HealthStream, Inc.

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.

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.

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.