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HealthStream: Gerard M. Hayden, Jr Chief Financial Officer

The following excerpt is from the company's SEC filing.

(615) 301-3163

ir@healthstream.com

Media:

Mollie Condra

Vice President,

Investor Relation & Communications

(615) 301-3237

mollie.condra@healthstream.com

HEALTHSTREAM ANNOUNCES THIRD QUARTER 2015 RESULTS

NASHVILLE, Tenn. (October 19, 2015)

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, 2015.

Highlights:

Revenues of $53.8 million in the third quarter of 2015, up 21% from $44.5 million in the third quarter of 2014

Operating income of $4.3 million in the third quarter of 2015, down 9% from $4.7 million in the third quarter of 2014. Operating income for the 2015 third quarter was adversely impacted by the $2.1 million reduction resulting from the deferred revenue write-down associated with the Health

Systems acquisition

Net income of $2.6 million in the third quarter of 2015, down 24% from $3.4 million in the third quarter of 2014, and earnings per share (EPS) of $0.08 per share (diluted) in the third quarter of 2015, compared to $0.12 per share (diluted) in the third quarter of 2014, both of which were also adversely impacted by the deferred revenue write-down mentioned above

Adjusted EBITDA

of $9.3 million in the third quarter of 2015, up 17% from $7.9 million in the third quarter of 2014, which was also adversely impacted by the aforementioned deferred revenue write-down

Financial Results:

Third Quarter 2015 Compared to Third Quarter 2014

Revenues for the third quarter of 2015 increased by $9.3 million, or 21 percent, to $53.8 million, compared to $44.5 million for the third quarter of 2014.

Revenues from our HealthStream Workforce Solutions segment increased by $5.9 million, or 17 percent, when compared to the third quarter of 2014. Revenues from our subscription-based solutions increased by approximately $5.7 million, or 17 percent, over the prior year third quarter due to a higher number of subscribers and more courseware consumption by subscribers. Revenues from ICD-10-readiness training products were approximately $6.3 million in the third quarter of 2015, compared to $7.4 million in the prior year third quarter.

Revenues from our HealthStream Patient Experience Solutions segment increased by $555,000, or seven percent, when compared to the third quarter of 2014. Revenues from Patient Insights surveysa survey research product that generates recurring revenuesincreased by $862,000, or 14 percent, when compared to the third quarter of 2014. Revenues from other products, including surveys conducted on annual or bi-annual cycles and consulting/coaching services, collectively decreased by $307,000, or 14 percent, when compared to the third quarter of 2014.

1 Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to net income is included in this release.

Revenues from our HealthStream Provider Solutions segment increased by $2.9 million when compared to the third quarter of 2014. Revenues from the Health

Systems (HLS) acquisition, which was consummated on March 16, 2015, were $2.7 million during the third quarter of 2015. In September 2015, HealthStream introduced Echo, Inc. to the marketplace as a newly formed company, combining its HLS and SyMed Development businesses.

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 2015, HealthStream reported a $2.1 million reduction to GAAP revenues and corresponding reductions of $2.1 million to operating income and $1.3 million to net income as a result of the deferred revenue write-down for the HLS acquisition. During the third quarter of 2014, HealthStream reported a $150,000 reduction to GAAP revenues and corresponding reductions of $150,000 to operating income and $108,000 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 financial results.

Operating income was $4.3 million for the third quarter of 2015 compared to $4.7 million for the third quarter of 2014. The decline in operating income resulted from a variety of factors. Increases in revenue in the third quarter of 2015 were partially offset by increased operating expenses associated with personnel additions, higher royalties, depreciation and amortization, and other general expenses. In addition, operating income in the third quarter of 2015 was impacted by the $2.1 million deferred revenue write-down for the HLS acquisition.

Net income was $2.6 million in the third quarter of 2015 compared to $3.4 million in the third quarter of 2014. Earnings per share were $0.08 per share (diluted) for the third quarter of 2015, compared to $0.12 per share (diluted) for the third quarter of 2014. Both net income and earnings per share for the prior year third quarter were positively influenced by a lower effective tax rate, which resulted from approximately $670,000 of tax benefits associated with research and development tax credits.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) increased by 17 percent to $9.3 million for the third quarter of 2015, compared to $7.9 million for the third quarter of 2014.

At September 30, 2015, the Company had cash and marketable securities of $144.8 million. Capital expenditures totaled $3.7 million for the third quarter of 2015.

Year-to-Date 2015 Compared to Year-to-Date 2014

For the first nine months of 2015, revenues were $153.1 million, an increase of 22 percent over revenues of $125.3 million in the first nine months of 2014. Operating income for the first nine months of 2015 decreased by four percent to $11.7 million, compared to $12.1 million for the first nine months of 2014. Net income for the first nine months of 2015 decreased by 12 percent to $6.8 million, compared to $7.7 million for the first nine months of 2014. Earnings per share were $0.23 per share (diluted) for the first nine months of 2015 compared to $0.28 per share (diluted) for the first nine months of 2014. During the first nine months 2015, HealthStream reported a $5.3 million reduction to GAAP revenues and corresponding reductions of $5.3 million to operating income and $3.1 million to net income, primarily as a result of the deferred revenue write-down for the HLS acquisition. During the first nine months of 2014...


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