HealthStream, Inc. (HSTM) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the HealthStream First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mollie Condra, Vice President, Investor Relations and Corporate Communications. Thank you. Please go ahead, ma'am.

Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2020 results. Also in the conference call with me are Robert A. Frist, Jr., CEO and Chairman of HealthStream and Scott A. 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 risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company’s filings with the SEC, including Forms 10-K and 10-Q and our earnings release. So with that start at this time, I’ll turn the call over to Bobby Frist.

Thank you, Mollie. Good morning, and welcome to our first quarter 2020 earnings conference call. Normally the team and I will be speaking to you from a conference room in our headquarters. Instead we’re out and about in our homes and calling you from remote places. I hope that call facilitates well. In the COVID, the COVID pandemic has changed a great deal since our last earnings call which is only 10 weeks ago. Since that time over 56,000 people in the US have died due to COVID-19 and the number continues to grow. If this trend holds, the US will soon reach over 1 million documented cases of COVID-19, many of which are healthcare workers themselves. As of April 14th the CBC said that between 10% and 20% of all US coronavirus cases are among healthcare professionals. At HealthStream, we’ve ever been more resolute in our mission to support US healthcare workforce, the heroes who are literally putting their lives at risk to provide care to others. I want to start this call by acknowledging sincerely thanking the healthcare workers the world over for their attention to our needs and their selfless giving to take care of us all. Thank you. The impact of COVID-19 has been widespread rapidly evolving and generally characterized by uncertainty. In an attempt to contain the spread of COVID-19, authorities have implemented measures that have resulted in quarantines, travel bans and restrictions, shelter in place orders, the promotion of social distancing and limitations on business activity among other actions. These measures and then pandemic have caused a significant economic downturn in US and globally. Directly relevant to our business is the adverse impact the pandemic is having and will continue -- likely continue to have on the healthcare industry. Our business is focused on providing workforce and providing solutions to healthcare organizations along the continual care such that an adverse impact on healthcare organizations is likely to result in an adverse impact on our company. Though COVID-19 did not have a significant impact on our first quarter financial results based on what we are now seeing, the COVID-19 pandemic will begin to negatively impact our financial results in the second quarter of 2020. The extent, timing and duration of such impacts on our business remain uncertain and will depend on other things, the length and severity of the COVID-19 pandemic, especially with respect to its impact on healthcare organizations. Anyone watching the news knows that health organizations are being adversely affected on a number of levels; clinically, financially and operationally. Significant source of revenue from services such as elective surgeries have ground to a near halt due to restrictive measures including quarantine and shelter-in-place orders. At the same time, the cost of providing emergency care to COVID-19 patients has sharply increased. Unfortunately, it is unknown how long these conditions will persist or whether they will deteriorate. A week ago today on April 21st, Becker's Healthcare reported that 39 hospitals had just received negative S&P rating, noting that they each had about 100 days cash on hand or less. No healthcare provider seems exempt, as evidenced by few examples of challenges reported by some of our larger customers. For example, Quorum Health HealthStream customer, which operates 23 hospitals in 13 states announced on April 7th that it has filed Chapter 11 bankruptcy protection. Its quarterly earnings release on April 21st citing the uncertainties associated with COVID-19 HCA another HealthStream customer announced that it will suspend its quarterly dividend program and was withdrawing its previously issued guidance for 2020. On the same day, Southwell, Michigan based Beaumont Health, another HealthStream customer, which had 380,000 employees announced that it will temporarily lay off 2,400 employees and permanently eliminate about 450 positions and cut executive pay due to financial effects from the Coronavirus. Similar stories have been reported across many of our customers. And lot of these adverse developments experienced by these organizations, we are continuing to monitor the ability and willingness of our customers to pay for our solutions in a timely manner, implement solutions they have purchased from us and renew existing or purchase new products or services from us. We monitor our cash position and credit exposure primarily measuring weekly cash receipts, customer request to modify payment or contract terms, and bankruptcy notices. Since March, each of these areas has begun to show signs of slowing or deferral that we're unable to quantify the future impacts of such negative indicators, or know whether and to what extent they may increase over time. Any further deterioration in the flexibility of our accounts receivable or the timing of payments for customers will adversely impact our financial results. In fact, customers are currently making requests for extensions of time to pay their bills without incurring penalties. And we are working with each one of these customers to assess their need and provide them with such as much flexibility as we reasonably can. The timing of implementation is also relevant to our business, because our software solutions did not result in revenue recognition or billings until they are implemented. To the extent our customers delay or fail to implant products they have previously purchased, our financial results will be adversely impacted. While customer implementation projects are continuing, several customers have delayed starts or have put implementation projects on hold that were already in progress, making it difficult to project a number of implementation delays that we will ultimately receive. For example, two large implementations of the Red Cross Resuscitation Suite program have been impacted. One has been put on hold and the second has been partially delayed. In terms of sales and renewals, both continue but at a slower pace and with uncertainty as to when customers and prospects will broadly return to pre-COVID-19 levels of buying decisions. This should come as no surprise given what our customers are dealing with during this time. In fact, many customers are not allowing sales representatives on site until COVID-19 can be better controlled. Our sales representatives, account managers remain active, in a dialogue with our customers, but their primary focus over the past several weeks has shifted more towards maintaining relationships and providing support where we can. While we've been able to close deals across our solution sales teams, we are experiencing purchasing decisions being put on hold temporarily or deferred to later in the year. Given the uncertainty surrounding the adverse impact that COVID-19 is having on the healthcare industry and our business, we have taken certain expense management measures. These include indefinitely postponing and potentially foregoing increases to base salaries including executive base salaries, limiting hiring to critical positions, limiting the 401(k) match -- the company’s 401(k) match. And we've been negotiating with key vendors of ours to allow payment term extensions without penalty. We're continuing to monitor developments regarding the COVID-19 pandemic and may undertake further expense management initiatives if we deem necessary. Despite COVID-19 business does continue. So, I 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 toward being a higher margin, more profitable company in the coming years, even though the impact of the pandemic is likely to extend these transitions longer than we had previously thought. First, we have transitioned our sales and marketing efforts from the legacy of 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 successfully demonstrating proficiency of lifesaving resuscitation knowledge and skills. We now in our last conference call for the full year 2019, we had signed over $38.8 million in contract order value for HealthStream’s new resuscitation offerings. These new contracts are from a mix of over 3,000 of our hospitals and healthcare facilities, and they’re from across the continued care including new and transitioning customers. While our customers focus has necessarily shifted in the last several weeks to respond to developments related to COVID-19 and treated -- treating COVID-19 patients, we have continued to see some new sales. Some -- given some customers preference to proceed with training implementation, our team created an innovative studio where virtual instruction could be provided. Customers’ feedback on our ability to accommodate their preference to stay on schedule using virtual training as a component of their implementation has done a positive development. In February, we announced the expansion of resuscitation offerings with Stable program, a leading neonatal education solution. This highly respected program is now available online, exclusively through HealthStream. We're encouraged to see buying activity – activities and surrounding activities. In fact, we hosted a webinar on April 7, and that over 813 attendees show up and 3,384 follow-up requests for information. We've already closed a handful of contracts shortly after the webinar. The addition of the Stable program further diversifies our product portfolio of simulation offerings. Second transition involves the adoption of 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 first quarter of 2020, over 20 new customer accounts were contracted for the VerityStream platform, bringing -- bringing our cumulative total to over 220. These 220 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. Sales of the VerityStream platform were exceptionally strong during the second half of 2019, but below our expectation for the first quarter. Additionally, the sales success realized in last half of 2019 created an implementation backlog resulting result in longer implementation cycles for our customers, and time to revenue for VerityStream, to address the backlog and accelerate the implementation cycle we have hired additional staff. These two factor lower new sales and slower implementation even without factoring impacted COVID-19 will likely result in lower revenues in operating income than we anticipated for the Provider Solutions segment for this year. The third transition involves our customers upgrading to the HealthStream platform which is the essential technology working behind the scenes that powers all activity and helping ecosystem. In the first quarter, we added approximately 240,000 HealthStream subscriptions bringing our cumulative total to approximately 3.4 million subscriptions which is up from 3.15 million contracted subscriptions at the end of the fourth quarter of 2019 and up 85% since the first quarter 2019. Undermine everyone that these three business transitions all represent multi-year journeys; in fact from my perspective last quarter I said that we were about 12 months into a 36 month journey. Given the unknown associated with COVID-19 especially its duration, it’s hard to predict with certainty, how much time will be added to the journey. But at 15 months end, I can say we continue to make real progress on all three transitions. At the end of these journeys, we still expect a higher margin, more profitable company. We are fortunate to have entered the pandemic with a solid balance sheet, no debt and a $50 million credit facility that remains fully available to us. Rather than being in a liquidity crisis, we believe that we are well-positioned to continue allocating capital to invest in the future of company. For the time being, that means keeping our share repurchase authorization in place and maintaining capital investment in new and existing product development. Should circumstances deteriorate, we are prepared to curtail or discontinue one or both of these initiatives but do not believe it is in the best interest of shareholders or the company to do so at this time. At this time Scottie Roberts will provide more detail discussion of the financial metrics for first quarter results, along further comments with how we view our financial outlook for 2020 given the COVID-19 pandemic. Scottie?

Thank you, Bobby and good morning. Today I plan to cover our financial results for the first quarter and provide some additional thoughts about how the COVID-19 pandemic is impacting our business and financial outlook. Consistent with past quarters, the discussion of our results today will be for continuing operations only and our comparisons will be against the prior year first quarter unless or otherwise stated. Let's begin with an overview of our first quarter highlights. Revenues were down 6% or $3.6 million to $61.6 million. Operating income was up 35% to $7.2 million which was positively impacted by a $3.4 million favorable contractual adjustment to cost of revenues. Income from continuing operations was up 48%, $7.1 million, which was also positively impacted by $2.6 million from the favorable adjustment to cost of revenues. EPS from continuing operations were $0.22 per diluted share, compared to $0.15 per diluted share in the prior year. EPS was positively impacted by $0.08 per share from the favorable adjustment cost of revenues. Adjusted EBITDA from continuing operations was down 6% to $11.8 million. In the quarter, we completed the acquisition of NurseGrid on March the 9th and on March the 13th we announced the approval of a $30 million share repurchase authorization. Revenues from the Workforce Solutions segment, we announced the approval of a $30 million share repurchase authorization. Revenues from the Workforce Solutions segment totaled $49.8 million for the first quarter and are down 8% compared to the prior year. This decline was primarily influenced by the expected reduction in the legacy of resuscitation products, which decreased by 35% or $6.1 million and we're $11.2 million this year compared to $17.3 million in the prior year. Revenues from all other Workforce products experienced modest growth of 4.5% over the prior year. Revenues from the Provider Solutions segment were $11.7 million and grew by 8%. This growth came from professional services for client implementations and new VerityStream subscriptions. Revenues from the recent acquisition of CredentialMyDoc which was completed in December of 2019 were approximately $400,000 in the quarter. Gross margins improved to 66.9% compared to 58.8% in the prior year. Gross margins were positively impacted by $3.4 million favorable contractual adjustment to royalty expense resulting from the resolution of a mutual disagreement over various elements of the past partner contract. Excluding the impact of this favorable adjustment, gross margins would be 61.3% for the first quarter, an increase of 250 basis points over last year. This improvement is primarily a result of the reduced revenues from the low margin legacy resuscitation products, and revenue contributions from other higher margin products. Operating expenses excluding costs of revenues were up 3% or $1 million over the prior year and includes approximately $650,000 of expenses from the CredentialMyDoc and NurseGrid acquisitions. Our investments over the past year in product development capitalized software and our corporate office relocation, which occurred during the second quarter of last year, contributed to the increase in product development and depreciation and amortization compared to the prior year. Operating income improved by 35% to $7.2 million, and was positively impacted by the $3.4 million favorable adjustment cost of revenues, while adjusted EBITDA declined by 6% to $11.8 million. Now as the point of clarification, the $3.4 million stable adjustment to cost of revenues is excluded from the calculation of adjusted EBITDA. While revenues and adjusted EBITDA experienced declines versus last year's first quarter, we were able to mostly overcome the lost revenue and margin associated with the $6.1 million decline in the legacy resuscitation products. Now, let’s turn to the balance sheet and cash flows. Our cash and investment balances ended the quarter at approximately $142 million, and working capital was approximately $98 million. During the quarter, we completed the acquisition of NurseGrid utilizing $21.4 million of cash to acquire the remaining equity in NurseGrid. We previously acquired a 10% minority interest in NurseGrid during the first quarter of 2019. As part of the accounting for the acquisition, we also recorded a $1.2 million gain due to a change in the fair value of this minority investment. Cash flows from operations were $6.1 million compared to $16.1 million in the prior year. Lower cash collections and higher payments of royalties contributed to this reduction. Q1 was our strongest quarter of collections last year. Cash collections were also strong in Q1 of this year, actually exceeding recite levels during the third and fourth quarters of 2019, but were lower than the bar we set in last year's first quarter. Our day sales outstanding for the first quarter were 44 days which is favorable compared to 52 days in the prior year first quarter, but it's unfavorable compared to the 39 days from the fourth quarter of 2019. Capital expenditures incurred during the quarter were approximately $4 million and were primarily comprised of software development and content. On March 13, we announced the authorization of a share repurchase program up to $30 million of our outstanding common stock. Between the announcement date on March 13 through the present, we've acquired shares valued at approximately $10 million pursuant to the program. Repurchase program will terminate on the earlier March 12, 2021 or when the maximum dollar amount under the program has been extended. We may suspend or discontinue making purchases under the program at any time and we plan to closely monitor factors such as market conditions, our liquidity, working capital, and cash flow projections when making decisions regarding the program. Now I’ll discuss our forward-looking expectations including the financial impact of COVID-19 on our business and how we are responding. As announced in our earnings release yesterday we have decided to withdraw our previously issued financial guidance for 2020 due to the uncertainty and inability to reasonably quantify how the COVID-19 pandemic will impact our operations and financial results. We entered 2020 with optimism regarding our plans and delivered a solid first quarter. We completed an acquisition. We initiated a share repurchase program, began executing against our product development roadmaps and started filling open positions to support our growth initiatives. Over the past six weeks that we've seen several emerging indicators affecting our operations, which development roadmaps and started to filing open positions to support our growth initiatives. Over the past six weeks there we are seeing several emerging indicators affecting our operations which could have an adverse impact on our business. Although, our financial performance during the first quarter was strong with minimal impact from COVID-19, we anticipate several headwinds for the remainder of the year which will be strongly influenced by the impact the pandemic has on our customers. As Bobby mentioned earlier, our customers who are all healthcare organizations are not only focused on serving their communities, faced with COVID-19 infections, but they are also being faced with financial challenges resulting from lost revenues and higher operating cost. Many healthcare providers have been unable to provide their full range of services and are losing revenue. For example they are performing fewer elective medical procedures as a result of quarantines and shelter in place mandates, and they are incurring higher operating costs on medical supplies such as PPE. Many are faced with decisions to reduce their operating expenses, reduce their workforce or even close their facilities. Because our revenues and cash flows are directly impacted by the strength of our customers to the extent they continue to experience these disruptions, and it is likely to negatively impact our business. Because of these factors, we anticipate slower sales especially in the second quarter and we expect longer or delayed customer implementation cycles. Several customers have already elected to defer or hold their implementations which will result in delays in our revenue recognition and billings. Failure to achieve our sales goals or continuation or acceleration of implementation delays will have a negative impact on our revenues for the remainder of the year. We may also experience slow cash collections, higher credit losses and fewer renewals. We've already begun to see renewals. We’ve already began to see slower customer payment patterns, and at least one multi-facility hospital system recently filed for bankruptcy. We anticipate that some customers will receive Federal aid under the CARES Act, but we don't know if they will deploy those funds towards our solutions. These factors among others make it difficult to estimate the impact of the COVID-19 will ultimately have on our operations, our financial performance, and our financial condition. On March the 16, we required all of our employees to begin working from home, and we've restricted all business travel. We don't anticipate incurring any significant incremental cost to facilitate these -- our employees work-from-home arrangements, as nearly all of our employees already have the necessary equipment and resources to make this transition. And we had already virtualized the systems which we use to run our business. In anticipation of revenues and cash flows being negatively impacted from COVID-19, we have already taken several actions to manage our expenditures, our executive salary increases, which were approved by our Board of Directors in early March, and would be effective May 1 have been placed on hold. And annual merit increases to all other employees have been paused as well. We are reviewing all budgeted new positions and have deferred hiring most of them until we have more clarity on the future. We have rescheduled several customer conferences until 2021, and are cutting back on other non-essential business expenses. We believe the precautionary measures taken to-date are prudent. We are prepared to take additional cost saving measures, should the circumstances deteriorate further. We believe we have adequate access to capital which will -- which will provide sufficient liquidity to manage our business through this crisis over at least the next 12 months. To enter these challenging times with the strong balance sheet including $142 million of cash and investments and full access to a $50 million line of credit facility which remains untapped. As Bobby discussed earlier, based on the relative strength of our balance sheet and what we believe to be an iterative plan to responsibly manage expenses, we have several projects relating to the development of new products underway that we intend to continue. Additionally, we have decided not to suspend our share repurchase program at this time. We believe these initiatives remain in the long-term, best interest of shareholders and the company. So we will continue to evaluate them in connection with the COVID-19 related developments and adjust them if necessary. Thank you for your attention this morning. Now, I’ll turn the call back over to you, Bobby.

Thank you, Scotty. I'd like to make a few closing remarks. First, I'd like everyone to know that we're focused on the safety and well-being of our 900 employees. We required our entire workforce across the country to begin working remotely from home as of March 16, 2020 and we continue to work remotely to date. We were particularly focused -- we're particularly well-positioned to have all employees work from home as approximately 30% of our employees work remotely prior to COVID-19 and the approximately 400 employees that work in our headquarters in Nashville work remotely for almost a month last year when we were making the transition to our new corporate office. So we've kind of had some practice in the remote work and I've seen amazing productivity and camaraderie, online workforce has been truly amazing in the last several weeks. So we already had our technology and process in place and they were proven out. So we are confident that we were ready to just go virtual and we were able to very seamlessly virtualize our entire workforce and it's been, it's really been great to watch their effectiveness and getting things done. To support healthcare organizations and their employees on the frontline, we have made available a curated library of courses relevant to COVID-19 free of charge to all of our existing customers and all caregivers in support of their preparation to provide safe and effective care toCOVID-19 patients. The courses in this bundle include a wide range of relevant content topic like hand hygiene, ventilator safety, protecting yourself with personal protective equipment, contact and DropLet transmission based precautions, things on controlling transmission of infection were just a few of the courses that we've curated into the library and provided free and easily available through our platform and made available in other mechanisms to the non-customers. Our platform has seen record utilization on some of the days during the pandemic while performing consistently without disruptions. And so, again we're – we've been able to operate seamlessly through this period serving customers and applications up as needed. Also announced earlier this month HealthStream in partnership with the State of Tennessee, Office of the Governor is providing its COVID-19 Rapid Response Program which includes changing bundles and its Workforce platform along with other Workforce resource to support the state's efforts to rapidly train new, returning and current caregivers who are all volunteering to work in the alternative healthcare facilities being set up across the state. So, this program's been very exciting and a great receptivity by the Governor, Lee, and was made available in a matter of days to the organizations as needed. It's been really again amazing to watch our team respond and provision these resources as needed. We've become a key communication channel for lots of current information and news across our broad network of about 5 million subscribers. One of the most consumed pieces of content is a rapidly updated set of documents from the CDC that we post into our network as well along with the curated libraries we provisioned, that we post into our network as well along with the curated libraries we provision. So, you can tell we turned a lot of our attention to the service right now, taking care of customers, working with them on their -- everything from their bill payment to making sure they have the education resources they need to fight this pandemic. So in addition, what we've seen as interesting in our network, the free resources that we've provided made available. Our customers are using our learning platform to deploy what we call self-authored courses. And what's really interesting to see is the trends we're seeing in our data on January 9 of this year, for example, the first course with Coronavirus in the title was taken by a radiologist at a hospital in Jackson Wyoming. So it's just fascinating to see inside of our data, the most prescient organization was in Jackson, Wyoming, that created a self-authored course and started to distribute it to their staff in January -- on January 9 of this year. Since that time, our customers have assigned over 1.1 million courses with coronavirus or COVID-19 in the title. Taken together with the approximately 300,000 enrollments of the three curated courses we provided, our customers have assigned to over 1.4 million courses to more than 760,000 unique learners across our network. It's gratifying to see our network spring to action. In fact, some of our partners have also added their content to these free bundles as well. And that again, they're met with some not even emotional response in equipping people that may otherwise have never been in that situation of providing care to someone that is infected by this. In March, we expanded our ecosystem of healthcare professionals through the acquisition of NurseGrid, a Portland Oregon based technology company that is known for the NurseGrid Mobile app. This app has a growing community of over 260,000 nurses as monthly active users. It’s the number one rated app for nurses in the Apple App Store. With a 4.9 star rating and over 44,000 reviews. We believe that NurseGrid provides us an opportunity to further engage support and connect the community of nurses across the US. In fact, just about 48 hours ago, we announced the result of an in-app survey for over 15,000 nurses who are NurseGrid – who use NurseGrid responded about providing care during the pandemic. I personally think it's one of the most authoritative and current surveys of the nurse opinions and thoughts and concerns during the pandemic that exists. And you can see it on our website. Go to nursegrid.com, and you can see the just published results of that survey. What was amazing to me was that 15,000 nurses responded to these 10 questions in about three days. And again this is some of the most accurate and recently published data about nurse opinions as it relates to COVID-19. Shows the power of our ecosystem, and the power to collect quick opinions and publish them out in support of improving outcomes overall. In a survey, 79% of nurses reported that one of their top three concerns was infecting family and friends with the coronavirus. Now, I think this being a top concern of all other concerns mentioned, shows what a thoughtful group of people are serving us our healthcare providers. About 64% of nurses are experiencing a change in the work assignment due to the pandemic, and approximately 84% of nurses still report shortages in n95 masks. And so again when we look into the activities on our ecosystem from the first course taken on coronavirus in January 9 to this ability to instantly post survey 15,000 nurses of their concerns and opinions shows the power of our ecosystem and its efforts to support the healthcare organizations through this pandemic. As we continue to shelter in place and working remotely, HealthStream’s employees are arising indications as we battle against the pandemic. I began this call by thinking healthcare workers. I’d like that in the call, I think HealthStream employees did a great job they’re doing. Thank you to all of our really nearly 950 employees. As we wrap up this part of the conference call, I’d like to remind you that our annual shareholder meeting which will be held on Thursday May 21st at 2:00 p.m. Central Time will be virtual this year as a result of the COVID-19 pandemic. I hope many of you will be able to participate in the meeting this year. At this time, I'd like to turn it over to questions from the investor community.

As a reminder [Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from Matt Hewitt with Craig-Hallum Capital. You may begin.

Good morning and thank you for taking our questions. The first one, I guess is related to your customers and you've talked about some of the disruptions that they're facing, some of them even dealing with bankruptcy. And I'm curious given well I guess there's two questions here. Number one, a number of hospitals have been furloughing employees and I'm curious are they still on the rolls as far as you look at them from a customer perspective, are they if you're furloughed, are you still counted as being active user and therefore the hospital charged and then the second piece to the question is, you know I recall that this goes back probably six years to seven years ago, but I recall a situation where a hospital, customer of yours that was going through bankruptcy, they were still able to acquire your platform. And I'm curious under the current situation if those types of events are still happening where hospital budgets are definitely have been impacted, but are they still buying your products even, if at a lower level but they are buying? Thank you.

Yeah. Sure. Thanks Matt and I think that was in cycle, the way you asked the question because you know our customer is if they do layoffs and I’ve seen a half dozen announcements of actual layoffs, clearly reduces their customer counts and a lot of our platforms are based on subscribers. And so, we would expect them to want to draw down the payment were they wouldn't pay for those that were gone. The furloughed workers are still in the platform, but I can expect and although again this happened the last few weeks, you know I imagine the health system want to negotiate to get those furloughed workers who are not accessing the systems, do not pay for them and so, those are two examples where there's a direct correlation to the size of the workforce and whether they are actively working, whether we're actively billing. And while our contracts in most cases are subscription based and more fixed, I think it would be wise and provide flexibility in how we build them through these times and unwise in fact to bill for say furloughed employees or laid-off employees certainly. So, you're right to draw this correlation is one of our concerns. Now, it's just been a few weeks here so, we have really seeing that in the negotiations discussions yet, but we’re – we're expecting it and we want to be flexible to maintain healthy relationships with our customers. The second question is we are seeing some buying which you know so it hasn't completely stop, it is lower than expected but you know we've, we've closed you know half dozen more Red Cross solutions in the last month. We've, we've signed up as I mentioned new contracts and a stable program a few of them, I think we would need many, many more work for COVID-19 but it's a, it's a really beautiful product and we're going to have a major impact on unicare. We've seen other forms of contracts being more creative, for example a large health system that had partially adopted out platform, wanted continuous access to our free COVID bundles. We actually signed a free access to our full platform for 90 days, but end of 90 days they’ll need to assess for their other tens of thousands of employees. And at the end of that term, they'll have to decide whether they want to have continued access to our platform for all employees not just a partial subscription. So there are some signs that we may get growth in that particular case, about a third of the workforce which was in the tens of thousands. We're using our platform under contract and they and when they saw the free COVID bundles we provided, they said look we need to provide this out to tens of thousands more people immediately through the same platform and again they did sign an agreement to have free use of the platform for the other two thirds of our workforce. And then maybe that will convert into a full time contract. I can't know that, but we were able to sign an agreement around that program. So you know there are so many conflicting signs, right. Essential services are being purchased, regulatory components, non-essential or elective things as you can imagine are completely on hold. The implementations, you know they just can't go through software implementations right now and we’re seeing with the other vendors, but they're asking for delays or waiting and it is mix, you know the few that they’re taking advantage of our virtual implementation services and few other asking for deferrals in implementation. As you know, our revenues are tied to successful activation of an account. We don't start building, we sign a contract. We start billing when we implement in most cases and so delays in implementation will affect our revenue recognition. So I think you called out a really important relationship between our customers help and how they are treating their employees furloughed or layoff, the subscriptions that we sell are based on those counts, potentially being negatively impacted and then the unknown of it all, how fast will furloughed workers come back on, how many will go through layoffs and then go rehiring. Now fundamentally underneath all of this, I believe that the healthcare services probably will keep expanding. The shift the companies that are homecare provided there's going to be more of that overall need for healthcare are going to go up. Elective surgeries is my personal opinion have been deferred, will come back online because people that need those surgeries to walk better are going to come back into the system. So, I think that -- and the health system just has to survive. And so, the government is providing specific financial support to hospitals and healthcare organizations to make sure that there – they remain viable and can service our population. So, while the nature of care delivery may change and the care settings may accelerate more homecare and other settings where again we have growth going on in those markets, you know overall eventually this has to come back and normalize again.

Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is open.

Yeah. Good morning. This is Jerod Haase in for Ryan. Thanks for the questions. I wanted to ask another question on the implementation process actually. It sounds like you've seen maybe a few pockets here and there of customers that have relied on some of the virtual training services, virtual implementation services. Just curious are there anything – is there anything unique in those instances or is that something like that could conceivably be applied across you know all types of implementations or all customers? And then maybe as a quick follow-up, I'm just curious if there's anything that you've seen there that suggests maybe once things sort of normalize beyond COVID-19 is that something that could maybe persist as a more efficient way to conduct implementation either at lower cost or maybe speed up the time to revenue something like that?

Yeah. That's great. Great question and good insights actually. Some services are just blended like the Red Cross Solution has this blended nature to it where it has the physical component of these manikin technologies on the Apple app that uploads this system to the clouds or systems and they're not just pure software implementations. And historically we've had a little bit more of a hands-on sales effort to both demonstrate the product and implementation process to kind of physically demonstrate components of that solution, that again to some correction base but has a physical dimension to it, as well as the software dimension. And so the virtue implementation of those it's been fascinating and I think it could result in kind of a new set of options and over time favoring these virtual support mechanisms. It still has a tangible product dimension to it. So I think it is important to get that sales team back out and feel when they're able to demonstrate the differences and the capabilities, but that said I think you're right that there will be customers that will grow to favor this form of implementation. Now elective implementations say the Variety stream platform where you have a working credential privileging platform you have selected ours or even contracted for because it's superior and you're now not going to be the time to undertake the switch. You know even though you contracted for it on our platform in the view of the customer superior you will have eventually more benefits to do it. Whether it's in person or remote it's likely that those kind of systems would be delayed because you know what they have may be functional even though what they bought from us may be superior. And so you know we're refining our implementation methodologies there on systems like that offer software deploys. And I think you're right, I think we may see some favoritism across these new virtual models for deploying. We can certainly support them operationally as I've noted our whole company almost without a hitch over a48-hour period went completely office-less and virtual. And fortunately in the year prior, we had essentially been homeless waiting for our new office space to be developed and had stress test every infrastructure system for a full month to make sure we were virtually able to service. And so, I think you're going to see delays in the implementation for selected products that they already know they favor because they just can't pay attention to them now. And in the long run, I think you're going to see on balance a little bit of a shift to more virtual implementations for lots of our product sets. I hope that gave you enough color to see directionally. I think you're accurate in your assessment.

Absolutely, yeah. Very good color. Thank you.

Thank you. Our next question comes from Richard Close with Canaccord Genuity.

Yes. Thanks. I hope everyone is safe and healthy. With respect to by the – obviously you’ve been running this company for long times, been through some ups and downs, obviously the current situation dealing with your customers specifically. If you just take us back in terms of some of the downs, what have you guys seen in terms of customer attrition in the past, you know maybe if you can sort of give us some perspectives on that whether it's the 2008-2009 timeframe or the early 2000s, just some perspectives?

Yeah, a couple of things about that Richard. We definitely fought through a couple of things over our 28-year history – 29-year history. One was long time ago, this is reaching back over 20 years. We upgraded our core platforms through a whole upgrade cycle and hit some capacity issues and we were very small that was 20 years ago. And we had to ask our customers for favors like would they agree to -- some of our bigger customers really had to say would you not use our system on Thursday and Friday, so others can have the capacity. And we built strong relationships to that period and our software struggled for gosh almost six months, but we eventually stabilized it and the way we had managed our accounts obviously you can see the results of this 20 years ago. We've grown quite a lot since then and didn't lose a lot of customers. We went to a direct communication mode. We told them exactly what was happening and learned a lot of lessons there about periods when our own platforms and technologies were struggling and obviously the results have grown from that period. In the 2008 financial kind of crisis and meltdown, we saw a shift – shifts in usage patterns and delays in purchasing, but ultimately there were still financial benefits to moving our platforms of managing costs overall downward, being the low cost provider on required federal training for example still has a competitive advantage. And so, if they were doing classroom training for example they still need to shift their training to online. And so, we were able to grow through that period as well. I think we're going to see a little of that here. We believe the material part of the resuscitation market is still done in classrooms and believe it or not you know maybe as much as half of the market is still doing their training in classrooms with instructors. This could be the thing that pushes an inflection point in continuing to move that kind of instruction online and through manikin and self-certification and non-instructor led. In fact, I think we’ll see that. Now in this time, we’re not really willing to implement new technology that may favor incumbencies more so, but again I think overall this will be an inflection point to shift even more to online training and we're seeing that in our platform, we use a hospital use our system to manage classroom training as well and the registration on the classroom portions of our self-created classrooms and lectures, those registrations are really dropping down dramatically while we just talk about nearly 1.4 million assignments of online courses. So and then what do we do? Our main lesson on this time I think is focus on customer need and flexibility to win hearts and minds of all of our, nearly 150 sales people are really in an account management mode, calling up and asking what do you need and trying to get it customers. Some customers are returning out with, you know most responses and appreciation and my thought is that that will result in stronger relationships with our customers over time and a turn more to us for broader solution sets over time. We're trying to do the right thing first and then, you know of course protect the business. You've heard some of the actions we’ve taken on expense management, but do the right thing first by the customers is my experience is of the prior to crisis spanning over 25 years and it'll return in ultimately and growth. And so that's what we're doing and we're doing it for all the right reasons and we're seeing great uptake. And we're also learning the power of an ecosystem. Our partners are responding with us. I think that's building relationships with them as they offer up some of their content and curriculum for free with us. You know we're just meeting the needs and we're going to worry about contract signings here little bit later in a few months. And like I said, I give that one example of a large health system that actually expanded their data feeds to us so that all of their employees have access to our platform for 90 days for free. And you know my hope that they'll end up appreciating the power of that platform and turning it into a real relationship. But if they don't, we will also help their short-term needs and build a stronger relationship. The problem with all of this is it's not quantifiable and I've characterized the lessons learned from where once our platform struggled and once when there's financial and economic near recession. And in both cases, the actions we took, we came out a stronger company on the backend. I do think the great news for us is we're not in the quiddity crisis. We actually have capital. We can figure out how to deploy it. But if we have the right size our operations to match what's happening in the market on the purchase decision delayed implementations, you see we've taken some actions to do expense management to make sure that operationally we're aligned with what's happened financially. But that doesn't slow my desire to also be active making sure we're building new products. We have a couple of new products throughout this year and we're actually trying to accelerate capital investment in those products to come out with those, one of them actually deals with the social well-being of the workforce which probably never been a more relevant topic. I wish that product were ready now. It's still probably mid-year or later. I hope that gives a little color, but a lot of lessons learned and we're trying to react with those accordingly.

Great. Thanks. As a follow-up I'm curious you sort of dived into this with the new products, but you know I'm sure other organizations that deal with hospitals are probably struggling as well. As you think about M&A, obviously you don't want to spend all your capital you know given the situation, but how are you thinking about where this might accelerate opportunities for you guys to broaden in the platform?

Yeah. That’s really a great question and actually it's a complicated answer, because here's what I'd say. Our desire and ability remain active and we were in the middle of a very small deal which we decided to not consummate, because I wanted to get our – you know take 60-days and get our hands around everything, take some action as we mentioned related to the raises and other – some other deferrals we've done to get, to make sure we have good financial controls. But our desire to reengage deploy capital is still in place and in some ways, having a strong balance sheet in troubled times could be a good time to think about investing. It's complicated, because you know it's kind of like a 90-day course for me, but realizing we have strong balance sheet and seeing about how things play out the next 90-days on DSO and collections, you know we don't perceive as I mentioned any liquidity issues at our company and in fact have a full line of credit that we didn't draw down on we have $142 million cash. So, maybe in the second half of the year, there'll be a way to actually deploy that capital, but we do have a short-term pause on it, but an active interest and still intelligently deploying it. I think we need a little wait and see here on build-out to make sure I'm right about all that. But and we did enter the year with a very active pipeline and was maintaining that activity and we're telling people we need 90-days guidance got our hands around things that have you know moving towards negotiations for example. So, I hope that helps characterize that, I call it an active desire to deploy capital but a 90-day pause is probably the best way to describe it.

Perfect. Thank you.

Thank you. [Operator Instructions] is probably the best way to describe it.

All right. Thank you.

Thank you. Once again, ladies and gentlemen [Operator Instructions] Our next question comes from Vincent Colicchio with Barrington Research. Your line is open.

Yeah. Bobby, I was wondering if you could give us some insights on how April has trended versus March, maybe the year ago period?

Yes. Vince, let me think about that. So some of the things we're seeing I’ve mentioned shift in usage patterns of our platform. For example, it is a good example where the shift away from classroom towards online is very apparent. We've seen in the last few weeks, so the first part of April more accounts obviously call us and ask to renegotiate their implementation schedules or some have asked for and we have granted their ability to pay us later or slower. And so those are new in the last three weeks, the first part of April where we have discreet negotiations with some accounts that helped them facilitate slower payments or delayed implementations. And so, you know not much of that has happened in the middle of March, but in the last three weeks of April those are three shifts that we've kind of mentioned on the call here that occurred really if you think about it from about April, April 5th till today.

Okay. And then you mentioned that one bankrupt client. Are there any others and do you have any sense for what portion of revenue is associated with bankrupt clients at this point?

Yeah. Unfortunately, we have a very large and very diverse and not overly reliant on any number of accounts. We've begun tracking our top 100 accounts for furloughs, layoffs and bankruptcies. Even through bankruptcy, we're expecting them to continue operating and continue using our platforms and you know they have some collection issues on bill to that date. But in general, as Scotty noticed and this is true even to the last week, we've had decent cash collections in some ways it’s surprising. And so, I don't know if these – the delayed payments are going to come later or not. And so, even some of those that we would be concerned about paying have made reasonable and large payments against their – our accounts receivable their accounts payable to us. So, again it's a mixed bag of the public disclosures we're seeing furloughing and layoffs and what we're anticipating to be potentially lower subscriber count to some accounts or requests for deferred payments. And I would say only a few of those are materialized in the first few weeks of April and probably – we believe more to come. It's our inability to quantify those things that has resulted in us obviously having to pull guidance. We just don't know.

Thanks for answering my questions.

Thank you, Vince.

Thank you. And I'm currently showing no further questions at this time. I would like to turn the call back over to Robert Frist for closing remarks.

Thank you to everyone. I hope everyone listening to the call stay safe. I want to thank our employees. Their work has been amazing. Not missing a beat through going fully virtual, just outstanding, outstanding work. The surge efforts to provide the State of Tennessee and all of our customers nationally with these three supporting resources has been amazing, their calls and coordination with the CDC and others to help distribute much of this information. The team at HealthStream has really rallied around our purpose which is to improve the quality of healthcare by developing the people that deliver care and we are busy, busy, busy doing that. I think that will eventually turnaround and result in business growth again and renewed optimism. But for now, the right thing to do is to do the right thing and that’s what we’re doing at HealthStream and I appreciate everybody listening to the call and look forward to the next update where hopefully we’ll have a little more clarity than we do today. Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.