HealthStream, Inc. (NASDAQ: HSTM), a leading provider of learning,
talent management, and research solutions for healthcare organizations,
announced today results for the fourth quarter and full year ended
December 31, 2012.
Fourth Quarter 2012 Compared to Fourth Quarter 2011
Revenues for the fourth quarter of 2012 increased $5.9 million, or 27
percent, to $27.8 million, compared to $21.9 million for the fourth
quarter of 2011.
Revenues from HealthStream Learning & Talent Management increased by
$5.3 million, or 33 percent, when compared to the fourth quarter of
2011. Revenues from our Internet-based subscription products increased
by approximately $5.0 million, or 34 percent, over the prior year
quarter due to a higher number of subscribers and more courseware
consumption by subscribers. Revenues from project-based services
decreased $291,000 from the prior year quarter. Revenues from
SimVentures, our collaborative arrangement with Laerdal Medical A/S,
increased by $128,000, or 36 percent, over the prior year fourth quarter
Revenues from HealthStream Research increased by $654,000, or 11
percent, when compared to the fourth quarter of 2011. Revenues from
Patient Insights™ surveys-a survey research product that generates
recurring revenues-increased by $594,000, or 13 percent, when compared
to the fourth quarter of 2011. Revenues from other surveys, which are
conducted on annual or bi-annual cycles, increased by approximately
$60,000, or four percent, when compared to the fourth quarter of 2011.
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 by GAAP. During the fourth
quarter of 2012, HealthStream reported a $403,000 reduction to GAAP
revenues and a corresponding $403,000 reduction to operating income and
$218,000 reduction to net income as a result of deferred revenue
write-downs for the Decision Critical and Sy.Med Development ("Sy.Med")
acquisitions in July and October of 2012, respectively. The table
reconciling GAAP to non-GAAP financial measures included in this release
shows the impact of beginning balance deferred revenue write-downs on
Operating income for the fourth quarter of 2012 increased by 12 percent
to $3.3 million, compared to $3.0 million for the fourth quarter of
2011, primarily resulting from the strong revenue growth. Operating
expense increases included higher royalties, sales commissions, travel,
personnel additions, depreciation, business taxes, and other general
expenses. During the fourth quarter of 2012, we incurred approximately
$435,000 of expenses associated with our mergers and acquisitions and
business development pipeline. For the full-year 2012, we incurred
approximately $678,000 of expenses for these activities.
Net income for both the fourth quarter of 2012 and 2011 was $1.8
million. Earnings per share were $0.07 per share (diluted) for both the
fourth quarter of 2012 and 2011.
Adjusted EBITDA (which we define as net income before interest, income
taxes, share-based compensation, and depreciation and amortization)
increased by 17 percent to $5.5 million for the fourth quarter of 2012,
compared to $4.7 million for the fourth quarter of 2011.
At December 31, 2012, the Company had cash and marketable securities of
$93.3 million. Capital expenditures totaled $2.5 million for the fourth
quarter and $8.8 million for the full-year of 2012.
Full Year 2012 Compared to Full Year 2011
For 2012, revenues were $103.7 million, an increase of 26 percent over
revenues of $82.1 million in 2011. Operating income for 2012 improved by
19 percent to $13.5 million, compared to $11.3 million for 2011. Net
income for 2012 increased by 10 percent to $7.6 million, compared to
$6.9 million for 2011. Earnings per share for 2012 were $0.28 per share
(diluted), compared to $0.29 per share (diluted) for 2011.
Other Business Updates
At December 31, 2012, approximately 2,937,000 healthcare professionals
were fully implemented to use our Internet-based HLC for training and
education. This number is up from approximately 2,572,000 fully
implemented users at December 31, 2011. The total number of contracted
subscribers at December 31, 2012 was approximately 3,099,000, up from
approximately 2,749,000 at December 31, 2011. "Contracted subscribers"
include both the 2,937,000 subscribers already implemented and the
162,000 subscribers in the process of implementation.
Based on the number of subscribers, our renewal rate was 92 percent in
the fourth 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 fourth quarter of 2012 compares to a renewal rate of
101 percent during the fourth quarter of 2011.
Based on contract value, our renewal rate was 96 percent in the fourth
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 fourth quarter of 2012
compares to a renewal rate of 110 percent during the fourth quarter of
For the trailing four quarters ended December 31, 2012, customers
representing approximately 99 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 100
percent. The trailing four quarter renewal measurements are calculated
on the same basis as the quarter results.
During the fourth quarter and full-year 2012, the Company continued to
expand its customer base for two of our talent management product
offerings, the HealthStream Performance Center™ (HPC) and the
HealthStream Competency Center™(HCC). The rate of new contracts signed
more than doubled from last quarter. In addition, a large healthcare
system concluded a successful pilot of the HCC and began adoption in the
fourth quarter. We are working to build on this momentum to establish
our talent management product offering as the frontrunner in the
During the fourth quarter of 2012, HealthStream was fully certified as a
2013 CAHPS Patient-Centered Medical Home (PCMH) Survey Vendor by the
National Committee for Quality Assurance (NCQA). HealthStream is one of
22 vendors certified for 2013. NCQA vendor certification enables the
Company to support medical practices and provider groups that are
seeking NCQA's PCMH Recognition program and/or NCQA's Distinction in
Patient Experience Reporting designation. Practices use NCQA-certified
vendors to identify eligible patients, survey patients, and report
results to NCQA.
In October of 2012, HealthStream advanced its talent management strategy
by adding an innovative credentialing application gained through the
acquisition of Sy.Med Development, Inc. As a leading developer of
credentialing related software products, Sy.Med serves a broad set of
healthcare clients, which includes over 115 hospitals and integrated
delivery networks, among others, who, in turn, use our application for
approximately 234,000 physicians and healthcare professionals.
Post-acute Care Strategy Launched
In the first quarter of 2013, the Company launched its strategy to offer
our learning and talent management suite of solutions to the post-acute
care market. Initially, we are focusing on long-term care facilities and
home healthcare agencies, which, collectively, represent approximately
three million healthcare professionals. Coupled with the five million
healthcare professionals working in our acute-care market space, the
Company's target market increases to a workforce of approximately eight
To pursue our post-acute care strategy, we are building a team dedicated
to this vertical. To that end, we have posted several initial positions
on our website to recruit personnel in the areas of leadership, market
development, sales, and marketing. (For more details about these
positions, go to http://healthstream.force.com/careers
on the Internet.) To execute our strategy, we will be creating an
eco-system of technology and content partnerships applicable to this
market-similar to what we have built in the acute-care space.
The post-acute care vertical market expands HealthStream's target
market. According to the American Health Care Association (AHCA), there
are over 60,000 long-term care facilities in the U.S., which include
approximately 16,000 nursing facilities, 6,000 intermediate care
facilities, and 40,000 assisted living facilities-where, collectively,
approximately two million healthcare professionals are employed.
According to the National Association for Home Care and Hospice (NAHCH),
there are approximately 11,000 Medicare-certified home health agencies
in the U.S., where approximately one million healthcare professionals
are employed. Both long-term care facilities and home health agencies
are anticipated to grow in number in the coming years to meet the
healthcare needs of an aging population in the U.S. The percentage of
the population that is 65+ years old at the current time is 13 percent.
This percentage is forecasted to increase to approximately 20 percent of
the U.S. population by 2030, according to the AHCA.
Capital Allocation Strategy for 2013
At year-end 2012, we had $93.3 million in cash and marketable
securities, along with an untapped line of credit of $20 million. We
plan to continue to incur expenses to actively pursue our capital
allocation strategy in the following areas, among others.
Mergers and Acquisitions: We have been actively evaluating a
range of business development initiatives, including potential mergers
and acquisitions-and we anticipate continued expenses in this effort in
2013. During 2012, we estimate our expenses in these activities were
approximately $678,000, of which $435,000 was incurred in the fourth
quarter of 2012. The successful acquisitions of Decision Critical and
Sy.Med Development are included in this estimate. The remaining expense
is for other opportunities-some that remain active and some that are no
longer being considered.
Joint Ventures and Partnerships: Through our collaborative
arrangement with Laerdal Medical, SimVentures, we intend to continue to
invest in the development and marketing of our SimCenter™ suite of
products, which includes our new application for managing
simulation-based training, SimManager,that was launched in 2012. Results
from the fourth quarter of 2012 marked the seventh consecutive quarter
that SimVentures has been cash flow positive and top-line revenues have
grown. During 2013, we may also invest in other joint ventures and/or
partnerships to develop new solutions, products, or services.
Product Innovation and Integration: We are making a wide range of
improvements and adding new capabilities across our existing platform.
In 2013, we expect to further invest in the integration and enhancement
of our new products and capabilities gained through our recent
acquisitions. For example, we are rebuilding our patented Portfolio
tools-gained from our acquisition of Decision Critical-in our platform.
Financial Outlook for 2013
Complementing our 2013 investment strategies is anticipated continued
strong revenue growth-fueled largely by core expansion. We expect
consolidated revenues to grow between 20 to 22 percent over full-year
2012. This growth includes the expected contributions from the two
acquisitions we closed during 2012, Decision Critical and Sy.Med. We
anticipate revenue growth in the Learning & Talent Management segment to
be in the 24 to 26 percent range and the Research segment's revenues to
increase approximately eight to 10 percent. The foregoing estimates do
not include, however, the impact from any other transactions that we may
complete during 2013.
We expect that our investments in 2013 will take the form of both
operating expenses and capital expenditures across the range of items
discussed above, among other opportunities. Accordingly, we anticipate
that the Company's 2013 full-year operating income will be approximately
6 to 10 percent over full-year 2012. This operating income range
includes our estimated costs of entry into the post-acute care market
and the impact of our other 2013 capital allocation strategies.
We anticipate that our 2013 capital expenditures will be between $9
million and $10 million.
We expect our effective tax rate to be approximately 42 to 44 percent
for the full-year of 2013.
"2012 was an outstanding year for HealthStream," said Robert A. Frist,
Jr., chief executive officer of HealthStream. "Compared to the prior
year, revenues increased 26 percent, operating income grew 19 percent,
and net income increased 10 percent. Moreover, we contracted over
350,000 new subscribers to the HealthStream Learning Center™ in 2012,
which is an increase of 17 percent above the prior year."
"We are excited to expand our services beyond the hospital market into
the post-acute care market, which, when combined with the acute care
hospital segment, brings our market opportunity to a base of
approximately eight million healthcare professionals," said Frist.
"Going forward, we are well capitalized for making strategic investments
in 2013 that we believe will deliver significant value to our customers
that, in turn, position us for long-term growth. I look forward to
reporting continued progress throughout 2013 as we execute our business
strategy and strive to deliver superior results for all of our
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 corporate communications, will be held on Wednesday,
February 27, 2013 at 9:00 a.m. (EDT). 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 #99802770) for U.S. and Canadian callers and 404-537-3406
(conference ID #99802770) 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.
HealthStream (NASDAQ: 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
Deferred tax liabilities, non-current
Derived from audited financial statements contained in the
Company's filing on Form 10-K for the year ended December 31, 2011.
Reconciliation of GAAP to Non-GAAP Financial Measures(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
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 2013 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.
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