HealthStream, Inc. (NASDAQ: HSTM), a leading provider of
workforce, patient experience, and provider solutions for the
healthcare industry, announced today results for the third quarter
ended September 30, 2017.
- Revenues of $63.6 million in the third
quarter of 2017, up 9% from $58.4 million in the third quarter of
2016
- Operating income of $4.0 million in the
third quarter of 2017, up 210% from $1.3 million in the third
quarter of 2016
- Net income of $2.5 million in the third
quarter of 2017, up 116% from $1.2 million in the third quarter of
2016, and earnings per share (EPS) of $0.08 per share (diluted) in
the third quarter of 2017, compared to $0.04 per share (diluted) in
the third quarter of 2016
- Adjusted EBITDA1 of $11.0 million in
the third quarter of 2017, up 41% from adjusted EBITDA of $7.8
million in the third quarter of 2016
Financial Results:
Third Quarter 2017 Compared to Third Quarter 2016
Revenues for the third quarter of 2017 increased by $5.2
million, or 9 percent, to $63.6 million, compared to $58.4 million
for the third quarter of 2016.
Revenues from our HealthStream Workforce Solutions segment,
which are primarily subscription-based, were approximately $44.6
million for the third quarter of 2017, compared to $43.0 million
for the third quarter of 2016. Revenue growth of $1.6 million from
our workforce solutions products was partially offset by a decline
in ICD-10 readiness revenue. Revenues from ICD-10-readiness
training products declined by $1.2 million to $121,000 in the third
quarter of 2017, compared to $1.3 million in the third quarter of
2016.
Revenues from our HealthStream Patient Experience Solutions
segment were approximately $8.8 million for the third quarter of
2017, compared to $8.9 million for the third quarter of 2016.
Revenues from Patient Insights™ surveys—a survey research product
that generates recurring revenues—increased by $105,000, or 2
percent, compared to the third quarter of 2016. Revenues from other
patient experience solutions products, including surveys conducted
on annual or bi-annual cycles and consulting/coaching services,
collectively decreased by $226,000, or 9 percent, when compared to
the third quarter of 2016.
Revenues from our HealthStream Provider Solutions segment were
approximately $10.1 million for the third quarter of 2017, compared
to $6.4 million for the third quarter of 2016, an increase of 58
percent. Revenues from the Morrisey Associates, Inc. (MAI)
acquisition, which was consummated in August 2016, accounted for
$2.0 million of the increase in revenues during the third quarter
of 2017. MAI revenues in the third quarter of 2017 were
approximately $2.9 million, net of deferred revenue write-downs,
compared to $841,000, net of deferred revenue write-downs, during
the portion of the third quarter of 2016 which occurred following
the completion of the MAI acquisition. Revenues from other provider
solutions products increased $1.7 million, or 30 percent, when
compared to the third quarter of 2016.
1
Adjusted EBITDA is a non-GAAP financial measure. A reconciliation
of adjusted EBITDA to net income and disclosure regarding why we
believe Adjusted EBITDA provides useful information to investors is
included later in this release.
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 third quarter of 2017, HealthStream reported a
$146,000 reduction to operating income and an $88,000 reduction to
net income as a result of deferred revenue write-downs from prior
acquisitions, primarily from the MAI acquisition. During the third
quarter of 2016, HealthStream reported a reduction of $1.2 million
to operating income and $847,000 to net income as a result of
deferred revenue write-downs. 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 and net income.
Operating income was $4.0 million for the third quarter of 2017,
compared to $1.3 million for the third quarter of 2016. This
increase in operating income period over period reflects the
increase in revenue noted above. The positive impact of this
revenue increase on operating income in the quarter was partially
offset by increased operating expenses associated with higher
royalties, amortization, and personnel additions.
Net income was $2.5 million in the third quarter of 2017,
compared to $1.2 million in the third quarter of 2016. Earnings per
share (diluted) were $0.08 per share for the third quarter of 2017,
compared to $0.04 per share for the third quarter of 2016.
Adjusted EBITDA (which we define as net income before interest,
income taxes, share-based compensation, and depreciation and
amortization) increased by 41 percent to $11.0 million for the
third quarter of 2017, compared to $7.8 million for the third
quarter of 2016.
At September 30, 2017, the Company had cash and marketable
securities of $123.4 million. Capital expenditures incurred during
the third quarter of 2017 were approximately $4.3 million.
Year-to-Date 2017 Compared to Year-to-Date 2016
For the first nine months of 2017, revenues were $184.9 million,
an increase of 11 percent over revenues of $167.2 million for the
first nine months of 2016. Revenue growth of $17.7 million was
adversely impacted by the decline in ICD-10 readiness revenue.
Revenues from ICD-10 readiness training products declined by $6.5
million to $905,000 for the nine months ended September 30, 2017,
compared to $7.4 million for the nine months ended September 30,
2016. Operating income for the first nine months of 2017 increased
by 42 percent to $8.7 million, compared to $6.1 million for the
first nine months of 2016. Net income for the first nine months of
2017 increased by 49 percent to $6.1 million, compared to $4.1
million for the first nine months of 2016. Earnings per share were
$0.19 per share (diluted) for the first nine months of 2017
compared to $0.13 per share (diluted) for the first nine months of
2016. Adjusted EBITDA increased by 24 percent to $29.5 million for
the first nine months of 2017 compared to $23.7 million for the
first nine months of 2016.
Other Business Updates
At September 30, 2017, we had approximately 4,495,000 total
subscribers implemented to use and 4,649,000 total subscribers
contracted to use our subscription-based solutions. “Contracted
subscribers” include both those already implemented and those under
contract that are in the process of implementation. Revenue
recognition commences when a contract is fully implemented.
Annualized revenue per implemented subscriber for Workforce
Solutions
We view the metric, “Annualized Revenue per Implemented
Subscriber for Workforce Solutions” (“Workforce ARIS”), as one of
several measures of our progress in growing the value of our
customer base. Workforce ARIS represents the quarter's revenue from
our subscription-based solutions, annualized, then divided by the
quarter's average number of implemented subscribers. Our
subscription-based solutions include subscriptions to our platform
applications plus courseware/content subscriptions. For the third
quarter of 2017, HealthStream’s Workforce ARIS was $38.37, compared
to last year’s third quarter of $37.80.
Financial Outlook for 2017
For 2017, we continue to anticipate that consolidated revenues
will grow eight to 10 percent as compared to 2016. We anticipate
that revenue growth in our Workforce Solutions segment will be in
the four to six percent range and our Patient Experience Solutions
segment to decline one to three percent when compared to 2016. We
anticipate that our Provider Solutions segment’s revenue will grow
50 to 54 percent as compared to 2016.
We anticipate operating income for 2017 to increase between 65
and 80 percent as compared to 2016.
We anticipate that capital expenditures will be between $18
million and $20 million during 2017. We expect the annual effective
income tax rate to range between 32 percent and 36 percent for
2017.
This guidance does not include the impact of any acquisitions
that we may complete during 2017.
Commenting on results, Robert A. Frist, Jr., Chief Executive
Officer, HealthStream, said, “Third quarter 2017 financial results
were solid, which included both quarterly revenues and adjusted
EBITDA at record levels. Concurrently, quarterly operating income
grew to $4.0 million, which gives us confidence in our expectation
of leveraged operating income growth for full-year 2017.”
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, Vice President of Investor
Relations and Corporate Communications, will be held on Tuesday,
October 24, 2017, at 9:00 a.m. (ET). 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 #2600147)
for U.S. and Canadian callers and 404-537-3406 (conference ID
#2600147) 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, and
adjusted EBITDA, which are used by management in analyzing the
Company’s financial results and ongoing operational
performance.
In order to better assess the Company’s financial results,
management believes that net income before interest, income taxes,
share-based compensation, depreciation and amortization (“adjusted
EBITDA”) is a useful measure for evaluating the operating
performance of the Company because adjusted EBITDA reflects net
income adjusted for non-cash and non-operating items. We believe
that adjusted EBITDA is also useful to 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 GAAP. Because adjusted
EBITDA is not a measurement determined in accordance with GAAP, it
is susceptible to varying calculations. Accordingly, adjusted
EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies.
In recent years, the Company has acquired businesses whose net
tangible assets include deferred revenue. In accordance with GAAP
reporting requirements, following the completion of any such
acquisition, the Company may record a write-down of deferred
revenue to fair value as defined by GAAP. If the Company is
required to record a write-down of deferred revenue, it may result
in lower recognized revenue, operating income, and net income in
subsequent periods.
In connection therewith, this release presents below non-GAAP
operating income and non-GAAP net income, which in each case
reflects the corresponding GAAP figures adjusted to exclude the
impact of the deferred revenue write-down associated with fair
value accounting for acquired businesses as referenced above.
Management believes that the presentation of these non-GAAP
financial measures assists investors in understanding the Company’s
performance between periods, excluding the impact of this deferred
revenue write-down, and provides a useful measure of the ongoing
performance of the Company. Both on a quarterly and year-to-date
basis, the revenue for any acquired business is deferred and
typically recognized over a one-to-two year period following the
completion of an acquisition, so our GAAP revenues for this
one-to-two year period will not reflect the full amount of revenues
that would have been reported if the acquired deferred revenue had
not been written down to fair value.
These non-GAAP financial measures should not be considered a
substitute for, or superior to, measures of financial performance,
which are prepared in accordance with 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 (NASDAQ: HSTM) is dedicated to improving patient
outcomes through the development of healthcare organizations’
greatest asset: their people. Our unified suite of solutions is
contracted by, collectively, approximately 4.65 million healthcare
employees in the U.S. for workforce development, training &
learning management, talent management, credentialing, privileging,
provider enrollment, performance assessment, and managing
simulation-based education programs. Our research solutions provide
valuable insight to healthcare providers to meet HCAHPS
requirements, improve the patient experience, engage their
workforce, and enhance physician alignment. Based in Nashville,
Tennessee, HealthStream has additional offices in Brentwood,
Tennessee; Jericho, New York; Boulder; Colorado; San Diego,
California; Chicago, Illinois; and Columbia, Maryland. For more
information, visit http://www.healthstream.com or call
800-933-9293.
HEALTHSTREAM, INC.
Condensed Consolidated Statements of
Income
(In thousands, except per share
data)
Unaudited Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016
2017 2016
Revenues $ 63,553 $ 58,367 $ 184,904 $ 167,237 Operating
expenses: Cost of revenues (excluding depreciation and
amortization)
26,731
24,889
79,382
70,410
Product development 6,990 7,261 20,630 21,524 Sales and marketing
10,117 10,285 31,111 27,843 Other general and administrative 9,163
8,891 25,622 25,396 Depreciation and amortization
6,570 5,755
19,488 15,976 Total operating
expenses 59,571 57,081 176,233 161,149 Operating income
3,982 1,286 8,671 6,088 Other income (expense), net
173 337 468
465 Income before income taxes 4,155 1,623
9,139 6,553 Income tax provision
1,651
461 3,083
2,487 Net income
$ 2,504
$ 1,162 $ 6,056
$ 4,066 Net income per share: Net
income per share, basic
$ 0.08
$ 0.04 $ 0.19
$ 0.13 Net income per share, diluted
$ 0.08 $ 0.04
$ 0.19 $ 0.13
Weighted average shares outstanding: Basic
31,893 31,739
31,848 31,714 Diluted
32,217 32,107
32,183 32,050
HEALTHSTREAM, INC.
Condensed Consolidated Balance
Sheets
(In thousands)
Unaudited September 30,
December 31, 2017
2016(1)
ASSETS Current assets: Cash and cash equivalents $ 60,460 $ 49,634
Marketable securities 62,943 53,540 Accounts and unbilled
receivables, net 40,125 47,386 Prepaid and other current assets
25,747 26,877
Total current assets 189,275 177,437 Capitalized software
development, net 18,685 16,310 Property and equipment, net 9,923
10,245 Goodwill and intangible assets, net 181,487 188,129 Other
assets
4,470 3,879
Total assets
$ 403,840
$ 396,000 LIABILITIES AND
SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable, accrued
and other liabilities $ 28,231 $ 26,428 Deferred revenue
66,510 68,542 Total
current liabilities 94,741 94,970 Deferred tax liabilities 4,871
5,968 Deferred revenue, non-current 7,074 7,859 Other long-term
liabilities
1,497
1,095 Total liabilities 108,183 109,892
Shareholders’ equity: Common stock 282,083 280,813 Comprehensive
loss (20 ) (51 ) Retained earnings
13,594
5,346 Total shareholders’ equity
295,657 286,108
Total liabilities and shareholders' equity
$
403,840 $ 396,000
(1) Derived from audited financial statements
contained in the Company’s filing on Form 10-K for the year ended
December 31, 2016.
HEALTHSTREAM, INC.
Condensed Consolidated Statements of
Cash Flows
(In thousands)
Unaudited Nine Months Ended September
30, September 30, 2017
2016 Operating activities: Net
income $ 6,056 $ 4,066 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 19,488 15,976 Share-based compensation 1,358 1,516
Deferred income taxes 710 791 Provision for doubtful accounts 963
340 (Gain) loss on equity method investments 5 (134 ) Other 365 185
Changes in assets and liabilities: Accounts and unbilled
receivables 5,301 (6,855 ) Prepaid and other assets 1,035 (2,653 )
Accounts payable, accrued and other liabilities 2,861 3,517
Deferred revenue
(2,479 )
(1,766 ) Net cash provided by operating
activities
35,663
14,983 Investing activities:
Business combinations, net of cash acquired -- (53,078 ) Proceeds
from sale of long-lived assets -- 975 Changes in marketable
securities (9,724 ) 5,426 Payments to acquire cost method
investments (500 ) -- Purchases of property and equipment (5,312 )
(3,870 ) Payments associated with capitalized software development
(9,213 )
(7,070 ) Net cash used in investing
activities
(24,749 )
(57,617 ) Financing
activities: Proceeds from exercise of stock options 322 94
Excess tax benefits from equity awards -- 661 Taxes paid related to
net settlement of equity awards
(410
) (311 ) Net cash
(used in) provided by financing activities
(88
) 444 Net increase
(decrease) in cash and cash equivalents 10,826 (42,190 ) Cash and
cash equivalents at beginning of period
49,634
82,010 Cash and cash equivalents
at end of period
$ 60,460
$ 39,820
Reconciliation of GAAP to Non-GAAP
Financial Measures(1)
(In thousands)
Unaudited Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016
2017 2016
GAAP net income $ 2,504 $ 1,162 $ 6,056 $ 4,066 Interest
income (221 ) (153 ) (583 ) (418 ) Interest expense 35 26 98 76
Income tax provision 1,651 461 3,083 2,487 Share-based compensation
expense 440 512 1,358 1,516 Depreciation and amortization
6,570 5,755
19,488 15,976
Adjusted EBITDA
$ 10,979
$ 7,763 $
29,500 $ 23,703
GAAP operating income $ 3,982 $ 1,286 $ 8,671
$ 6,088 Add: deferred revenue write-down
146
1,183 1,539
2,577 Non-GAAP operating income
$ 4,128 $
2,469 $ 10,210
$ 8,665 GAAP net
income $ 2,504 $ 1,162 $ 6,056 $ 4,066 Add: deferred revenue
write-down, net of tax
88
847 1,020
1,598 Non-GAAP net income
$
2,592 $ 2,009
$ 7,076 $
5,664 (1) This press release contains
certain non-GAAP financial measures, including non-GAAP net income,
non-GAAP operating income, 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 2017, 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.
The Company cautions that forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause
the actual results, performance, or achievements to be materially
different from future results, performance, or achievements
expressed or implied by the forward-looking statements, including,
without limitation, as the result of risks referenced in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2016, filed on February 27, 2017, and in the Company’s other
filings with the Securities and Exchange Commission from time to
time. Consequently, such forward-looking information should not be
regarded as a representation or warranty or statement 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171023006336/en/
HealthStream, Inc.Gerard M. Hayden, Jr., 615-301-3163Chief
Financial Officerir@healthstream.comorMedia:Mollie Condra, Ph.D., 615-301-3237Vice
President, Investor Relations &
Communicationsmollie.condra@healthstream.com
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