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…

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…

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…

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…

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…

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.