HealthStream, Inc. (Form: 8-K)  

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     
Date of Report (Date of Earliest Event Reported):   July 23, 2012

HealthStream, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

     
Tennessee 000-27701 621443555
_____________________
(State or other jurisdiction
_____________
(Commission
______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
209 10th Ave. South, Suite 450, Nashville, Tennessee   37203
_________________________________
(Address of principal executive offices)
  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   615-301-3100

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Top of the Form

Item 2.02 Results of Operations and Financial Condition.

On July 23, 2012, HealthStream, Inc. (the "Company") issued a press release announcing results of operations for the second quarter ended June 30, 2012, and updated guidance for the full year 2012, the text of which is set forth in Exhibit 99.1.





Item 7.01 Regulation FD Disclosure.

On July 23, 2012, the Company issued a press release announcing results of operations for the second quarter ended June 30, 2012, and updated guidance for the full year 2012, the text of which is set forth in Exhibit 99.1.





Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press release dated July 23, 2012.






Top of the Form

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
    HealthStream, Inc.
          
July 23, 2012   By:   Gerard Hayden
       
        Name: Gerard Hayden
        Title: Chief Financial Officer


Top of the Form

Exhibit Index


     
Exhibit No.   Description

 
99.1
  Press release dated July 23, 2012.
EX-99.1

EXHIBIT 99.1

Contact:
Gerard M. Hayden, Jr.
Chief Financial Officer
(615) 301-3163
ir@healthstream.com

Media:
Mollie Condra
AVP, Investor Relation & Communications
(615) 301-3237
mollie.condra@healthstream.com

HEALTHSTREAM ANNOUNCES SECOND QUARTER 2012 RESULTS

NASHVILLE, Tenn. (July 23, 2012)—HealthStream, Inc. (NASDAQ: HSTM), a leading provider of learning and research solutions for the healthcare industry, announced today results for the second quarter ended June 30, 2012.

Highlights:

    Revenues of $25.8 million in the second quarter of 2012, up 23% from revenues of $21.1 million in the second quarter of 2011

    Operating income of $4.0 million in the second quarter of 2012, up 30% from operating income of $3.1 million in the second quarter of 2011

    Net income of $2.4 million in the second quarter of 2012, up 33% from net income of $1.8 million in the second quarter of 2011, and earnings per share (EPS) of $0.09 per share in the second quarter of 2012, compared to EPS of $0.08 per share in the second quarter of 2011

    Adjusted EBITDA1 of $5.9 million in the second quarter of 2012, up 27% from $4.6 million in the second quarter of 2011

    Acquired Decision Critical, Inc. in June of 2012

Financial Results:
Second Quarter 2012 Compared to Second Quarter 2011
Revenues for the second quarter of 2012 increased $4.8 million, or 23 percent, to $25.8 million, compared to $21.1 million for the second quarter of 2011.

Revenues from HealthStream Learning increased by $4.9 million, or 34 percent, when compared to the second quarter of 2011. Revenues from our Internet-based subscription products increased by approximately $4.2 million, or 31 percent, over the prior year quarter due to a higher number of subscribers and more courseware consumption by subscribers. Revenues from project-based services increased $696,000 over the prior year quarter. Revenues from SimVentures, our collaborative arrangement with Laerdal Medical A/S, increased $244,000 over the prior year quarter; $392,000 was delivered in the second quarter of 2012 compared to $148,000 during the second quarter of 2011.

Revenues from HealthStream Research decreased by $60,000, or one percent, when compared to the second quarter of 2011. Revenues from Patient Insights™ surveys—a survey research product that generates recurring revenues—increased by $289,000, or seven percent, when compared to the second quarter of 2011. Revenues from other surveys, which are conducted on annual or bi-annual cycles, decreased by $348,000, or 16 percent, when compared to the second quarter of 2011 due to fewer survey engagements.

Operating income for the second quarter of 2012 increased by 30 percent to $4.0 million, compared to $3.1 million for the second quarter of 2011. This improvement resulted primarily from strong revenue growth. Operating expense increases included higher royalties, sales commissions, travel, personnel additions, depreciation, other general expenses, as well as one-time expenses associated with the acquisition of Decision Critical. Partially offsetting these expense increases was a reduction of expense associated with the timing of our annual customer Summit being held during the second quarter of 2011 versus the first quarter of 2012. During the second quarter of 2011, the Summit reduced operating income by approximately $270,000.

Net income for the second quarter of 2012 was $2.4 million, compared to $1.8 million in the second quarter of 2011. Earnings per share (EPS) were $0.09 per share (diluted) in the second quarter of 2012, compared to $0.08 per share (diluted) for the second quarter of 2011. A key factor impacting EPS in the second quarter of 2012 was the effect of additional shares outstanding from the Company’s fourth quarter 2011 follow-on stock offering. The impact of the follow-on offering added approximately 3.6 million shares to the second 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 27 percent to $5.9 million for the second quarter of 2012, compared to $4.6 million for the second quarter of 2011.

At June 30, 2012, the Company had cash and marketable securities of $91.9 million. Capital expenditures totaled $2.2 million for the second quarter of 2012.

Year-to-Date 2012 Compared to Year-to-Date 2011
For the first six months of 2012, revenues were $49.5 million, an increase of 25 percent over revenues of $39.6 million in the first six months of 2011. Net income for the first six months of 2012 increased by 15 percent to $3.8 million, compared to $3.4 million for the first six months of 2011. Earnings per share were $0.14 per share (diluted) for both the first six months of 2012 and 2011.
Operating income for the first six months of 2012 improved by 13 percent to $6.4 million, compared to $5.7 million for the first six months of 2011.

Other Business Updates
At June 30, 2012, approximately 2,783,000 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 2,486,000 at June 30, 2011. The total number of contracted subscribers at June 30, 2012 was approximately 2,908,000, up from approximately 2,586,000 at June 30, 2011. “Contracted subscribers” include both the 2,783,000 subscribers already implemented and the 125,000 subscribers in the process of implementation.

Based on the number of subscribers, our renewal rate was 108 percent in the second 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 second quarter for 2012 compares to a renewal rate of 101 percent during the second quarter of 2011.

Based on contract value, our renewal rate was 102 percent in the second 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 second quarter of 2012 compares to renewal rate of 116 percent during the second quarter of 2011.

For the trailing four quarters ended June 30, 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 102 percent. The trailing four quarter renewal measurements are calculated on the same basis as the quarter results.

In June of 2012, HealthStream advanced its talent management strategy with the acquisition of Decision Critical, Inc., an Austin, Texas based company that specializes in learning and competency management products for acute-care hospitals. Through the acquisition, HealthStream added Critical Portfolio™, a patented electronic portfolio, which is an ideal software-as-a-service based tool to store and view the qualifications, competencies, and skills of the hospital’s workforce, including their licenses, educational records, and credentials. We believe Critical Portfolio will be a valuable add-on platform extension to our talent management suite of products.

The consideration paid for Decision Critical consisted of approximately $3.4 million in cash and 22,124 shares of our common stock. Also, we may make additional payments of up to $300,000, contingent upon achievement of certain financial targets and business outcomes over the next year. In allocating the purchase price, we recorded approximately $3.0 million of goodwill, $1.8 million of identifiable intangible assets, $145,000 of net tangible assets, and $700,000 of deferred tax liabilities. The allocation of purchase price is preliminary and may be subject to change within the measurement period of one year from the acquisition date.

Financial Expectations
The Company published updated guidance and anticipates that consolidated revenues for the full year 2012 will grow by 22 to 25 percent when compared to the full year 2011. We anticipate revenue growth in the Learning segment to be in the 30 to 34 percent range and the Research segment’s revenue to increase by approximately one to three percent over the prior year.

We expect that operating income will increase between 20 to 26 percent for the full year of 2012 versus our 2011 results.

We believe that equivalent shares for purposes of calculating diluted earnings per share will be between 27.4 million and 27.6 million. We anticipate that our effective book income tax rate will be between 39 percent and 40 percent. Actual tax payments will be substantially less than our income tax provision as we continue to utilize our federal and state net operating loss carry-forwards of approximately $14.5 million and $12.6 million, respectively, to offset taxable income.

We expect that capital expenditures, including hardware, software, capitalized software development and additional office space will range between $8.0 and $9.0 million during the full year of 2012.

“A primary objective of our company is to support healthcare organizations in assessing and developing their workforce talent and, therefore, I am pleased that in the second quarter, we expanded our talent management suite of products,” said Robert A. Frist, Jr., chief executive officer, HealthStream. “Our patented electronic portfolio product gained through our recent acquisition of Decision Critical is an exciting addition to our product portfolio—and we are making investments to offer it as an integrated platform extension to customers by early next year. Also, the HealthStream Performance Center—launched in March—and the HealthStream Competency Center, combined, were newly contracted in the second quarter by 15 healthcare organizations.”

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, July 24, 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 #11743682) for U.S. and Canadian callers and 404-537-3406 (conference ID #11743682) for international callers.

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 software-as-a-service (SaaS) solutions are used by, collectively, approximately 2.9 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 an additional office in Laurel, Maryland. For more information, visit http://www.healthstream.com or call 800-933-9293.

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HEALTHSTREAM, INC.
Summary Financial Data
(In thousands, except per share data)

                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2012   2011   2012   2011
Revenues
  $ 25,841     $ 21,051     $ 49,514     $ 39,557  
Operating expenses:
                               
Cost of revenues (excluding depreciation and amortization)
    10,167       7,638       19,742       14,708  
Product development
    2,182       1,911       4,051       3,697  
Sales and marketing
    4,678       4,357       10,214       7,864  
Other general and administrative
    3,201       2,684       6,019       5,227  
Depreciation and amortization
    1,572       1,355       3,106       2,398  
 
                               
Total operating expenses
    21,800       17,945       43,132       33,894  
Operating income
    4,041       3,106       6,382       5,663  
Other income (expense)
    26       (4 )     45       16  
 
                               
Income before income taxes
    4,067       3,102       6,427       5,679  
Income tax provision
    1,640       1,271       2,580       2,323  
 
                               
Net income
  $ 2,427     $ 1,831     $ 3,847     $ 3,356  
 
                               
Net income per share:
                               
Net income per share, basic
  $ 0.09     $ 0.08     $ 0.15     $ 0.15  
 
                               
Net income per share, diluted
  $ 0.09     $ 0.08     $ 0.14     $ 0.14  
 
                               
Weighted average shares outstanding:
                               
Basic
    26,127       22,002       26,063       21,920  
 
                               
Diluted
    27,501       23,350       27,418       23,160  
 
                               

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HEALTHSTREAM, INC.
Condensed Consolidated Balance Sheets
(In thousands)

                 
    Unaudited
    June 30,   December 31,
    2012   2011(1)
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 27,341     $ 76,904  
Marketable securities – short term
    64,547       6,552  
Accounts and unbilled receivables, net
    19,781       17,330  
Prepaid and other current assets
    4,470       5,213  
Deferred tax assets, current
    2,634       5,080  
 
               
Total current assets
    118,773       111,079  
Marketable securities – long term
          5,996  
Capitalized software development, net
    8,644       7,940  
Property and equipment, net
    6,859       6,087  
Goodwill and intangible assets, net
    27,381       23,104  
Other assets
    501       31  
 
               
Total assets
  $ 162,158     $ 154,237  
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable, accrued and other liabilities
  $ 7,793     $ 9,689  
Deferred revenue
    25,743       22,759  
 
               
Total current liabilities
    33,536       32,448  
 
    1,023       323  
 
               
Deferred tax liabilities, non-current
    1,023       323  
Other long-term liabilities
    989       551  
 
               
Total liabilities
    35,548       33,322  
Shareholders’ equity:
               
Common stock
    156,247       154,409  
Comprehensive income (loss)
    3       (7 )
Accumulated deficit
    (29,640 )     (33,487 )
 
               
Total shareholders’ equity
    126,610       120,915  
 
               
Total liabilities and shareholders’ equity
  $ 162,158     $ 154,237  
 
               

  (1)   Derived from audited financial statements contained in the Company’s filing on Form 10-K for the year ended December 31, 2011.

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HEALTHSTREAM, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)

                 
    Unaudited
    Six Months Ended
    June 30,   June 30,
    2012   2011
Operating activities:
               
Net income
  $ 3,847     $ 3,356  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    3,106       2,398  
Deferred income taxes
    2,580       2,072  
Share-based compensation
    541       374  
Provision for doubtful accounts
    50       20  
Changes in assets and liabilities:
               
Accounts and unbilled receivables
    (2,319 )     (1,434 )
Prepaid and other assets
    1,063       1,035  
Accounts payable, accrued and other liabilities
    (2,346 )     (2,167 )
Deferred revenue
    2,411       3,173  
 
               
Net cash provided by operating activities
    8,933       8,827  
 
               
Investing activities:
               
Acquisition, net of cash acquired
    (2,904 )      
Changes in marketable securities
    (52,309 )     3,623  
Purchases of property and equipment
    (2,009 )     (1,808 )
Payments associated with capitalized software development
    (1,996 )     (4,620 )
 
               
Net cash used in investing activities
    (59,218 )     (2,805 )
 
               
Financing activities:
               
Proceeds from exercise of stock options
    722       560  
Payments on capital leases
          (2 )
 
               
Net cash provided by financing activities
    722       558  
 
               
Net (decrease) increase in cash and cash equivalents
    (49,563 )     6,579  
Cash and cash equivalents at beginning of period
    76,904       17,868  
 
               
Cash and cash equivalents at end of period
  $ 27,341     $ 24,447  
 
               

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Reconciliation of Adjusted EBITDA
(In thousands, except per share data)

Income before interest, taxes, share-based compensation, depreciation and amortization, or adjusted EBITDA(1):

                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2012   2011   2012   2011
Net income
  $ 2,427     $ 1,831     $ 3,847     $ 3,356  
Interest income
    (39 )     (9 )     (70 )     (31 )
Interest expense
    13       13       25       22  
Income tax provision
    1,640       1,271       2,580       2,323  
Share-based compensation expense
    299       184       541       374  
Depreciation and amortization
    1,572       1,355       3,106       2,398  
 
                               
Adjusted EBITDA
  $ 5,912     $ 4,645     $ 10,029     $ 8,442  
 
                               

  (1)   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.

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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.

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