HealthStream, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the HealthStream, 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 ask a question during this 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 then 0. I would now like to hand the conference over to one of your speakers today, Molly Condra, Vice President of 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, 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. 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 Healthstream is included in the earnings release that we issued yesterday and may refer to in this call. So at this time, I'll now turn the call over to Bobby Frist.

Thank you, Molly. Good morning and welcome to our fourth quarter and full year 2020 earnings call. There's a lot to cover today. To call 2020 unprecedented hardly seems to scratch the surface. know i think we can all agree that you're unlike any other and of course this call will synopsize the things that happen in the year and talk a bit about the future despite the adverse conditions of the pandemic that 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 vision been more important than at this time so our employees are really focused on execution to start our call i'd like to look forward to talking about how we're busy through the last 24 months especially this last year laying the groundwork for what we believe will generate long-term shareholder value as part of that discussion i'm going to update you on each of the key transitions that we've discussed in the past several calls and and characterize and re-characterize them with only 10 months to go we're reaching an inflection point where the major business 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 are pleased to reinstate now. We expect revenue to be in the range of $242.5 million to $252.5 million, and adjusted EBITDA to be in the range of $34 million on the low end to $38.3 million on the higher end. In my view, one of the most remarkable things about this guidance is projecting the potential for revenue growth despite the $38.4 million revenue decline in legacy resuscitation products from 2020 to 2021 and the $4.3 to $5.3 million negative impact of acquisition-related deferred revenue write-downs. That's a lot to 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. Another 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 will be 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 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 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 a two-year period, and a little bit about our growth philosophy and the way we think about these objectives in general. And this means we're going to be given directional information that covers not just the 2021, but a little bit of the 2022, which is a longer view than we normally provide. So building on the anticipated results for 2021, which I just gave, we want to talk a little bit about what a return to normalcy might look like for us in 2022. So just some expectations about 2022 after having just talked about guidance for 2021. 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, our goal is approximately a 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 that that's where we're headed in the coming 24 months, a 65% gross margin profile. And third, we would expect in 2022 to see a return to adjusted EBITDA margins of 15 to 20% of revenues. And I think that's maybe one of the more important metrics for us to look at as we climb through the challenges presented by the revenue decline associated with the legacy resuscitation revenue products. Achieving and perhaps more importantly, sustaining these objectives requires consistent investment innovation. And I think it's important to note that in 2021, while we're also fighting through the changes both organically and organically of the decline resuscitation revenues, we are investing very actively in the businesses that we acquired. And we're fortunate to begin there with a solid balance sheet to do that, no debt and $65 million credit facility that remains fully available to us. Among other things, this allows us to invest in organic R&D initiatives as well as making the appropriate investments to help our recent acquisitions achieve their potential. We acquire companies to ensure that HealthStream 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 of the last couple of years, I provided updates with regard to each. As I said last quarter, a 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 I articulated a few years ago. So let's go through one at a time. First, we have transitioned our sales and marketing efforts from the legacy resuscitation products to our new resuscitation offering. As a reminder, the 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 updated, highly adaptive, competency-based development solution to healthcare professionals. It offers certification to healthcare professionals successfully demonstrating proficiency of life-saving resuscitation knowledge and skills. Our customer's focus has necessarily shifted in the last year to responding to developments related to COVID-19 and treating COVID-19 patients. We have continued to see new sales for this suite. For the full year of 2020, over 180 new contracts were signed for the Red Cross suite. I think this is quite an accomplishment, given its relative newness to the market. Some of these customers included, for example, Norton Healthcare and Cedars-Sinai Medical Center, and other customers like Air Methods, who chose to expand their services even more broadly across their organization in the year. The second transition involves the adoption of and migration to our new VerityStream application suite. In the first quarter of 2018, we announced the launch of VerityStream, our new application for managing a full spectrum of credentialing, privileging, and enrollment needs in healthcare organizations. During the fourth quarter of 2020, 39 customer accounts were contracted for the VerityStream application suite, 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 VerityStream application suite. Some of the customers we contracted in the fourth quarter include 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, the VerityStream platform application suite. The third transition involves our customers upgrading to the HStream platform. which is the essential technology that powers all the activity in the HealthStream ecosystem. Increasingly, our products, applications, and content offerings are connecting to the new HStream infrastructure. In the fourth quarter, we added approximately 380,000 net new HStream 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 risks 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 VerityStream application suite with approximately 345 customers and many notable referenceable accounts. We have seen firm technology viability of our HStream platform as evidenced by the large scale deployment of applications, which utilize services from a new HStream PaaS architecture. What's important to understand is that in each case, the viability of what we were transitioning to is now part of our core business. We'll talk about them less and less as transitions moving forward and more and more about how these other solutions are contributing to realizing the revenue growth, gross margin, 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.