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HealthStream Announces Fourth Quarter & Full Year 2012 Results
Highlights:
Fourth Quarter
-
Revenues of
$27.8 million in the fourth quarter of 2012, up 27% from revenues of$21.9 million in the fourth quarter of 2011 -
Operating income of
$3.3 million in the fourth quarter of 2012, up 12% from operating income of$3.0 million in the fourth quarter of 2011 -
Net income of
$1.8 million in both the fourth quarter of 2012 and 2011, up 2% over the prior year quarter, and earnings per share (EPS) of$0.07 per share (diluted) for both the fourth quarter of 2012 and 2011 -
Adjusted EBITDA1 of
$5.5 million in the fourth quarter of 2012, up 17% from$4.7 million in the fourth quarter of 2011 - Launch of post-acute care market strategy, expanding market opportunity for core talent management products
Full Year
-
Revenues for 2012 of
$103.7 million , up 26% from revenues of$82.1 million in 2011 -
Operating income of
$13.5 million in 2012, up 19% from operating income of$11.3 million in 2011 -
Net income of
$7.6 million in 2012, up 10% from net income of$6.9 million for 2011, and EPS of$0.28 per share (diluted) for 2012, compared to EPS of$0.29 per share (diluted) for 2011 -
Adjusted EBITDA1 of
$21.2 million for 2012, up 21% from$17.5 million for 2011 -
2,937,000 healthcare professional subscribers fully implemented on our
Internet-based learning network at
December 31, 2012 , up 14% from 2,572,000 atDecember 31, 2011
Financial Results:
Fourth Quarter 2012 Compared to Fourth Quarter 2011
Revenues for the fourth quarter of 2012 increased
Revenues from HealthStream Learning & Talent Management increased by
Revenues from
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,
Operating income for the fourth quarter of 2012 increased by 12 percent
to
Net income for both the fourth quarter of 2012 and 2011 was
Adjusted EBITDA (which we define as net income before interest, income
taxes, share-based compensation, and depreciation and amortization)
increased by 17 percent to
At
Full Year 2012 Compared to Full Year 2011
For 2012, revenues were
Other Business Updates
At
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 2011.
For the trailing four quarters ended
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 marketplace.
During the fourth quarter of 2012,
In October of 2012,
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 million.
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
Capital Allocation Strategy for 2013
At year-end 2012, we had
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
Joint Ventures and Partnerships: Through our collaborative
arrangement with
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
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
"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 stakeholders."
A conference call with
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
1 Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to net income is included in this release.
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| Summary Financial Data | ||||||||||||
| (In thousands, except per share data) | ||||||||||||
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Three Months Ended
|
Year Ended
December 31, |
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|
2012 |
2011 |
2012 |
2011 |
|||||||||
| Revenues | $ | 27,838 | $ | 21,891 | $ | 103,732 | $ | 82,066 | ||||
| Operating expenses: | ||||||||||||
| Cost of revenues (excluding depreciation and amortization) |
11,112 |
8,443 |
41,658 |
31,066 |
||||||||
| Product development | 2,282 | 1,829 | 8,610 | 7,473 | ||||||||
| Sales and marketing | 5,255 | 4,343 | 19,892 | 16,017 | ||||||||
| Other general and administrative | 3,961 | 2,751 | 13,452 | 10,760 | ||||||||
| Depreciation and amortization | 1,882 | 1,544 | 6,661 | 5,412 | ||||||||
| Total operating expenses | 24,492 | 18,910 | 90,273 | 70,728 | ||||||||
| Operating income | 3,346 | 2,981 | 13,459 | 11,338 | ||||||||
| Other income (expense) | 31 | 2 | 118 | 10 | ||||||||
| Income before income taxes | 3,377 | 2,983 | 13,577 | 11,348 | ||||||||
| Income tax provision | 1,556 | 1,191 | 5,932 | 4,404 | ||||||||
| Net income | $ | 1,821 | $ | 1,792 | $ | 7,645 | $ | 6,944 | ||||
| Net income per share: | ||||||||||||
| Net income per share, basic | $ | 0.07 | $ | 0.08 | $ | 0.29 | $ | 0.31 | ||||
| Net income per share, diluted | $ | 0.07 | $ | 0.07 | $ | 0.28 | $ | 0.29 | ||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 26,212 | 23,776 | 26,128 | 22,445 | ||||||||
| Diluted | 27,600 | 25,176 | 27,507 | 23,748 | ||||||||
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| Condensed Consolidated Balance Sheets | |||||||||
| (In thousands) | |||||||||
| Unaudited | |||||||||
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December 31, | ||||||||
|
2012 |
2011(1) |
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| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 41,365 | $ | 76,904 | |||||
| Marketable securities — short term | 51,952 | 6,552 | |||||||
| Accounts and unbilled receivables, net | 16,511 | 17,330 | |||||||
| Prepaid and other current assets | 6,004 | 5,213 | |||||||
| Deferred tax assets, current | 2,459 | 5,080 | |||||||
| Total current assets | 118,291 | 111,079 | |||||||
| Marketable securities — long term | -- | 5,996 | |||||||
| Capitalized software development, net | 9,732 | 7,940 | |||||||
| Property and equipment, net | 7,820 | 6,087 | |||||||
| Goodwill and intangible assets, net | 38,104 | 23,104 | |||||||
| Other assets | 581 | 31 | |||||||
| Total assets | $ | 174,528 | $ | 154,237 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable, accrued and other liabilities | $ | 11,886 | $ | 9,689 | |||||
| Deferred revenue | 23,146 | 22,759 | |||||||
| Total current liabilities | 35,032 | 32,448 | |||||||
|
Deferred tax liabilities, non-current |
6,474 |
323 |
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| Other long-term liabilities | 826 | 551 | |||||||
| Total liabilities | 42,332 | 33,322 | |||||||
| Shareholders' equity: | |||||||||
| Common stock | 158,020 | 154,409 | |||||||
| Comprehensive income (loss) | 18 | (7 | ) | ||||||
| Accumulated deficit | (25,842 | ) | (33,487 | ) | |||||
| Total shareholders' equity | 132,196 | 120,915 | |||||||
| Total liabilities and shareholders' equity | $ | 174,528 | $ | 154,237 | |||||
|
(1) |
Derived from audited financial statements contained in the
Company's filing on Form 10-K for the year ended |
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| Condensed Consolidated Statement of Cash Flows | ||||||||
| (In thousands) | ||||||||
| Year Ended | ||||||||
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December 31, | |||||||
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2012 |
2011 |
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| Operating activities: | ||||||||
| Net income | $ | 7,645 | $ | 6,944 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 6,661 | 5,412 | ||||||
| Deferred income taxes | 5,601 | 4,048 | ||||||
| Share-based compensation | 1,136 | 788 | ||||||
| Excess tax benefits from equity awards | (111 | ) | (21 | ) | ||||
| Provision for doubtful accounts | 120 | 50 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts and unbilled receivables | 1,227 | (4,997 | ) | |||||
| Prepaid and other assets | (159 | ) | (251 | ) | ||||
| Accounts payable, accrued and other liabilities | 592 | 1,764 | ||||||
| Deferred revenue | (198 | ) | 6,018 | |||||
| Net cash provided by operating activities | 22,514 | 19,755 | ||||||
| Investing activities: | ||||||||
| Acquisitions, net of cash acquired | (9,901 | ) | -- | |||||
| Changes in marketable securities | (40,101 | ) | (6,928 | ) | ||||
| Changes in other investments | (234 | ) | -- | |||||
| Purchases of property and equipment | (4,316 | ) | (4,115 | ) | ||||
| Payments associated with capitalized software development | (4,435 | ) | (6,065 | ) | ||||
| Net cash used in investing activities | (58,987 | ) | (17,108 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from issuance of common stock | -- | 55,131 | ||||||
| Proceeds from exercise of stock options | 823 | 1,242 | ||||||
| Excess tax benefits from equity awards | 111 | 21 | ||||||
| Payments on capital leases and note payable | -- | (5 | ) | |||||
| Net cash provided by financing activities | 934 | 56,389 | ||||||
| Net (decrease) increase in cash and cash equivalents | (35,539 | ) | 59,036 | |||||
| Cash and cash equivalents at beginning of period | 76,904 | 17,868 | ||||||
| Cash and cash equivalents at end of period | $ | 41,365 | $ | 76,904 | ||||
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Reconciliation of GAAP to Non-GAAP Financial Measures(1) |
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| (In thousands, except per share data) | |||||||||||||||||
|
Three Months Ended
|
Year Ended
December 31, |
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2012 |
2011 |
2012 |
2011 |
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| GAAP net income | $ | 1,821 | $ | 1,792 | $ | 7,645 | $ | 6,944 | |||||||||
| Interest income | (58 | ) | (15 | ) | (181 | ) | (51 | ) | |||||||||
| Interest expense | 10 | 13 | 48 | 48 | |||||||||||||
| Income tax provision | 1,556 | 1,191 | 5,932 | 4,404 | |||||||||||||
| Share-based compensation expense | 299 | 191 | 1,136 | 788 | |||||||||||||
| Depreciation and amortization | 1,882 | 1,544 | 6,661 | 5,412 | |||||||||||||
| Adjusted EBITDA | $ | 5,510 | $ | 4,716 | $ | 21,241 | $ | 17,545 | |||||||||
| GAAP revenues | $ | 27,838 | $ | 21,891 | $ | 103,732 | $ | 82,066 | |||||||||
| Add: deferred revenue write-down | 403 | -- | 490 | -- | |||||||||||||
| Non-GAAP revenues | $ | 28,241 | $ | 21,891 | $ | 104,222 | $ | 82,066 | |||||||||
| GAAP operating income | $ | 3,346 | $ | 2,981 | $ | 13,459 | $ | 11,338 | |||||||||
| Add: deferred revenue write-down | 403 | -- | 490 | -- | |||||||||||||
| Non-GAAP operating income | $ | 3,749 | $ | 2,981 | $ | 13,949 | $ | 11,338 | |||||||||
| GAAP net income | $ | 1,821 | $ | 1,792 | $ | 7,645 | $ | 6,944 | |||||||||
| Add: deferred revenue write-down, net of tax | 218 | -- | 276 | -- | |||||||||||||
| Non-GAAP net income | $ | 2,039 | $ | 1,792 | $ | 7,921 | $ | 6,944 | |||||||||
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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. |
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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 2013 that involve risks and uncertainties regarding
Chief
Financial Officer
ir@healthstream.com
or
Media:
Associate Vice President,
mollie.condra@healthstream.com
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