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HealthStream, Inc. (HSTM), a leading provider of learning and
research solutions for the healthcare industry, announced today results
for the third quarter ended September 30, 2012.
Highlights:
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Revenues of $26.4 million in the third quarter of 2012, up 28% from
revenues of $20.6 million in the third quarter of 2011
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Operating income of $3.7 million in the third quarter of 2012, up 39%
from operating income of $2.7 million in the third quarter of 2011
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Net income of $2.0 million in the third quarter of 2012, up 10% from
net income of $1.8 million in the third quarter of 2011, and earnings
per share (EPS) of $0.07 per share in the third quarter of 2012,
compared to EPS of $0.08 per share in the third quarter of 2011
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Adjusted EBITDA(1) of $5.7 million in the third quarter of
2012, up 30% from $4.4 million in the third quarter of 2011
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Acquired Sy.Med Development, Inc. on October 19, 2012
Financial Results: Third Quarter 2012 Compared to Third
Quarter 2011
Revenues for the third quarter of 2012 increased $5.8 million, or 28
percent, to $26.4 million, compared to $20.6 million for the third
quarter of 2011.
Revenues from HealthStream Learning increased by $5.5 million, or 37
percent, when compared to the third quarter of 2011. Revenues from our
Internet-based subscription products increased by approximately $4.9
million, or 35 percent, over the prior year third quarter due to a
higher number of subscribers and more courseware consumption by
subscribers. Revenues from project-based services increased $503,000
over the prior year third quarter. Revenues from SimVentures, our
collaborative arrangement with Laerdal Medical A/S, increased to
$419,000, a $98,000 increase over the prior year third quarter.
Revenues from HealthStream Research increased by $227,000, or four
percent, when compared to the third quarter of 2011. Revenues from
Patient Insights(TM) surveys--a survey research product that generates
recurring revenues--increased by $371,000, or eight percent, when
compared to the third quarter of 2011. Revenues from other surveys,
which are conducted on annual or bi-annual cycles, decreased by
$144,000, or 11 percent, when compared to the third quarter of 2011 due
to fewer survey engagements.
Generally accepted accounting principles (GAAP) require companies to
write down beginning balances of acquired deferred revenue balances as
part of "fair value" accounting as defined. During the third quarter,
HealthStream reported a $92,000 reduction to GAAP revenue as a result of
deferred revenue write-downs for the Decision Critical acquisition,
which closed on June 29, 2012.
Operating income for the third quarter of 2012 increased by 39 percent
to $3.7 million, compared to $2.7 million for the third quarter of 2011.
This improvement resulted primarily from strong revenue growth.
Operating expense increases included higher royalties, sales
commissions, travel, personnel additions, depreciation, business taxes,
and other general expenses.
During the quarter, the Company updated estimates of state allocation
factors as part of its income tax provision review. Allocation factors
help determine the liabilities for state income and certain franchise or
excise taxes. The updated allocation factors resulted in a reduction in
our estimated state net operating loss carryforwards and an increase in
our tax provision and effective tax rate for this quarter. The updated
estimates did not result in a cash tax liability and these estimate
revisions did not affect our federal net operating loss carryforwards.
Net income for the third quarter of 2012 was $2.0 million, compared to
$1.8 million in the third quarter of 2011. Earnings per share (EPS) were
$0.07 per share (diluted) in the third quarter of 2012, compared to
$0.08 per share (diluted) for the third quarter of 2011. A key factor
impacting the comparison of EPS in the third quarter of 2012 to EPS in
the third quarter of 2011 was the effect of additional shares of the
Company’s common stock from the Company’s fourth quarter 2011 stock
offering. The impact of the offering added approximately 3.6 million
shares to the third quarter 2012 fully diluted EPS calculation.
Adjusted EBITDA (which we define as net income before interest, income
taxes, share-based compensation, and depreciation and amortization)
increased by 30 percent to $5.7 million for the third quarter of 2012,
compared to $4.4 million for the third quarter of 2011.
At September 30, 2012, the Company had cash and marketable securities of
$95.9 million. Capital expenditures totaled $2.3 million for the third
quarter of 2012.
Year-to-Date 2012 Compared to Year-to-Date 2011
For the first nine months of 2012, revenues were $75.9 million, an
increase of 26 percent over revenues of $60.2 million in the first nine
months of 2011. Operating income for the first nine months of 2012
improved by 21 percent to $10.1 million, compared to $8.4 million for
the first nine months of 2011. Net income for the first nine months of
2012 increased by 13 percent to $5.8 million, compared to $5.2 million
for the first nine months of 2011. Earnings per share were $0.21 per
share (diluted) for the first nine months of 2012 compared to $0.22 per
share (diluted) for the first nine months of 2011.
Other Business Updates
At September 30, 2012, approximately 2,869,000 healthcare professionals
were fully implemented to use our Internet-based HLC for training and
education. Revenue recognition commences when a contract is fully
implemented. This number is up from approximately 2,536,000 at September
30, 2011. The total number of contracted subscribers at September 30,
2012 was approximately 2,975,000, up from approximately 2,653,000 at
September 30, 2011. "Contracted subscribers" include both the 2,869,000
subscribers already implemented and the 106,000 subscribers in the
process of implementation.
Based on the number of subscribers, our renewal rate was 97 percent in
the third quarter of 2012. Our renewal rate for the number of
subscribers reflects the number of subscribers that were up for renewal
in the quarter that chose to renew plus the addition of new subscribers
on these accounts, compared to previously contracted amounts--which means
that the renewal rate can exceed 100 percent. The renewal rate based on
subscribers for the third quarter of 2012 compares to a renewal rate of
88 percent during the third quarter of 2011.
Based on contract value, our renewal rate was 95 percent in the third
quarter of 2012. Our renewal rate for contract value reflects any
pricing adjustment that may occur at renewal along with increases in
contract value due to the addition of new subscribers, compared to
previously contracted amounts--which means that the renewal rate can
exceed 100 percent. Our calculation of this renewal rate includes only
the base subscriptions to our platform; it does not include add-on
products or content purchased prior to or at the time of renewal. The
renewal rate based on contract value for the third quarter of 2012
compares to a renewal rate of 94 percent during the third quarter of
2011.
For the trailing four quarters ended September 30, 2012, customers
representing approximately 101 percent of subscribers that were up for
renewal did renew during the trailing four quarter period, while our
renewal rate based on the annual contract value was approximately 103
percent. The trailing four quarter renewal measurements are calculated
on the same basis as the quarter results.
During the third quarter of 2012, the Company continued to expand its
customer base for two of our talent management product offerings, the
HealthStream Performance Center(TM) and the HealthStream Competency
Center(TM). Combined, these two products were contracted in the third
quarter by 12 healthcare organizations.
In August 2012, HealthStream expanded its talent management product
suite through an agreement with Nursing Registry Consultants Corporation
(doing business as "NurseCompetency") to be the exclusive distributor of
NurseCompetency’s innovative software-as-a-service based competency
exams and skills checklists to hospitals and health networks in the U.S.
HealthStream is currently providing NurseCompetency’s clinical exams and
skills checklists for nurses as stand-alone products, while future plans
include offering them as an integrated solution through HealthStream’s
Talent platform.
Earlier today, HealthStream announced that it has acquired Sy.Med
Development, Inc. ("Sy.Med"), a leading developer of credentialing
related software products for healthcare providers. Through this
acquisition, HealthStream advanced its talent management strategy with
an innovative credentialing application, Sy.Med OneApp(TM), that
centralizes data and automates the paper-intensive, time-consuming
credentialing management process for hospitals, physician practices,
clinics, and other healthcare providers. Ensuring that an organization’s
workforce is qualified is a critical part of talent management and,
therefore, the addition of Sy.Med’s credentialing application makes an
important contribution to our overall talent management product suite.
HealthStream purchased all of the shares of Sy.Med for approximately
$7,050,000 in cash consideration and 34,060 shares of HealthStream’s
common stock. Up to an additional $1,500,000 in cash will be paid over a
two-year period following closing, subject to the achievement of certain
milestones. To read more about our acquisition of Sy.Med, please refer
to HealthStream’s press release issued earlier today.
Financial Expectations - Including Impact of Sy.Med Development
Acquisition The Company also updated guidance for the remainder
of 2012.
HealthStream anticipates that consolidated revenues for the full-year
2012 will grow by 24 to 26 percent when compared to the full-year 2011.
We anticipate revenue growth in the HealthStream Learning segment to be
in the 34 to 36 percent range and HealthStream Research’s revenue to
increase by approximately one to three percent over the prior year.
We anticipate that consolidated operating income will increase by 18 to
22 percent over the prior year period. The estimated impact of
approximately $250,000 related to the write down of Sy.Med deferred
revenue and transaction closing costs was taken into account in
determining the range set forth above. The Company has an active
business development and strategic initiative pipeline and its operating
guidance does not include ongoing expenses incurred as part of these
activities.
We believe that equivalent shares for purposes of calculating diluted
earnings per share will be between 27.4 million and 27.6 million. We
expect that our effective book income tax rate will be between 41 and 44
percent for the full year of 2012. Actual tax payments will be
substantially less than our income tax provision as we continue to
utilize our federal and state net operating loss carryforwards of
approximately $14.5 million and $8.7 million, respectively, to offset
our taxable income.
We expect capital expenditures, including capitalized software
development and additional office space, will range between $8 million
and $9 million during the full year of 2012.
"I am excited with our announcement earlier today regarding the
acquisition of Sy.Med, which adds another unique dimension to our
healthcare talent management strategy," said Robert A. Frist, Jr., chief
executive officer, HealthStream. "Our business development pipeline is
supported by strong organic growth fundamentals, including a 28 percent
increase in top-line quarterly revenues and a 39 percent increase in
operating income in the third quarter of 2012. To continue our progress,
we anticipate further investments for targeted initiatives in sales and
marketing, product development, and infrastructure support."
A conference call with Robert A. Frist, Jr., chief executive officer,
Gerard M. Hayden, Jr., senior vice president and chief financial
officer, and Mollie Condra, associate vice president of investor
relations and communications will be held on Tuesday, October 23, 2012
at 9:00 a.m. (EST). To listen to the conference, please dial
877-647-2842 (no conference ID needed) if you are calling within the
domestic U.S. or Canada. If you are an international caller, please dial
914-495-8564 (no conference ID needed). The conference may also be
accessed by going to http://ir.healthstream.com/events.cfm
for the simultaneous Webcast of the call, which will subsequently be
available for replay. The replay telephone numbers are 855-859-2056
(conference ID #46611358) for U.S. and Canadian callers and 404-537-3406
(conference ID #46611358) for international callers.
Use of Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures,
including non-GAAP net income, non-GAAP operating income, non-GAAP
revenue, and adjusted EBITDA, which are used by management in analyzing
its financial results and ongoing operational performance.
In order to better assess the Company’s financial results, management
believes that income before interest, income taxes, share-based
compensation, depreciation and amortization ("adjusted EBITDA") is an
appropriate measure for evaluating the operating performance of the
Company because adjusted EBITDA reflects net income adjusted for
non-cash and non-operating items. Adjusted EBITDA is also used by many
investors to assess the Company’s results from current operations.
Adjusted EBITDA is a non-GAAP financial measure and should not be
considered as a measure of financial performance under generally
accepted accounting principles. Because adjusted EBITDA is not a
measurement determined in accordance with generally accepted accounting
principles, it is susceptible to varying calculations. Accordingly,
adjusted EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies.
Recently the Company has acquired several businesses whose net tangible
assets include deferred revenue. In accordance with GAAP reporting
requirements, the Company may record a write down of deferred revenue to
fair value as defined in GAAP. If the Company is required to record a
write-down of deferred revenue, it may result in lower recognized
revenue. In order to provide more accurate trends and comparisons of the
Company’s revenues, operating income, and net income, management
believes that adding back the deferred revenue write-down associated
with fair value accounting for acquired businesses provides a better
indication of the ongoing performance of the Company. Both on a
quarterly and year-to-date basis, the revenue for the acquired contracts
is deferred and typically recognized over a one-year period, so our US
GAAP revenues for the one-year period after the acquisition will not
reflect the full amount of revenues that would have been reported if the
acquired deferred revenue was not written down to fair value.
These non-GAAP financial measures should not be considered as a
substitute for, or superior to, measures of financial performance which
are prepared in accordance with US GAAP and may be different from
non-GAAP financial measures used by other companies. Investors are
encouraged to review the reconciliations of our GAAP to non-GAAP
financial measures, which are set forth below in this release.
About HealthStream
HealthStream (HSTM) is dedicated to improving patient outcomes
through the development of healthcare organizations’ greatest asset:
their people. Our unified suite of software-as-a-service (SaaS)
solutions are used by, collectively, approximately three million
healthcare employees in the U.S. for training & learning management,
talent management, performance assessment, and managing simulation-based
education programs. Our research solutions provide valuable insight to
healthcare providers to meet HCAHPS requirements, engage their
workforce, and enhance physician alignment. Based in Nashville,
Tennessee, HealthStream has additional offices in Laurel, Maryland,
Austin, Texas, and Brentwood, Tennessee. For more information, visit http://www.healthstream.com
or call 800-933-9293.
(1) Adjusted EBITDA is a non-GAAP financial measure. A
reconciliation of adjusted EBITDA to net income is included in this
release.
HEALTHSTREAM, INC.
Summary Financial Data
(In
thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
--------- ------------ --------- ---------
Revenues $ 26,380 $ 20,618 $ 75,894 $ 60,175
Operating expenses:
Cost of revenues (excluding depreciation and amortization) 10,804 7,915 30,546 22,623
Product development 2,278 1,946 6,328 5,644
Sales and marketing 4,423 3,810 14,637 11,674
Other general and administrative 3,472 2,782 9,491 8,009
Depreciation and amortization 1,672 1,471 4,779 3,868
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Total operating expenses 22,649 17,924 65,781 51,818
Operating income 3,731 2,694 10,113 8,357
Other income (expense) 42 (8 ) 87 8
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Income before income taxes 3,773 2,686 10,200 8,365
Income tax provision 1,796 890 4,376 3,213
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Net income $ 1,977 $ 1,796 $ 5,824 $ 5,152
=== ====== === ====== === ====== === ======
Net income per share:
Net income per share, basic $ 0.08 $ 0.08 $ 0.22 $ 0.23
=== ====== === ====== === ====== === ======
Net income per share, diluted $ 0.07 $ 0.08 $ 0.21 $ 0.22
=== ====== === ====== === ====== === ======
Weighted average shares outstanding:
Basic 26,173 22,164 26,100 22,001
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Diluted 27,591 23,495 27,476 23,272
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HEALTHSTREAM, INC.
Condensed Consolidated Balance Sheets
(In thousands)
Unaudited
September 30, December 31,
2012 2011(1)
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ASSETS
Current assets:
Cash and cash equivalents $ 23,703 $ 76,904
Marketable securities - short term 72,232 6,552
Accounts and unbilled receivables, net 16,990 17,330
Prepaid and other current assets 4,004 5,213
Deferred tax assets, current 1,013 5,080
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Total current assets 117,942 111,079
Marketable securities - long term -- 5,996
Capitalized software development, net 9,061 7,940
Property and equipment, net 7,397 6,087
Goodwill and intangible assets, net 26,833 23,104
Other assets 625 31
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Total assets $ 161,858 $ 154,237
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LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 7,206 $ 9,689
Deferred revenue 23,899 22,759
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Total current liabilities 31,105 32,448
Deferred tax liabilities, non-current 918 323
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Other long-term liabilities 858 551
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Total liabilities 32,881 33,322
Shareholders’ equity:
Common stock 156,612 154,409
Comprehensive income (loss) 28 (7 )
Accumulated deficit (27,663 ) (33,487 )
---------- - ---------- -
Total shareholders’ equity 128,977 120,915
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Total liabilities and shareholders’ equity $ 161,858 $ 154,237
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(1) Derived from audited financial statements contained
in the Company’s filing on Form 10-K for the year ended December
31, 2011.
HEALTHSTREAM, INC.
Condensed Consolidated Statement
of Cash Flows
(In thousands)
Unaudited
Nine Months Ended
September 30, September 30,
2012 2011
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Operating activities:
Net income $ 5,824 $ 5,152
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,779 3,868
Deferred income taxes 4,200 2,902
Share-based compensation 837 597
Provision for doubtful accounts 70 45
Changes in assets and liabilities:
Accounts and unbilled receivables 451 (1,920 )
Prepaid and other assets 1,662 1,190
Accounts payable, accrued and other liabilities (2,989 ) (1,094 )
Deferred revenue 768 3,748
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Net cash provided by operating activities 15,602 14,488
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Investing activities:
Acquisition, net of cash acquired (2,904 ) --
Changes in marketable securities (60,158 ) 5,623
Changes in other investments (250 ) --
Purchases of property and equipment (3,185 ) (3,560 )
Payments associated with capitalized software development (3,097 ) (5,199 )
------- ---- ------ ----
Net cash used in investing activities (69,594 ) (3,136 )
------- ---- ------ ----
Financing activities:
Proceeds from exercise of stock options 791 1,020
Payments on capital leases -- (4 )
------- ------ ----
Net cash provided by financing activities 791 1,016
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Net (decrease) increase in cash and cash equivalents (53,201 ) 12,368
Cash and cash equivalents at beginning of period 76,904 17,868
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Cash and cash equivalents at end of period $ 23,703 $ 30,236
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Reconciliation of GAAP to Non-GAAP Financial Measures(1)
(In
thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
------------ ------------ ------------ ------------
GAAP net income $ 1,977 $ 1,796 $ 5,824 $ 5,152
Interest income (52 ) (5 ) (123 ) (36 )
Interest expense 13 13 38 35
Income tax provision 1,796 890 4,376 3,213
Share-based compensation expense 296 223 837 597
Depreciation and amortization 1,672 1,471 4,779 3,868
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Adjusted EBITDA $ 5,702 $ 4,388 $ 15,731 $ 12,829
=== ====== === ====== === ====== === ======
GAAP revenues $ 26,380 $ 20,618 $ 75,894 $ 60,175
Add: deferred revenue write-down 92 -- 92 --
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Non-GAAP revenues $ 26,472 $ 20,618 $ 75,986 $ 60,175
=== ====== === ====== === ====== === ======
GAAP operating income $ 3,731 $ 2,694 $ 10,113 $ 8,357
Add: deferred revenue write-down 92 -- 92 --
------ ------ ------ ------
Non-GAAP operating income $ 3,823 $ 2,694 $ 10,205 $ 8,357
=== ====== === ====== === ====== === ======
GAAP net income $ 1,977 $ 1,796 $ 5,824 $ 5,152
Add: deferred revenue write-down, net of tax 53 -- 53 --
------ ------ ------ ------
Non-GAAP net income $ 2,030 $ 1,796 $ 5,877 $ 5,152
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(1) This press release contains certain non-GAAP
financial measures, including non-GAAP net income, non-GAAP
operating income, non-GAAP revenue, and adjusted EBITDA, which are
used by management in analyzing its financial results and ongoing
operational performance.
This press release includes certain forward-looking statements
(statements other than solely with respect to historical fact),
including statements regarding expectations for the financial
performance for 2012 that involve risks and uncertainties regarding
HealthStream. These statements are based upon management’s beliefs, as
well as assumptions made by and data currently available to management.
This information has been, or in the future may be, included in reliance
on the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such results or events
predicted in these statements may differ materially from actual future
events or results. The forward-looking statements are subject to
significant uncertainties and other risks referenced in the Company’s
Annual Report on Form 10-K and in the Company’s other filings with the
Securities and Exchange Commission. Consequently, such forward-looking
information should not be regarded as a representation or warranty by
the Company that such projections will be realized. Many of the factors
that will determine the Company’s future results are beyond the ability
of the Company to control or predict. Readers should not place undue
reliance on forward-looking statements, which reflect management’s views
only as of the date hereof. The Company undertakes no obligation to
update or revise any such forward-looking statements.
SOURCE: HealthStream, Inc.
HealthStream, Inc.
Gerard M. Hayden, Jr., 615-301-3163
Chief Financial Officer
ir@healthstream.com
or
Media:
Mollie Condra, Ph.D., 615-301-3237
Associate Vice President, Investor Relations & Communications
mollie.condra@healthstream.com
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