HealthStream, Inc. (HSTM) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the HealthStream Inc Fourth Quarter and Full Year 2020 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to one of your speaker today, Mollie Condra, Vice President, Investor Relations and Communications. Ma'am, please go ahead.

Thank you, and 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 are Robert Frist, Jr., CEO and Chairman of HealthStream; and Scotty Roberts, CFO and Senior Vice President. I would also like to remind 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. 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, Mollie. 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 it hardly seems to scratch the surface. I think we can all agree with year unlike any other and of course, this call will synopsize what things that happen in the year and talk a bit about the future. Despite the adverse conditions of the pandemic the HealthStreamer never stop living our mission and vision. And we're focused on improving the quality of health care. And it seems it never has that vision been more important than at this time. So our employees are really focused on execution. To start our call, I like to look forward to talking about how we're busy to the last 24 months; especially this last year laying the groundwork for what we believe will generate long-term shareholder value. As part of discussion, I'm going to update you on each of the key transitions that we've discussed in the past several calls and characterize and re characterize them. With only 10 months ago, we're reaching 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 were 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 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 million 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're 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 giving directional information that covers not just 2021, but a little bit into 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 of what was returned 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 65% gross margin profile. 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 65% gross margin profile. And third, we would expect in 2022 to see our returns adjusted EBITDA margins of 15% to 20% of revenues. And I think that's a maybe one of the more important metrics for us to look at as we climb through the challenges presented by the revenue declines associate with the legacy resuscitation revenue products. Achieving 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 inorganically of the declined resuscitation revenues, we are investing very actively in the businesses that we acquired. And we're fortunate to begin here 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. And each of our quarterly calls 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 are only 10 months remaining and the 36 month horizon that articulated a few years ago. So let's go through one at a time. First, we have transitioned our sales and marketing efforts from 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 curriculum, and we launched it in January of 2019. It brings updated highly adaptive competency based development solution to healthcare professionals. It offers certification health care professionals successfully demonstrating proficiency of life saving resuscitation knowledge and skills. While customers 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 this week. For the full year 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 migration to our new Verity hStream application suite. In the first quarter of 2018, we announced the launch of Verity hStream, 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 Verity hStream 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 privileging platforms to the new Verity hStream application suite. Some of the customers we contacted in fourth quarter include University of Utah Health, On Our 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 Verity hStream 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 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 to 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 Verity hStream application suite with approximately 345 customers and many notable referenceable accounts. We have seen firm technology viability for our hStream platform as evidenced by the large scale deployment of applications which utilize services from the new hStream pass 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 will 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 with fourth quarter, and then come back around for some closing comments and questions.

Good morning, and thanks to everyone joining us today. During this morning's call, I plan to review our financial results for the fourth quarter and provide more information about our M&A activity, as well as discuss guidance expectations for 2021. And I'll briefly touch on the impact of COVID-19. The discussion of our financial results will be for continuing operations only, and comparisons will be against the prior year fourth quarter unless otherwise stated. For the fourth quarter, revenues were $61.8 million or down 1%. Operating Income was $1.1 million and down 66%. Income from continuing operations were $0.9 million or down to 74%. EPS from continuing operations was $0.03 per diluted share, down from $0.11 per diluted share in the prior year. And adjusted EBITDA was $10.7 million or down 4%. After pausing our M&A plans earlier this year, we had an active quarter to close out the year. During the fourth quarter we acquired ShiftWizard, ANSOS and myClinicalExchange. And in January we acquired ComplyALIGN. We're excited about the future opportunities these companies provide us and our customers. Given the two of these three acquisitions closed in the final month of the quarter, the impact on the quarter's results I just highlighted included revenues of $2.1 million, which is net of deferred revenue write-down of $0.9 million. It also included $1.2 million of diligence expenses. And $0.7 million of amortization expense. I'll provide more information about how these acquisitions impact our 2021 forecast in a few minutes. Revenues from the Workforce Solutions segment totaled $49.7 million for the fourth quarter. And we're down 2% or $1.2 million compared to the prior year. Revenues from the legacy resuscitation products declined by $5.7 million during the fourth quarter. For the full year, revenues from the legacy products were $38.4 million, compared to $58.9 million in 2019. And they're expected to be zero in 2021. Other workforce revenues increased by $4.5 million or 12%, and were comprised of an increase from platform and content subscriptions of $2.4 million or 7% and $2.1 million from the acquisitions completed in the quarter. Revenues from the American Red Cross stimulation suite program, which includes both subscriptions and simulation equipment, was also a strong contributor to the fourth quarter revenue growth. Revenues from the Provider Solutions segment totaled $12.1 million for the fourth quarter and grew by 3% over the prior year, which was primarily associated with the acquisition of CredentialMyDoc that we completed in December of 2019. Our gross margin improved to 63.2% compared to 60.3% last year, reductions in the lower margin legacy resuscitation revenues, and increased revenues from other higher margin products continue to yield improvement in our overall gross margin. Operating expenses, excluding cost revenues were up 10% or $3.5 million over the prior year. This increase reflects our investments in product development, incremental expenses from the acquired companies, and diligence costs. While we increased investments in these areas, we continue to benefit from lower expenses resulting from travel restrictions and tradeshow cancellations of approximately $1.7 million as a result of COVID-19. The combination of these factors led to our operating income declining by $2.2 million or 66% to $1.1 million and adjusted EBITDA declining by $0.5 million or 4% to $10.7 million. As Bobby mentioned, we've updated our definition of adjusted EBITDA to adjust for the impact of deferred revenue write-downs associated with the fair value accounting for acquired businesses. The impact of deferred revenue write-downs was $0.9 million during the fourth quarter of 2020 and $51,000 during the fourth quarter of 2019. Our cash flows from operations were $35.9 million this year, compared to a record high of $65.7 million last year. The reduction in cash flows from operations is primarily due to the lower cash receipts of about $23 million, mostly coming from a reduction in legacy resuscitation products, and higher overall expenses compared to the prior year. DSO increased to 50 days compared to 39 days in the fourth quarter of last year. Acquisitions completed during the fourth quarter increased our DSO by six days. Despite facing uncertainty and challenges caused by the pandemic, we were able to maintain a strong financial position over the course of the year. We implemented measures to control expenses and maintain liquidity, enabling us to operate without significant disruption or financial strain, while continuing to pursue strategic opportunities to deploy capital. We use the $102 million of cash to fund three acquisitions during the fourth quarter. Our capital expenditures were $7.5 million during the quarter, $21 million for the full year. In addition, shares repurchase approximated $3.6 million for the quarter, and were $20 million for the full year. And we ended the year with cash and investment balances of $46.5 million. Now let's turn to our financial expectations for 2021. While there remains uncertainty about the extent, timing and duration of COVID-19 continued impact on our operating results and financial condition, we are providing financial guidance for 2021 as follows. Consolidated revenues are forecast to range between $242.5 million and $252.5 million with workforce revenues forecasted to range between $195 million and $203 million and provider revenues forecasted to range between $47.5 million and $49.5 million. Revenues within the workforce segment include contributions from the acquisitions that we've completed since October, which has netted deferred revenue write-downs between $4.3 million and $5.3 million. We are forecasting adjusted EBITDA to range between $34 million and $38.3 million. As a reminder, EBITDA is a non-GAAP financial measure used by management. And we believe it's also useful to investors in assessing the company's performance. We anticipate the capital expenditures, which includes the capitalized software development and content to range between $25 million and 27 million. It's important to note that 2021 revenues will reflect a $38.4 million reduction from the legacy resuscitation products, which also negatively impacts the adjusted EBITDA compared to 2020. Over the past two years with marketing and sold the American Red Cross Resuscitation Suite, and expect increase in contributions to revenue and adjusted EBITDA from these products in 2021. At the same time, they're not expected to fully replace the lost revenues or profits from the legacy resuscitation products this year. In terms of profitability, we're targeting this inflection point to occur around the second half of 2022 if we remain successful in gaining market share for this solution. We've also continued to diversify our product portfolio with higher margin solutions to improve profitability, proprietary applications, such as Verity hStream, which is our credentialing and privileging application, innovative workforce development solutions, such as our partnership with the American Red Cross, and the newly acquired staffs scheduling applications are examples of investments that we've made to improve gross margins. For 2021, we anticipate gross margins to be in the mid 60% range, which we believe is the level that we can maintain throughout the year and through 2022. As mentioned, the capital deployed over the past year was primarily focused on acquiring assets and technologies in the scheduling space that we believe can enhance our profitability metrics over time. To improve our market position, we plan to reinvest expected returns from these acquisitions, and make incremental investments into sales, marketing, and product development. We anticipate these investments along with the impact of deferred revenue, write-downs, intangible amortization, integration costs, and transition services will result in a $2 million to $3 million reduction to our adjusted EBITDA, which is reflected in our guidance. Absent the impact of the deferred revenue write-down and absent our decision to actively reinvest in these companies we acquired last year. We believe these companies taken in the aggregate which show a net profit, as opposed to net losses for the year. Our forecast it seems that customer purchasing decisions for our products gradually returned to pre pandemic levels over the course of the year, and that new bookings and renewals perform better than they did in 2020. It also seems a gradual return of our own pre pandemic spending, such as travel and trade shows, which essentially ceased after the first quarter of last year. Collectively, our forecast includes meaningful investments in sales, marketing and product development in 2021, which are expected to result in a decline in adjusted EBITDA compared to 2020. But believe will support revenue growth and adjusted EBITDA improvements beyond 2021. Our forecast does not include the impact of any acquisitions that we may complete during 2021. Other than the ComplyALIGN acquisition which was completed in January. Now, let me wrap up by providing some additional thoughts about COVID-19 impact on our business. While our forecasts seem a gradual improvement in sales and renewals, the pandemic's negative and financial impact on our customers may continue to cause uncertainty in their purchasing decisions for our products. We continue to closely monitor our liquidity including weekly cash flows, customer payment patterns, and bankruptcy notice. We did not experience any significant bad debts during the past year but our DSO increased in the fourth quarter, though remained within an acceptable range of our expectation. Although, we have experienced somewhat slower collections from customers, economic conditions may worsen and our customers financial condition may deteriorate, which could negatively impact our future cash flows. Finally, we ended the quarter with approximately $46.5 million in cash and investments. We also renewed our revolving credit facility in the fourth quarter and increase the borrowing capacity to $65 million. 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 through acquisitions. Although for the near term we'll be focused on integrating the companies we've recently acquired. We also have an approximately $10 million remaining under our share repurchase program. We believe our multiyear objectives to grow revenues, improve gross margins and deliver incremental EBITDA are in the long term best interest of shareholders and the company. That concludes my remarks for today. Thanks for your time, and I will now turn the call back over to Bobby.

Thank you, Scotty. Some closing comments here before we go to questions. It's really been a great year for our technology innovations at HealthStream; our driving innovation is one of our core values that we express to nearly 1,000 employees in our Constitution. And we believe that we're living up to this. I'll give me some examples in then the fourth quarter alone, six of our products altogether 115 excellence awards from the Brandon Hall group, which is considered the leading preeminent research organization in the country focused exclusively on Learning and Technology. Included among this list were the American Red Cross Resuscitation Suite and our implementation of it which won both best advanced in gaming or simulation technology and best advanced in learning management technology. Our nurse residency programs also won two awards, one for best advanced and onboarding technology, and another for best advanced and emerging learning technology. So really excited to celebrate these technical innovations now being recognized industry wide as a leading in our industry. In the fourth quarter, we awarded two patents for our next generation clinical solutions and there is -- we've been working on developing an intellectual property portfolio and we're succeeding so in the fourth quarter, we were awarded two patents for our next generation clinical solutions that are specifically designed to help healthcare providers drive outcomes and recognize efficiencies. The first patent covers our proprietary system and methodology for using data to build role based specially pathways for resuscitation education and certification. So it kind of complements alongside the Red Cross Resuscitation Suite to deliver innovation in this area of critical training and education. We're currently using this patent in connection with our partner AROM to provide specialized training to perioperative nurses, for example. We also received a patent around the natural language capabilities of our proprietary AI engine, which I look forward to telling you more about soon, we are pleased to see the national recognition of this caliber bestowed to HealthStream and to our solutions. We've been putting a lot of energy into their development over the years. So it's very exciting and rewarding to see that happen. Operationally we've been very busy. During 2020, we acquired four companies, and we added a fifth just last month. So excited to welcome all five companies to HealthStream family and I'd like to take an opportunity to say something about each one. Three of the five acquisitions NurseGrid, ShiftWizard, and ANSOS are focused on hospital scheduling. Together, they form a brand new solution group for us, which we refer to as HealthStream scheduling. This solution group is led by HealthStream, senior executive Scott McQuigg, and it forms the third leg of our company's three legged stool. And some of you may be wondering what I mean by this metaphor, and maybe heard me talk about it before, or already figured it out. But we review our workforce development solutions is forming one leg of the stool. Our Provider Solutions is forming another leg and scheduling as the final leg the balance of the stool. Each of these three solutions, importantly share a lot in common. For example, each represents the enterprise software designed to help our healthcare customers fulfill the mission to providing care. Each of the three solution groups are also positioned to leverage one another as they connect through and leverage the core foundation of our past technology platform known as hStream. Working together, customers will be able to make sure that they have the right people at the right place and time providing patient care in the right way. We've worked hard to assemble all three legs of the stool and the platform that powers them and connects them and interconnects them, you'll probably hear me use this metaphor for our business again in the future. In many ways while the revenue has the potential for slight growth in 2021, the company I feel is fundamentally stronger because it's a more diversified set of revenue streams with a higher gross margin profile. So we're kind of excited that although on the surface, things may look similar to the prior year. Really, it's a stronger and more diversified and more interconnected company that's well positioned. So back to the acquisitions, we're excited to add myClinicalExchange and ComplyALIGN to HealthStream. We haven't talked a lot about those. So take a second on those; myClinicalExchange fits our model of ecosystem expansion really well. Through their SAP solution they interface with hospitals, and with nursing and medical students applying for internships at those hospitals. By collecting and processing student data, myClinicalExchange is able to help 1000s of students get the internships they seek in these hospitals by presenting their credentials to hospitals in the form the hospitals require. Albeit a small one at this time this march our first expansion to the nursing and medical student markets, but also it also has the benefit of being familiar to us as it's a software solution that directly benefits our hospital customers. And then ComplyALIGN, as the name indicates, aligns directly with our core compliance business. And historically, one of our strengths is in this compliance area. Through its SaaS based a policy management solution that allows hospitals demand and update very policies they require to remain in compliance and ensure they're providing the best care possible. This is a heavy lift in most hospitals is most maintained well over 1,000 dynamic policies and procedures at any given time. We're pleased to now be in a position to help them with this task, as it kind of overlays a lot of the regulatory and educational products. As we've grown, both organically and in organically. We've also been fortunate to add senior leadership around key areas of business. In January, Kevin O'Hara joins HealthStream as a Senior Vice President and General Manager of platform solutions. And that's of course hStream. For those of you who've been following the company for a while Kevin's name may sound familiar, he's actually returning to HealthStream as he was an executive here for almost a decade. He left in 2011 to become the CEO of an innovative startup and after leading it to the success and selling it, we're very fortunate to have him returning to oversee the growth development integration of our hStream platform. Also, in January Scott Fenstermacher, join the executive team as our Senior Vice President of Sales, Scott's outstanding sales leadership since 2012, when he joined HealthStream to build and lead ICD 10 Solutions team. Since that time, he has been instrumental in the company's growth and made it an easy decision to promote him to our enterprise head of sales. I also want to take this opportunity to honor and thank Dr. C. Martin Harris for his decade of seamless service on our Board of Directors. Dr. Harris served as Chief Information Officer for the Cleveland Clinic for 20 years, and more recently joined Dell Medical School at the University of Texas, Austin. Dr. Harris, his last day on the board will be at the end of this week, and we wish him all the best in his future endeavors, which we are sure, will benefit the practice of medicine and quality of care for years to come. I want to close with a couple of things and acknowledgments. Throughout the pandemic, we've never been more honored to support the brave health professionals providing care for those who need it. Even as we've just crossed over the grim milestone of 0.5 million COVID related deaths in the US. There are and appears to be reason for optimism as the number of new cases is declining and vaccines are increasingly becoming accessible for more and more people. Hopefully, this period will soon become a chapter in our history, which we move forward. Until then we continue to recognize and support the heroic and tireless work of each and every frontline worker. In particular, I want to recognize healthcare workers in Texas who have been forced to contend with the loss of electricity and water over the past few frigid days. Your perseverance epitomizes the value and grit that will move us past the last 12 months of tragedies. Finally, I want to thank our employees for your persistence and hard work remaining focused in the face of these great challenges. And delivering what I think is a relatively exciting forward look into 2021 and 2022. An exciting new products and technologies that have the chance to change the industry and improve the quality of health care. Thank you to our nearly 1,000 HealthStream employees. At this time, I'd like to turn it over to questions from our investor community.

[Operator Instructions] Our first question comes from a line of Ryan Daniels with William Blair.

Yes, hey, good morning, everyone. And thanks for taking the questions. This is Jared Austin for Ryan, I wanted to start just talking about the 2022 outlook that you had mentioned and appreciate to get some of that color. In terms of the high single digit organic growth outlook, Bobby, I'm curious if you could maybe just talk a little bit more about some of the specific drivers that you're seeing that kind of gives you the visibility or the comfort in providing that outlook. And if you could maybe talk kind of around sort of the expectations for each of those three legs of the stool, as you alluded to a moment ago.

Well, I can't do all that, but I can do some of it. And we're fortunate to be in a position to redevelop guidance with some degree of competence for 2021, which we stated. And then we thought it was important to say what it might look like as we fight through this year -- the final year of the year-over-year comparisons of the decline of $38.4 million resuscitation suite from and so there are many things that give us confidence about these kinds of general guideposts we've outlined for 2022. We thought it'd be important to convey them. So the single digit growth, there's a lot of reasons for competence in that. There's a lot of things that are kind of built into our model from the acquisitions we've just performed that give us confidence in kind of return. Things like the deferred revenue write-down obviously, we'll work through the accounting treatment and that'll show some growth but more importantly organic growth in a lot of product areas, we feel confident, we feel more confident that's demonstrated by recent sales activities from some of our newer platforms. So the first and foremost, and also contributing to one of the other goals and objectives, the 65% gross margins is the success, adoption and market penetration of the Red Cross Resuscitation Suite program. And so we, 180 contracts in a year is quite an accomplishment, new customers returning customers, we've moved, in my view, material market share, to what is was once considered almost a controlled market by a single entity to a new entity that's credible, had scientific evidence behind their products, and is a fierce competitor in the market. So we have continued optimism for that core part of this workforce development portfolio. And then there's also a set of organic products that we haven't talked about as much. But we made investments many years ago to build this new AI engine, and it's called Jane. And we've seen recent success at scale of the new Jane platform. And so we've signed one of our first multi million dollar contracts for Jane in early this year. And it's again, a relatively new product, that's a derivative of technologies we acquired up to four and five years ago. So it's finally coming to market. And it's a powerful differentiated application set. You'll be hearing more about Jane in the coming months. But you asked what gives confidence in some of these, it's a high margin organically created, but derived from some acquired companies years and years ago, application set that we think has a potential to have an impact on the market. And so watch for more news on Jane in the coming months. But again, we signed our first multi million dollar contract on Jane, just about a month ago, so early this year. And so and then finally, the Verity hStream, we talked about all these transitions, and the Verity hStream transition story will go on for a long time, will take us a while to move customers off to the acquired companies. But the real risk and the reason we started talking about that migration and transition as a business risk, two and a half years ago, was because, we acquired several companies got a market leading position, but we had to build the replacement platform, and we had to prove its viability and move customers to it. And today with over 345 contracts on the new platform, the one which we're migrating to and several examples of customers successfully migrated. I think the type of risk that comes with a new product and maybe market failure or market failure to be adopted, or the technology viability is real and but now I kind of you heard me Jared today declare while the transition, the actual movement of customers from old platforms new won't be over in 10 months, the real risk was that the new platform simply didn't meet the needs of the market. And it does, we have 345 contracts, satisfied referenceable customers, and we're gaining market share on the Verity hStream platform. So those are three of the reasons now, we have acquired these three companies to build a scheduling business. And we enter a market and again, a market leading position but across three diverse platforms. And so we have our work cut out for us in this third leg of the stool. But we also remain optimistic that area for us is an area that makes sense to focus on. Nurses are one of our largest audiences in our entire network, several million nurses that are in the HealthStream network. And we have the innovation of the nurse grid platform along with the market share and market leading concepts of ShiftWizard and ANSOS. We have a lot to work with there. And we have optimism. Now, you did see a lot of investment in 2021. I believe over 30 new positions are being added to those investments, instead of seeking operational synergies we are actually approved the hiring of about 30 or more new employees to add to sales, marketing technology, development of this third leg of the stool, if you will. So 2021 year of investment. That's why we had to talk a bit about 2022. So reasons for optimism, organic products that are seeing market success, partnerships that were once in great doubt and had questions hanging over them are seeing market adoption and migrations to the new platform and hStream platform. We're getting it more and more interconnected. It's not -- it's an immature platform but it's a proven like the technology is working now components of the past architecture. And they're not just concepts anymore, they're actually working and adding 280,000 subscriptions to that pass architecture gives me great optimism that we can provide the kind of guidance we did and so high single digit revenue growth for 2022 coming off a year of a guidance range which provides for the potential for growth again, which is to me outstanding that our teams have essentially backfill $38.4 million of revenue loss this year through organic and inorganic efforts. And so and then the 65% gross margin, again, we are a software company, we do have higher costs and some software companies because a lot of our application sets also sell content, which is from partnerships, we have royalty costs, but on the whole, we see this move from high, mid-50s, to the mid-60s, in the gross margin profile, the company being something that we can objectively try to maintain and achieve in the next 24-months. So I see continued improvement and have confidence in that because of the kind of nature of the shift in our, the way we've done our partnerships. And then -- and so for those reasons, I have a lot of confidence as we think about 2021 guidance we just provided in detail. And what I guess I'll frame as goals and objectives for 2022.

Got it, yes, that's all super helpful and appreciate all the color and you can definitely see there, there are quite a few tailwinds here to support the business going forward. So I will go ahead and landed there. I'll hop back in the queue. But thanks for all that color.

Our next question comes from the line of Matt Hewitt with Craig-Hallum Capital Group.

Good morning. Thank you for taking the questions. And we did notice in your guidance last night in the press release that you were, there is a potential for growth, which was is pretty commendable, given the headwinds that you're facing. The first one, the last couple of quarters, Bobby, you've talked about maybe hospitals being a little reluctant, given the pandemic and everything that they were already facing to purchase new software transition from one platform to another as the vaccines are being administered. And as the rate of infection appears to be declining. How are those conversations changing in what are your expectations as we get into, even closer to the summer months and into the back half of the year?

Well, I mean, first we see our customers, the hospitals and health care providers and surgery centers and all, learning to operate in a manner that allows them to provide for COVID and traditional services, and they're just learning. They're learning to deliver the services and vaccinate people and be a part of the solution set while also doing the more normal programs and service lines and surgeries that they did in the past. So I'm not declaring by any means it's over. And there are lots of concerns about new variants and other challenges, and they face us but, resilience has been amazing, they fought through all of this in unvaccinated state themselves. And now, I think there's some growing confidence that with our healthcare workforce vaccinated, the emergence of the new vaccines, the rate of deployment increasing of the vaccine, just that there's this new sense of opportunity. And our surveys of the nurse workforce showed incredible burnout and fatigue. And that was a month ago, but I'm sensing even last month, a little bit of a shift in that, where people can see some light at the end of the tunnel. So hospital operations certainly aren't normal again. But they are entertaining that the operating future is different. Telemedicine will be more permanent part of the landscape, for example. And maybe an area where we need to focus in on some of our opportunities on education training in those areas. So every challenge presents opportunities. And I'm not declaring return to normalcy; there are plenty of risks in front of us. But we do see operations kind of proceeding like okay, this is what hit us. Now we need to move forward and continue to modernize how we operate, how we train and educate, how we manage the time and schedules of our employees, how we credential and privilege and onboard our new physicians. And so we see a bit of return to like we just are going to operate through all this. So I think you heard a lot of our caveats in our guidance about this kind of gradual return to normalcy. And that's how we built all of our models is, for example, travel and expenses coming back in the second half of the year, because we think we'll be able to go visit our customers again. As they're indicating now that they're more back to operating, initiative to vaccine is just one more vaccination. They've done vaccinations for decades. So now they're returning to an operational mode instead of a planning mode. And so gradual return to normalcy is what we're hoping for in the next 18-months.

Go it. Thanks. And then you the last couple years you've done a lot of heavy lifting with these platform upgrades and I'm curious, as you've known, as you indicated this in your prepared remarks, as you've shown that these new applications, these new platforms are functional they work they can help the customer. Does the sales cycle shorten because of that? Or is it hard to differentiate between the newness of the application or the platform versus what we've been dealing with COVID. So it's really hard to tell whether the sales cycle shortens because of one or the other, or a combination of the two.

Yes, I know, I'm not going to project shorten sales cycles, right now, there's just too much uncertainty, I would say that it gets as our pass architecture matures in the next two years, it gets easier and easier to launch organic products and attempt to service them out into our network more rapidly. And so and as our application suites get more connected to hStream, it gives them more ability to iterate faster and drive new product concepts. And so part of this move to pass is hopefully a kind of a speedier ecosystem. And then if you think of that profile accompany what's really been achieved, throughout all this is actually just well optically the growth, let's just say looks at that the $10 million or $15 million range is kind of within the range, and kind of near what we achieve this year. It looks kind of optically flat. But really what happened is amazing, it's a far more diversified $0.25 billion company, it's a three legged stool instead of two, what was once a major dependence on a single vendor is now a dependence on an emerging vendor partnership, and the retention of the old relationship. So it's important to note that while we are losing this, the nearly $60 million this year $38.4 million of revenue from the old AHA Laerdal partnership, we have maintained a strategic relationship with that will generate revenues in the future from the way the new relationship is structured and so again, diversified even within the portfolio, we now are able to provide success in the eyes of the Red Cross of gaining market share and in yes of AHA helping deliver their product into the market. And so, but not being part of the sales and marketing of the product. So it's just a much more diversified business model in total, across the $250 million in revenue. And that's been achieved in the face of this challenge of COVID. And this declining, rapidly declining $60 million product, but there's less reliance on it. And there's a whole new segment in our business that allows us to or all new business focus area allows us to hedge against future risks. So I think it's a fundamentally stronger, more diversified company.

Got it and then one quick one here, and then I'll hop back into the queue. And I don't know if this is for you, Bobby, or Scotty, if you can answer this, but now with three legs to the stool, just from a modeling perspective, should we anticipate three different segments Workforce Solutions, Provider Solutions? And the new piece or will you just stay with the two at least for the near future? Thank you.

Yes, I think for the near future, it stays the same. And my hope and ambition, kind of like salesforce.com is it eventually the unifying factor of all of our businesses, the hStream Pass architecture, and essentially, we have a future where we see one architecture and then application sets that connect to it. And so, if anything, directionally, it would be my hope, someday that we're more of a single platform company, and with lots of diversified revenue streams that are connected to it instead of segments. And so directionally that's more where we're headed than more segments. I think we're headed towards an hStream platform and a unifying metric like the hStream subscriber base, and interconnectivity between the application sets down to the pass architecture. So if anything, our businesses are becoming our focus areas, and application sets are becoming more symmetrical, and not more segmented.

Our next question comes from the line of Richard Close with Canaccord Genuity.

Great. Can you hear me? Okay. Okay, excellent. I've had some communication issues this morning. So that's good. With respect, maybe for Scotty, I think you mentioned this, but I didn't necessarily get it all. But with respect to the deferred revenue write-down and that's an add back on adjusted EBITDA. Did you quantify the size of that that's expected here in 2021?

Yes, Richard. Hey, how you are doing? Yes, we did and it's actually in the earnings release too. There's a reconciliation table to our guidance for that measure, and it's between $4.3 million and $5.3 million, the impact we're expecting for 2020.

Okay. Great. I appreciate that. And I apologize I don't have internet access this morning. So sort of scrambling, Bobby, with respect to the three areas, workforce and then the provider solutions and the scheduling. How do you think about the total addressable markets and your growth versus what the market is growing in those various segments?

Richard, I see a lot of room for innovation in each of the three areas and interconnectivity. And so and then derivative opportunities that come from the fact that we're in those three lines. And so a core audience, for example, that's common to a lot of those applications is the nursing workforce, we have a market leading position and nurses logging into our platforms. And there are a lot of derivative opportunities that come from that. So as we think more of an ecosystem with data mobility between the different application sets, we've talked about provider solutions, the learning and development and workforce development and in the scheduling, we just see a lot of opportunity that increases the net opportunity and the benefit to customers and these health systems. We've talked about some of the interconnectivity and there's just dozens of examples of where we're headed. But simple things like credentials earned in the workforce development network, automatically populating into the credentialing and privileging platform, is a good example, a scheduling system that's informed by the competency profile to match the skills and competencies of the nurses to the patient acuity, or there's better matching algorithms someday and scheduling our potential. And so we think that those kind of opportunities present financial opportunity, as well as we integrate the data and leverage the ecosystem itself. And so within each of the three focus areas, I think there's plenty of room to just kind of gain market share, because our products are innovative. But the real power comes if we're successful, connecting all these to our growing pass architecture, hStream, and achieve some of the long-term objectives of a more rapid iteration of application design, more leveraging of core technology infrastructures that are replicating in each of the three legs of the stool, more data mobility, is an example of the potential flowing from one system to another automatically giving competitive advantage to our platforms or our applications, and benefit to our customers. And so, obviously, I'm optimistic. Now, these are niches; these are not yet EHR size opportunities, or but I think their materials to the workflows of how these organizations operate, and material to the core asset of their workforce, how to retain and develop them. And so I think and there's a lot of dissatisfaction with the current status in many of these areas. And so I think when you have dissatisfaction, you have old archaic systems, like the way Time management is done, or scheduling is done is just is archaic. And I think there's room to innovate and deliver value and value can equate to financial opportunity. So relative to our size, we see a lot of opportunity, and plenty to pursue the next few years to show the kind of growth we've talked about now in our guidance.

Okay, maybe as a follow up to that, with respect to the go-to-market and sales process into it. I mean, are you -- is the bar was essentially the same person? Or is it different parts of the hospital administration that is dealing with each of these offerings? I guess how centralized is it? Or is it decentralized in terms of the purchasing?

It's within the three legs of the stool; there are probably product sets and application sets that target seven different buyers. And so it is this distributed across the budgets, there are a few key players that are more common across the six or seven areas. So some of the more niche areas would be compliance, for example, and hospitals handle compliance in different ways. But the chief nursing officer says is a common decision maker in the scheduling business and all the Workforce Development solution sets like the Jane platform, the Red Cross Resuscitation suite program. And so there are some common buyers and then there are some focus areas. So, we have a really strong revenue cycle education program that targets that VP of Finance. And we have a small sales team focused on reaching the financial operations and hospitals, we have a much larger sales operation focused on building relationships with Chief Nursing Officers and to take the appropriate products. And then Provider Solutions sold into the medical office. Maybe the Chief Medical Officer and other decision makers like them are our targets for those solutions. So in some ways, I liked it, we're tapping into six or seven areas of the budget by six or seven different business leaders. And then there are a few common buyers like the Chief Nursing Officer that are a little bit more important than others, and successful adoption of our product sets. I do think, for example, the CFO is interesting plays a role in scheduling, because the cost of contingent labor is so important to successful financial management hospital, but also to the Chief Nursing Officer, because you want satisfied nurses in how you manage their schedule and their work life balance. And so those two together we believe are the key buyers, for example, in the scheduling business, the chief financial officer is kind of relatively new for us, we've been selling to the VP of Finance our revenue cycle, but in scheduling have to get to the Chief Financial Officer and Chief Nursing Officer. So I don't know if you view that as positive or negative, I view it as attacking their budget opportunities in many places with specialized sales organizations is a competitive advantage.

Okay. That's helpful. And then on the Provider Solutions, you obviously have had buy in terms of new and new customers as well existing transitioning to Verity hStream. But as you sit back here, like I guess, maybe three or four years from the acquisitions that you made to get into the credentialing side of things, and then integration and rollout of the new product. And then, it's the growth opportunity there has, I guess has that is developed, has the growth opportunity, essentially disappointed you from the standpoint of, did you think there was more opportunity in there? Just any thoughts in terms of just looking back and seeing how that market either has met expectations are exceeded or not met expectations?

Yes, I think the transition was difficult to build a replacement platform requires a lot of investment and kind of fortitude by the team to see it through and get it ready. But in the last 12 months, we're starting to see the benefits of that hard work as we start to win a better share of the RFPs and kind of gain and market acceptance and adoption of that platform. So I think the returns are still in front of us. So what I'd like to gotten there sooner, yes. Was it harder than anyone wants it to be? Yes, it's hard to acquire three or four companies assemble one brand and build a replacement product, keep your customers and migrate them to a new platform. And so it has taken a little longer to get to, and great efforts from our teams to get us there. But I do feel like the opportunity is still in front of us. That whole set of applications, the suite itself has grown to be much more comprehensive than just credentialing, for example, as it moved into privileging and onboarding, and now performance management, dimensions around physician performance management. So a lot of the data that's coming those platforms, the suite has expanded to be one of the most comprehensive and managing kind of the onboarding performance management positions over time, and not just credentialing and privileging. So we're really excited about the expansion view of that application set. It is relative niche, though, compared to like the scale of EHR, like I don't think credentialing and privileging is have that kind of multi billion dollar revenue opportunity. But again, relative to our current scale, it's plenty of growth opportunity to deliver a substantially larger company and in this case, area application set; we think there's plenty of room to keep showing really solid growth.

Okay, do I have time to ask one more or? So given the response that provider solutions, and obviously, they're -- you did have a big uplift there in terms of rolling out a SaaS unified SaaS product, as we think about the scheduling and there's been three or four now acquisitions on that front. As you think about the integration, the existing products that you acquired, and then thinking about, over the next year or so in the end investments. How big of uplift is it? I mean are you sunsetting those products over time? Is this and you're integrating them. And this is going to be a new SaaS platform, some similar to Verity hStream? How should we think about that?

Yes, I think similar but with lessons learned of the Verity hStream journey. And the other cool thing is that we'd already seen in the market some demands, when we bought NurseGrid, there were demands to integrate it with ANSOS from some of our field because before we owned ANSOS, and so some of the work through a partnership had already begun on integration and seeing the leverage points opportunity. So it's kind of cool that there's a bit of a jumpstart based on market forces of making those platforms leverage each other. I think that first 24-months, I mean, obviously, you heard me say, we're going to add 30 or so personnel to those acquired companies to really round out sales, marketing and product development. And so you'll see a stronger push earlier into energizing the sales organization. And as I mentioned, just now, some of the work of vision for integrating the technologies. For example, I think we'll integrate NurseGrid benefits and technologies into ANSOS and into ShiftWizard first and I would say within this year, we would see benefits of those systems talking to each other where the NurseGrid application brings a strategic and competitive benefit to both ShiftWizard and ANSOS. Beyond that, we are assembling a leadership team, we have a 35 page playbook on how we did it with Verity hStream to build a brand and platform make technical decisions on its path. But in all cases, we'll be wiring these applications to the hStream platform in the coming 24-months. And that's in our forecast. We'll be connecting them to each other NurseGrid, ANSOS and NurseGrid to ShiftWizard. And we've already begun to segment, which of the applications are more appropriate for which scale and size of opportunity, the branding of it and how it works will take us a little longer to figure out but we're putting the necessary investments in and we have again, a 35 page playbook confluence of the Verity hStream team on how to pursue this and I'm really excited about. So I think we've got the right three assets together and the right team is forming around this opportunity unlike anything, its own transition that will result in new applications and software and branding, probably emerging next 24-months.

Okay, thank you very much.

But I think Richard, your comment of thinking of it, like Verity hStream is a good analog. So we thought about when we acquired the assets that we were going to invest not look for synergies right now we're going to look for strategic advantage for the applications, and then invest and strengthen what were relatively small sales organizations in the stronger one, and getting the technical benefits and connecting to hStream which is maturing pass architecture. So I think it's right to think of it but hopefully the journey can be a little less painful and a little faster than the Verity hStream journey. Because we're better at it. Now we've learned how to do it.

Our next question comes from the line of Vincent Colicchio with Barrington Research.

Yes, Scotty, what -- this is a question for Scotty. What is the revenue contribution you're expecting from acquisitions in 2021?

Hey, Vince. How are you doing? With regard specifically to those acquisitions and this latest release in conference call. But if you look back at last quarter, we talked briefly about ShiftWizard contributing historically around $4 million, so they were growing company; we're going to obviously feel a little bit of the brunt of deferred revenue right now from the acquisitions, but ShiftWizard, trailing 12-months with about $4 million when we acquired it. And then in ANSOS announcement that we did back in December or late November, we kind of gave some forward looking expectations on that transaction as well. I think it was in the $16 million to $19 million, that's net of deferred revenue write-down. So it does somewhere in the mid-20s when you add back our deferred revenue write-down. And then the other acquisitions are much smaller in scale. There'll be some contribution there, we are quantifying it and speaking to it separately.

Okay, thanks for that. And then Bobby not to beat a dead horse with the Verity so to speak. Did you mention what portion of Verity clients have migrated to the new platform?

No, we haven't. But we have lots of customers to go but we're seeing steady conversions that. I mentioned the 39 this quarter so we're seeing conversions and new market share gains on the platform but no, we're probably not going to report it because the margin profile is similar. And it's going to take a long time to migrate everyone. And we're right now don't have plans to force any migrations. And so we're just going to treat it as one software unit. But all the new sales and new customers and transitioning customers are seeing increasing benefits of moving to a new platform. So I think the concept of this is a transition. We've kind of re-characterize it as the transition of customers from old to new platform will take time. But the financial implications of that are not huge because they're both are good, relatively high margin software application sense.

And then one last one for me the change healthcare business, what is the historical growth really looked like in that business.

Well, I don't know what we filed on their historical business. But it's, so I don't know what we file on that. So that'll show up in the Qs and Ks, I imagine historical financials, but they are solid, more of a margin and profile and large customer acquired business for us. And the innovation and growth was going to come from the ShiftWizard platform. So I don't have that number for you, Vince.

Vince, we haven't disclosed any historical on that one yet. You should see something in our financials as we file our 10-K here pretty soon.

Thank you. And I'm showing no further questions at this time. And I'd like to turn the conference back over to Robert Frist for any further remarks.

Thank you. Look forward to reporting the next quarter earnings call here shortly. They come up rather quick as we do year end and then move into first quarter. Thank you guy and we look forward to the next call.

Ladies and gentlemen, this concludes today's program. You may all disconnect. Everyone, have a great day.