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CEOCFO CEOCFO Monthly Analyst |
"To print this page go to file and left click on print" Working with a Trillion-Dollar Industry HealthStream, Inc. Interview conducted by: Biography of Chairman/CEO Robert A. Frist, Jr., co-founder of HealthStream, has served as chief executive officer and chairman of the board of directors since 1990. As chief executive officer, Mr. Frist has positioned HealthStream as a leading provider of learning solutions for the healthcare industry. He is the architect of Health Stream’s strategic business model and a driving force in building the Company’s national learning network of healthcare organizations. Mr. Frist oversees corporate and business development functions for the company. He also serves on the board of directors of HealthLeaders, a healthcare publisher, and HearingPlanet, a hearing healthcare network. He graduated with a Bachelor of Science in business with concentrations in finance, economics, and marketing from Trinity University. Company Profile: HealthStream (NASDAQ: HSTM), based in
Nashville, Tennessee, with an additional office in Denver, Colorado, is a leading provider
of learning solutions for the healthcare industry. The
Company’s Internet-based Healthcare Learning Center is increasingly being adopted by
the full range of healthcare organizations in the healthcare industry to train their
employees, resulting in cost and time savings, and enhanced learning effectiveness. Healthcare organizations in HealthStream’s
Internet-based learning network use the Company’s learning solutions to improve
learning, increase compliance, and enhance organizational effectiveness for nurses,
technicians, staff workers, physicians, and all clinical and non-clinical healthcare
employees throughout the enterprise. Pharmaceutical
and medical device companies use Health Stream’s learning solutions to launch
educational programs and reach healthcare professionals.
Content providers use Health Stream’s learning solutions to expand the
reach of their programs worldwide. Ceocfointerviews:
Please explain to my readers about your company as it stands today. Mr. Frist:
Our business is one of delivering education and training solutions to the
healthcare industry, which as you know, is over a trillion-dollar industry, constituting
about 13% of gross domestic product. There
are about ten million people who work in the healthcare industry and our goal is to reach
all of them with training education solutions that meet business needs, regulatory needs,
or professional development needs. We do that
predominately by delivering education-training products through our Internet-based
Healthcare Learning Center™. This is a Web-based platform for managing education and
training in facility-based medicine, like hospitals, surgery centers and dialysis centers.
The four million healthcare professionals working in hospital facilities constitute a
primary target for HealthStream’s products and solutions. Ceocfointerviews: What are you educating them on? The new medicines that are out there, the
equipment, or are you covering everything? Mr. Frist:
We are solutions-based company. So
the first thing we try to do is to identify a business and/or educational need directly by
asking the professionals or market that we serve. Then we match the educational content
with an administrative management system to solve a particular problem. A good example of a problem that we
solve more economically using our platform is federally required OSHA training. Each year, every employee of every hospital in the
United States has to go through federally required safety training. A hospital is responsible for documenting
compliance with this regulation. Our system
automates the whole process, while creating the documentation for compliance. We deliver
quality content from medical publishers and other medical content companies that meet this
business need. Our business solution of
providing content, plus management infrastructure, is estimated to save hospitals over 50%
of the current cost of compliance, verses if they did it in a non-Internet-based format. Ceocfointerviews: So when people go to your Web site, are they
given a code and then it takes place? Mr. Frist:
That’s right. They go on to
their organization’s Healthcare Learning Center™ Web site where they log on with
a unique ID and password to enter a learning center that has been customized for their
hospital. This learning center offers courses that may be assigned for completion within a
certain time period. Importantly, the learning center tracks compliance, as mandated by
the federal government. Ceocfointerviews:
Can they take the test online? Mr. Frist: Yes, they can. Employees can take a wide range of courses online.
Many include highly interactive, engaging content that is designed to enhance learning
through simulations and games. Typically, an online test follows the course in order to
accurately record comprehension and mastery of the material. Often, courses also come with
a pre-test so that you are then able to have pre-test, post-test results. Ceocfointerviews: How
are you able to keep up with everything? Mr. Frist:
Well, one of the ways that we addressing the needs of healthcare professionals
is that we are setting up publishing verticals within our company. For example, we have publishing verticals in
regulatory training, nursing, radiology, physicians, and in emergency medical services
(EMS). We are actively setting up knowledge expertise within our company to find and
acquire content that will meet the education needs within our growing Internet-based
network. The network is growing at a very
rapid pace. We have over 500 healthcare
facilities representing more than 300,000 healthcare professionals on the network. We are
getting better and better at asking them what they need and, in turn, finding publishing
material that will meet their specific training and education needs. Ceocfointerviews: You have mentioned hospitals. What about the smaller doctor offices? Are you addressing those as well? Mr. Frist:
We typically address all of the employees at a facility. Since our
applications are accessed over the Internet, it is not a problem to deliver our solutions
over multiple-facility campus. So, typically
when we say “hospital,” we often mean the campus and the needs of that
campus—whether it comprised of multiple buildings or in one physical location. They
are all instantly connected to our applications via the Internet. Ceocfointerviews: You said this is a very big field, not just
comprised of OSHA regulations. There are
numerous new medical devices and equipment—whether it be for dialysis or MRIs. Are
you addressing all of these areas? Mr. Frist:
Actually we are. We are working
on a product line called “HospitalDirect™”.
This is yet another suite of software applications that will allow medical
device companies to launch product education into our hospital network. It is a very exciting project that we are looking
forward to launching the fourth quarter of this year. HospitalDirect™ ties the
product launch education and training needs of the medical device company with the risk
management product education needs of hospitals and hospital employees. Ceocfointerviews: There are hospitals that are learning hospitals
and teaching institutions. Do you provide to
them as well? Mr. Frist:
Yes, we typically are focused on delivering content to meet the operational
needs of hospitals and we do have academic hospitals as customers. We are not, however,
currently focused on developing curricula for becoming a doctor or nurse. We provide
learning solutions that address skills education, federal training requirements, and
professional continuing education to all types of hospitals, academic centers included. Ceocfointerviews: Where
do you see the growth of your company coming from? Where
is the majority of the response? Mr. Frist:
Well, the most exciting part of our business is the growing number of
customers selecting our Internet-based Healthcare Learning Center™. We, for instance, had a record quarter in the
fourth quarter of 2001, adding 96 new healthcare facilities to our Internet-based
platform. Typically, a hospital in the United States has approximately 700 employees. So,
you can see we are adding approximately one hospital each business day, including
approximately 700 new users, each business day. In
addition to that, once they are on the network, we are seeing an increase of course
completions. We’ve seen a 910% increase
in course completion since January of 2001 to December of 2001. Ceocfointerviews: Are you considering going on a global basis with
this? Mr. Frist:
Right now our primary focus is on the US market. We have about a 10%
penetration in the hospital-based market. We have, however, recently announced an
agreement with the Ontario Hospital Association (OHA), Canada’s largest hospital
association, to offer our regulatory offerings to their member hospitals. Ceocfointerviews: I know that your operating expenses have
decreased. What do you account for that? Mr. Frist:
We’ve had quite an impressive performance in 2001regarding controlling
and operating our cash burn. Primarily what we were able to do was consolidate office
operations in Nashville and Denver. We
acquired seven companies before 2000 and ending 2001. As a result, we ended up having
seven remote offices. Most of our
consolidation this year was done by shifting core functions to our offices in Denver and
Nashville. Therefore, we’ve been able to
demonstrate solid progress in reducing our cash burn. Ceocfointerviews: Do you have your own sales force? Mr. Frist:
We have two different sales forces. We
have one that is 25 people-strong that sells into the facility-based healthcare
market—including hospitals, long-term care, dialysis, and surgery centers. That 25-person sales force is the one I spoke of
earlier that closed 96 new contracts in just one quarter.
We have another group of about 15 that sells to pharmaceutical and medical device
companies. They hire us to develop training
material for seminars, lectures, product orientation, and product learning material that
is either computer-based or live seminar-based. Ceocfointerviews: Do you see that area growing a little bit more? Mr. Frist:
Yes, we do.
We see both areas growing very well. Overall,
we delivered a 40% increase in revenues last year. Ceocfointerviews: Are you able to keep up with the demand for your
services and software? Mr. Frist: We’re
working hard to handle the demand. Two years ago, I would have told you that our
biggest challenge was developing a sales pipeline. We have done an excellent job of
developing a solid sales pipeline and closing contracts. Our challenges today are
working to implement that pipeline and making sure our customers get on to our system
within a reasonably short amount of time. So, a lot of our efforts this year are
focused on the implementation execution side—and we’re making progress. We have
improved our implementation cycle tremendously, moving from a high of 120 days
implementation time to down below 90 days, per facility after contract signing. Ceocfointerviews: What was the biggest challenge for this company? Mr. Frist: Last
year we had a lot of integration and synthesis in the company where many products were
growing while others were shifting away from the company. For instance, we acquired
four companies in 2000 that delivered training electronically in hospitals. When we
acquired those companies, we acquired customers on four different software platforms.
One of the challenges we faced--and continue to face--is moving those customers on
to our Internet-based Healthcare Learning Center™. While we reported 500
hospitals on the Internet-based platform, we still have another 800 on the installed
platforms that we are actively working to transition. In the fourth quarter 2001, alone,
we migrated 49 hospitals. Ceocfointerviews: What do you feel makes this company more
outstanding than the others? Mr. Frist: I
believe that we have a unique model that ties together a learning platform with content
partnerships that solve real healthcare problems. Much of the competition we face in
the market is comprised of software vendors that have created learning platforms that
don’t have the vertical market expertise in healthcare. Clearly, one of
HealthStream’s major differentiators is that we are one of the few e-learning
companies singularly focused on the healthcare industry. Ceocfointerviews: Will video conferencing apply with education,
too, and do you offer that? Mr. Frist: We
offer what we call Web casting. We provide, for example, pharmaceutical and medical device
companies the service of Web cast, whereby, we take an educational event and essentially
broadcast it, also helping to find the attendees for these pharmaceutical and medical
device companies. Direct broadcasting is not in our immediate future, but Web
casting is already a part of our business. Ceocfointerviews: Are you going to stay focused on just the
healthcare industry? Mr. Frist: Yes, that is our plan. In the $1.3 trillion healthcare industry, our market
opportunity is substantial and, more importantly, we are seeing evidence that our learning
solutions are having a positive impact on healthcare professionals in our learning
network. Ceocfointerviews: I think it is about time someone did it. I
ran into situations where the healthcare industry wasn’t informed in current changes.
They are just not as informed as they should be. Mr. Frist: There is always an enormous amount of new healthcare
information coming out. HealthStream is doing its best to provide a viable distribution
channel for current training, current thinking, and current information to be delivered to
healthcare individuals across the United States. Ceocfointerviews: How do you decide what gets distributed and
what doesn’t? Mr. Frist: We are putting into place a publishing model. As
you know, publishers have been doing this for ages, where they learn how to make
intelligent decisions on what to publish and what books to distribute. We are
fortunate enough to have a chief financial officer who has 20 years in the publishing
industry. Art Newman is helping us implement a robust publishing strategy.
Although we may be using an electronic means to ask our customers what they need,
it’s still an age-old process of identifying the needs of the market and finding
content to meet those needs. Ceocfointerviews: Do
you feel this company is financially situated where, if different situations arise, you
will be financially fit to address them? Mr. Frist: Yes. We have a strong cash balance at about $27 million
at year-end. We have intentionally slowed our acquisitions, after doing seven during
2000 and 2001. This has allowed us to organize, making sure we have a fundamentally
sound base to grow. However, our predominant focus is on organic growth and the
introduction of new products—like HospitalDirect™ that was mentioned earlier in
this interview. Ceocfointerviews: Do you feel that you are adequately staffed to
meet these needs? Mr. Frist: Yes, we do. Interestingly, we’ve had a very
consistent head count level for the last eighteen months of around 215 to 220 employees.
More importantly, we feel we have the right compliment of employees to achieve the vision
and mission that we set forth. Ceocfointerviews: When there was a shortage of qualified personnel,
did it affect your company? Mr. Frist: I think everyone felt it a little bit, but I think we
were somewhat sheltered, considering our location. Also we are attracting a very
unique set of individuals who have an interest in healthcare education—so we had a
niche profile that attracts a certain type of individual to our company. As a
result, we’ve always done well maintaining our staffing levels. Ceocfointerviews: Now with the hospitals, do you need to have a
contract with them or is it on an as-needed basis? Mr. Frist: No, our typical relationship with the 500 hospital
customers on our learning network involves a two-year+ contract for services. The initial
contract is always for every employee in the hospital and we typically charge between $15
to $25 per head, per year for the basic services that we provide. Essentially you
can think of it as a subscription model. If you have an average hospital with 1,000
employees, you’re typical engagement with HealthStream will be a two-year, $15,000 -
$20,000 per year contract. Ceocfointerviews: What would you say to a potential investor? Mr. Frist: We are building a strong recurring revenue business.
The business subscribers we get are two and three-year customers. The
subscription revenue we receive each year, by definition, gets more predictable and more
recurring. We are building a business that addresses federally mandated and/or
professionally required training needs. We can demonstrate the solutions we provide
can save money, which is important in healthcare. Our latest cash burn metrics speak
well for investors. On one year, we’ve reduced operating cash consumption by 66%
while growing our top line revenues by 40%, turning in a strong fourth quarter 2001 at
$3.8 million, which was up from $3.1 million in the prior quarter. Customers are
adopting our Internet-based platform with 96 hospitals in the last quarter, alone.
So we feel our operating metrics in the fourth quarter, our overall performance, and our
strong cash balance--with no debt, along with our track record in meeting customer needs
while saving money for them, are all strong indicators that we are a strong company with a
long future down the road. Ceocfointerviews: Do you have any closing notes for my readers? Mr.
Frist:
I appreciate the opportunity to present the profile of HealthStream and there is plenty
of more information on our Web site www.HealthStream.com.
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