capital needs. We think it's important to responsibly manage expenses and maintain adequate access to capital while balancing investment opportunities for growth and innovation. We remain focused on allocating capital to support future growth initiatives and improving shareholder value, including investing in new products and evaluating acquisition opportunities. We also have approximately $14 million remaining under our share repurchase program. We believe these initiatives remain in the long-term best interest of shareholders and the company, though we will continue to evaluate them in connection with COVID-19 related developments and adjust them if necessary. That concludes my comments for today. Thank you for your time, and I'll now turn the call back over to Bobby.
spk04: Thank you, Scotty. Before we get to questions, I'd like to take a few minutes to highlight how well Hellstrom employees are managing our operations while working remotely due to the pandemic. Whether it is selling without travel, supporting customers using virtual technologies, or closing an important acquisition, they have not missed a beat. Their commitment to our vision and to our customers is a testament to their outstanding character and abilities. It truly serves as a sign of a thriving culture that they've built across Healthstream. One example of our culture is the incredible involvement in our corporate social responsibility program, which we call Streaming Good. Undeterred by the pandemic, our employees were able to hold a virtual Relay for Life event in September, which engaged hundreds of our employees and raised money for the American Cancer Society. Our employees have also demonstrated a strong commitment to social justice and racial equality. They have created an employee-led group called Stream Forward, that is actively developing new initiatives to further support our commitment to diversity, equity, and inclusion to employees and to all the communities where we serve. As an example, they have developed and are launching a new course called Managing Unconscious Bias, which we are providing free to customers. As we continue working remotely, HealthStream employees are rising to the occasion as we battle against the pandemic. I would like to end this call by thanking all HealthStream employees for the great job they're doing in supporting the healthcare workers on the front lines. I know it's appreciated by the frontline workers. We hear from them, and I'm appreciative of our employees making this all happen. At this time, I'd like to turn it over for questions from the investor community.
spk02: Thank you. As a reminder, ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Ryan Daniels with William Blair.
spk03: Hey, good morning. This is Jared in for Ryan. Thanks for taking the questions. You know, I was just curious. I obviously appreciate that it continues to be a tough environment to sell into, but I was hoping to just get a little bit more color kind of on the sales cycle activity and sort of the demand environment and maybe some of the trends. Over the course of the third quarter, and then if you've started to see any of that change, maybe more recently here to start the fourth quarter, just as we've obviously seen coronavirus cases start to pick back up and that sort of thing.
spk04: Yeah, sure. A couple of ways to characterize it. And we did share a little of that earlier in the call. First, on the, say, the resuscitation suite products, really encouraged by the velocity and volume of the new sales there. Our teams have adapted to virtual selling. And virtual implementing, very important to not just sell but be able to get these products live. I believe we announced 57 new accounts in the 90-day period. So good trajectory and velocity on the Red Cross resuscitation suite program. Some of the bigger purchases of elective products, which we're really excited about and I think are industry-changing, are getting deferred and pushed forward. I don't think we're losing those opportunities. I think they're getting pushed forward as they've dropped in priorities as hospitals execute COVID strategies and adapt their operations. So we have seen some of the sales of more elective products get pushed in the future. But again, the pipelines remain strong. They're just deferred, delayed, or not taking calls on those topics at this time. So I think where the products line up directly with the current needs, you know, we've seen a huge surge in use of our platform for the COVID-related courses and hopefully as well in the DEI, diversity, equity, inclusion courses. So we see great utilization of our platform and network during this time. But related to the sales pipeline, some deferral or taking some of the deals and pushing them forward. I think we also talked about the VerityStream Velocity and Momentum. I believe I said it's 47 or near 50 new accounts in the quarter as well. So really good velocity of new closings on the credentialing and privileging platform with some big account wins. And we rattled off a few of those on the call to show acceptance and adoption of the new platform. That said, you know, across our broader suite, we see some deferral decision makings on some of the electives, say continuing education programming. We have our new Jane AI platform, which we think is industry changing. We've seen some good uptake of it, but some of the bigger deals got pushed as they got pushed forward in time. I hope that helps characterize it. It's a complicated time because we're adopting and adapting our sales methodologies. Customers are adopting and adapting their implementation methodologies, and they're reprioritizing the order in which they buy things. And we've seen a little of that in the deferred pipelines being pushed into the future.
spk03: Yeah, that makes sense. That's a helpful caller. And then maybe just I'll tack on one quick modeling related question. So it looks like, you know, appreciate the gross margins were up year over year and sounds like most of that was due to kind of product mix and that sort of thing. It did look like it was down just a little bit sequentially from the second quarter. Just curious if there's any kind of unique dynamics to call out there, if that's more just kind of revenue mix driven or anything worth calling out from a gross margin perspective for the third quarter.
spk04: Yeah, it's going to be a revenue mix issue, maybe a little more than expected in some product categories. Like the old legacy products, I think performed a little better in the quarter than maybe we had forecasted earlier as they run off to zero in Q1 of next year. So I think it's going to be a product mix that has a margin mix implication. But, Scotty, do you want to add anything to that?
spk05: Yeah, probably just the other factor would be the supplemental payroll payment that we mentioned that was taken as a charge in the third quarter. That would have been dispersed throughout the P&L but would have had an impact on the increase in cost to get sold as well.
spk03: Okay, great. Thanks for that, Collar.
spk04: Are there no other questions? Dr. Operator?
spk02: Yes, I'm showing our next question comes from the line of Matt Hewitt with Craig Hallam.
spk01: Good morning. Thank you for taking the questions. Maybe first up, on ShiftWizard, you look over the last few years, you've got NurseGrid, you've got credentialing, now you're adding ShiftWizard. As you look out over the next, call it, three to five years, how do you see or what's your vision for taking these different programs, applications, and combining them? How do you see this playing out?
spk04: Sure, sure. So we're pretty excited about it. I think if you think of our origin as a company in learning and development, right, we're very strong. We have a great learning platform that's highly penetrated in the market, and it's a strong SaaS application. And then we moved strongly through three or four acquisitions into credentialing and privileging and then created a new platform to begin to move those customers to that. So credentialing and privileging kind of being a second leg of growth opportunity and defining our capabilities and opportunities. And now I think scheduling being a third. So Nurse Grid and Shift Wizard together we think can feed one another's growth and create a third competence, a third leg of the stool, if you will. of our capabilities in scheduling and kind of schedule management. And so we're really excited about how those two play together because it's kind of taking the B2C application world that nurses seem to really appreciate, helping managers schedule through the NurseGrid app, and bringing it next to and hopefully connecting it to the B2B enterprise management capabilities of Shift Wizard that was noted, you know, gaining market share and had a really great platform. Very excited about that. So one way to think about it is these three areas are now competencies, evolving competencies of the company, and we're working our best and hardest to connect them all through the H-Stream platform technology. Now, this will take time, but what it will do is allow us to leverage data across the application suites. For example, nurses are probably the largest consumers of all three of those application sets, learning and development. We're really strong in nursing development and training. Credentialing and privileging is more a physician and provider, but Over time, there may be services that can target the nursing core. And then scheduling, of course, is scheduling staff at this time focused on the nursing core. So we think things like in the future we can envision a state where the competency profiles that are derived from learning and development inform the scheduling and matching of a schedule of the skills of a staff nurse to the acuity of the patients, for example. So we see potential long-term leverage in the data mobility and portability between and among the applications, along with just logistical synergies of moving data between the applications that are related, giving an advantage to each platform. For example, the Red Cross resuscitation suite delivers certificates of competence or certificates, which can now be automatically moved into the VerityStream credentialing platform, which is one of the many credentials that have to be validated. And so customers that are on both platforms will enjoy the benefit of automating those procedures between the platforms. So I'd say the future is one of interconnectivity, leveraging data sets that are common across the application sets, but also building award-winning category-killing applications in each of these three areas, learning and development, credentialing and privileging, and scheduling and schedule management. So we're new to scheduling and schedule management. We have a long way to go. But I think we've acquired two really exciting assets that, in their own ways, were leading the market with their innovation. So hopefully these are areas we can gain ground in. And I hope that helps paint the picture. At the end of the day, we'd like all of these platforms to connect to one another through the HStream platform and leverage data mobility across our ecosystem.
spk01: Thank you. That's really helpful. Shifting gears, the number of HStream subscribers accelerated. sequentially is up almost 10% versus Q2. Is there anything to read into that? Was that maybe some customer decisions had gotten deferred in the second quarter, they came back now and have signed contracts, and is there some type of a backlog that you have built up because of the pandemic, or was this just more contracts that were up for renewal and it was an unusually large quarter of that?
spk04: Yeah, it was a little more of the latter, but it's also the fact that multiple platforms are connecting to HStream and adding users in new ways. And so, for example, as we sell those new VerityStream platforms, that includes access to certain HStream, through their contracts, access to some of the HStream benefits and the HStream platform. And so we're adding new users through more connectivity as we get more of these applications tied to some of the functionality of HStream or some of the benefits of that come with licensing the HStream platform. And so there are more ways to feed it and grow it. But in addition, it's tied largely right now to the renewal cycles. And so if we have a larger set of renewals up and they move from the older platform in the new contracts to the newer platform. So there's a little bit of mix of both, but I'd say it's weighted towards the renewal cycles.
spk01: Understood. All right. Thank you. And then maybe one last one here quick. I'm not sure if this is right for Bobby or for Scotty, but The $1.9 million, I completely appreciate it. I think it's important to recognize your employees during this time. But is there a tax benefit or is there a reason why it would just be a one-time here we're going to give you this payroll boost versus doing a normal like pay raises that were foregone earlier this year? Was there a difference? Yeah.
spk04: Yeah, it's a little tricky to both communicate it to employees what's happening and why we're doing it and explain to you guys as well. So here's our philosophy and approach. You know, we asked our employees and executives to forego their base merit raises, as we call them, that's generally, you know, a little better than COLA. And so that, as a run rate expense, has been eliminated. And we didn't want to put those back in because, of course, it has a compounding effect as we enter next year and we're uncertain about next year. So we But we looked at our financial performance in the short run and realized that we could afford to have the one-time payment without increasing the base run rates. So essentially, we'll enter next year with a lower base rate, which I think is protective of the future. But we were able to financially afford to kind of get some of that hardworking recognized by our employees that are doing such an incredible job during COVID. So in other words, treating it as a one-time expense, I think, was the right thing to do for the quarter. A lot of this incredible work is done by our teams. We've had restrictions on hiring and lowered the merit increase. We took that away this year. So we're trying to manage our run rate expenses and keep them from compounding given the uncertain future, but also recognize excellent work in the quarter. So we made it a one-time expense.
spk01: That makes sense. All right. Thank you.
spk02: Thank you. And our next question comes from the line of Steve Halper with Cantor. Your line is now open.
spk07: Hi. Just two questions. Going back to Shift Wizard, how should we think about the necessary investments that you need to make there, and what's sort of the timeline to get that onto the H-stream platform and narrow the losses and really start to you know, crank up the contribution from that business?
spk04: Yeah, great question. So, you know, these two, NurseGrid and ShiftWiz, were both kind of growth stage, relatively low revenue, you know, compared to the rest of the organization, but nice growth opportunity. And we do have a lot of technical work to do there to get it to leverage the A-Stream platform, but we're going to be able to grow it before that technical work occurs. So the real short-term investment's will be in sales and marketing. Both those organizations had very small or relatively small sales efforts, even though they were gaining ground and market acceptance, growing monthly active users for NurseGrid, which has, by the way, continued to grow since the acquisition, and new customer acquisition for ShiftWizard through their award-winning platform. So, Steve, I think the key is going to be in the short run, we're going to try to double, triple the sales organizations, maybe double, I think cumulatively we probably had four people across both orgs. Probably take that up to 10 to 12 by year end. And as you can tell, that's a meaningful investment. It has long-term benefit, but short-term hits. There will be increased technology investments as well. We've already started to make some of those in NurseGrid. And then over time, we'll have to increase those investments to essentially reconnect those platforms at A-Streams. So I can't give you that yet, but we'll be working on that plan with our CTOs across the company to come up with a good investment plan. But I do think we can increase their growth philosophies by adding salespeople in the short run because the products are really wonderful products that have been well received by the market. Just the limited reach because they were smaller companies. We're going to try to give them more reach.
spk07: I appreciate that. And just switching back to Q3 trends in terms of bookings and the impact on 2021, can you sort of identify sort of what changed from Q2 to Q3? Because, you know, I'm assuming Q2 is pretty soft, you know, as well. It's just, you know, do you have one more quarter, you know, of, you know, the current environment to say with some certainty, yeah, now it's going to, you know, impact, you know, 21 or did something specifically change?
spk04: Yeah, no, that's a great question. I mean, generally, as Scotty pointed out, the fourth quarter is a pretty big sales quarter. And I think what we saw in the third quarter is some of the bigger, I guess I'll call them elective deals, got pushed into the fourth quarter and maybe even into the new year as hospitals weigh their budgets. And the interest, though, we didn't see go down. There's definitely a 90-day injection of kind of a no-talk zone where everyone was figuring out, like, they wouldn't accept salespeople into their places. We weren't really all schooled up to do the virtual demos. and sell products and implement them virtually. So there's definitely kind of, I think of it as an injection delay where the pipelines all kind of got pushed 90 days. That said, I think you're right. I think fourth quarter, we're going to learn a lot about how much normalcy has been achieved back in the health systems as far as purchasing patterns. And so we weren't able to reinstate guidance yet, but I hope that Again, fourth quarter is a little more heavily weighted for the year, so given those uncertainties, we just have to get through this fourth quarter and see how it lands. We are projecting relative budget shortfalls in what we call new order value or contract value for the fourth quarter just to be conservative. The pipelines are there, but again, at the end of the third quarter, we start to see some of the, I guess I'll call them elective deals, get pushed forward. And so we are going to have another 60 days of uncertainty. I think once we get that in, we'll have a better sense for what next year is going to look like. Great.
spk07: Thank you.
spk02: Thank you. And our next question comes from the line of Vincent Colicchio with Barrington Research.
spk06: Yeah, Bobby. What does pricing look like on some of your contract renewals?
spk04: I'd say it's holding steady. We haven't really commented on that, but we're getting better at bundling services that have some discounting to them. But in general, I think that's the strength of an ecosystem when you can bundle up some value and add it. But in general, I'd say the unit pricing on some of the core products is maintained. And they're also competitive, meaning they're already competitive with the market at the price points where we're entering. So I feel pretty good about our pricing positioning.
spk06: Do you have any data on how employment levels are trending within your client base?
spk04: That's a great question. I haven't seen any updated data in a quarter or so. We were going through a little phase where there was some active furloughing, and we've seen a lot of that return. I think about 250 organizations announced some form of furloughing or layoffs. That said, some of these systems came through, some of the bigger ones, and added people. And also there's the secondary markets or the ancillary, or we call the continuum of care markets, the pre- and post-acute markets, have seen a growth in payroll, like the home health markets. So those companies are growing. So the blend of all of it, I think we're adding health care workers across the board. There's a little scare there for 90 to 100 days with furloughs, and financial viability concerns, but it feels to me like we're going to see employment growth in these spaces again. Thanks.
spk02: Thank you. I'm sure no further questions. So with that, I'll turn the call back over to CEO Robert Frisk for any closing remarks.
spk04: Thank you for participation in the call. Thank you to our employees for the incredible results in the last, really, this entire year. It's been amazing to watch them transition to work from home and bring customers along the journey. We'll see you guys on the next earnings call, which will be in February, and look forward to exciting news even between now and then as we wrap up the year. Take care, everyone.
spk02: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
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