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HealthStream Announces Third Quarter 2012 Results
Highlights:
-
Revenues of
$26.4 million in the third quarter of 2012, up 28% from revenues of$20.6 million in the third quarter of 2011 -
Operating income of
$3.7 million in the third quarter of 2012, up 39% from operating income of$2.7 million in the third quarter of 2011 -
Net income of
$2.0 million in the third quarter of 2012, up 10% from net income of$1.8 million in the third quarter of 2011, and earnings per share (EPS) of$0.07 per share in the third quarter of 2012, compared to EPS of$0.08 per share in the third quarter of 2011 -
Adjusted EBITDA1 of
$5.7 million in the third quarter of 2012, up 30% from$4.4 million in the third quarter of 2011 -
Acquired Sy.
Med Development, Inc. onOctober 19, 2012
Financial Results:
Third Quarter 2012 Compared to Third
Quarter 2011
Revenues for the third quarter of 2012 increased
Revenues from HealthStream Learning 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. During the third quarter,
Operating income for the third quarter of 2012 increased by 39 percent
to
During the quarter, the Company updated estimates of state allocation factors as part of its income tax provision review. Allocation factors help determine the liabilities for state income and certain franchise or excise taxes. The updated allocation factors resulted in a reduction in our estimated state net operating loss carryforwards and an increase in our tax provision and effective tax rate for this quarter. The updated estimates did not result in a cash tax liability and these estimate revisions did not affect our federal net operating loss carryforwards.
Net income for the third quarter of 2012 was
Adjusted EBITDA (which we define as net income before interest, income
taxes, share-based compensation, and depreciation and amortization)
increased by 30 percent to
At
Year-to-Date 2012 Compared to Year-to-Date 2011
For the first nine months of 2012, revenues were
Other Business Updates
At
Based on the number of subscribers, our renewal rate was 97 percent in the third 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 third quarter of 2012 compares to a renewal rate of 88 percent during the third quarter of 2011.
Based on contract value, our renewal rate was 95 percent in the third 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 third quarter of 2012 compares to a renewal rate of 94 percent during the third quarter of 2011.
For the trailing four quarters ended
During the third quarter of 2012, the Company continued to expand its customer base for two of our talent management product offerings, the HealthStream Performance Center™ and the HealthStream Competency Center™. Combined, these two products were contracted in the third quarter by 12 healthcare organizations.
In
Earlier today,
Financial Expectations — Including Impact of Sy.
The Company also updated guidance for the remainder
of 2012.
We anticipate that consolidated operating income will increase by 18 to
22 percent over the prior year period. The estimated impact of
approximately
We believe that equivalent shares for purposes of calculating diluted
earnings per share will be between 27.4 million and 27.6 million. We
expect that our effective book income tax rate will be between 41 and 44
percent for the full year of 2012. Actual tax payments will be
substantially less than our income tax provision as we continue to
utilize our federal and state net operating loss carryforwards of
approximately
We expect capital expenditures, including capitalized software
development and additional office space, will range between
"I am excited with our announcement earlier today regarding the
acquisition of Sy.Med, which adds another unique dimension to our
healthcare talent management strategy," said
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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Three Months Ended
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Nine Months Ended
September 30, |
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2012 |
2011 |
2012 |
2011 |
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| Revenues | $ | 26,380 | $ | 20,618 | $ | 75,894 | $ | 60,175 | |||||
| Operating expenses: | |||||||||||||
| Cost of revenues (excluding depreciation and amortization) |
10,804 |
7,915 |
30,546 |
22,623 |
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| Product development | 2,278 | 1,946 | 6,328 | 5,644 | |||||||||
| Sales and marketing | 4,423 | 3,810 | 14,637 | 11,674 | |||||||||
| Other general and administrative | 3,472 | 2,782 | 9,491 | 8,009 | |||||||||
| Depreciation and amortization | 1,672 | 1,471 | 4,779 | 3,868 | |||||||||
| Total operating expenses | 22,649 | 17,924 | 65,781 | 51,818 | |||||||||
| Operating income | 3,731 | 2,694 | 10,113 | 8,357 | |||||||||
| Other income (expense) | 42 | (8 | ) | 87 | 8 | ||||||||
| Income before income taxes | 3,773 | 2,686 | 10,200 | 8,365 | |||||||||
| Income tax provision | 1,796 | 890 | 4,376 | 3,213 | |||||||||
| Net income | $ | 1,977 | $ | 1,796 | $ | 5,824 | $ | 5,152 | |||||
| Net income per share: | |||||||||||||
| Net income per share, basic | $ | 0.08 | $ | 0.08 | $ | 0.22 | $ | 0.23 | |||||
| Net income per share, diluted | $ | 0.07 | $ | 0.08 | $ | 0.21 | $ | 0.22 | |||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 26,173 | 22,164 | 26,100 | 22,001 | |||||||||
| Diluted | 27,591 | 23,495 | 27,476 | 23,272 | |||||||||
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Condensed Consolidated Balance Sheets (In thousands) |
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| Unaudited | ||||||||
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December 31, | |||||||
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2012 |
2011(1) |
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| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 23,703 | $ | 76,904 | ||||
| Marketable securities — short term | 72,232 | 6,552 | ||||||
| Accounts and unbilled receivables, net | 16,990 | 17,330 | ||||||
| Prepaid and other current assets | 4,004 | 5,213 | ||||||
| Deferred tax assets, current | 1,013 | 5,080 | ||||||
| Total current assets | 117,942 | 111,079 | ||||||
| Marketable securities — long term | -- | 5,996 | ||||||
| Capitalized software development, net | 9,061 | 7,940 | ||||||
| Property and equipment, net | 7,397 | 6,087 | ||||||
| Goodwill and intangible assets, net | 26,833 | 23,104 | ||||||
| Other assets | 625 | 31 | ||||||
| Total assets | $ | 161,858 | $ | 154,237 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, accrued and other liabilities | $ | 7,206 | $ | 9,689 | ||||
| Deferred revenue | 23,899 | 22,759 | ||||||
| Total current liabilities | 31,105 | 32,448 | ||||||
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Deferred tax liabilities, non-current |
918 |
323 |
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| Other long-term liabilities | 858 | 551 | ||||||
| Total liabilities | 32,881 | 33,322 | ||||||
| Shareholders' equity: | ||||||||
| Common stock | 156,612 | 154,409 | ||||||
| Comprehensive income (loss) | 28 | (7 | ) | |||||
| Accumulated deficit | (27,663 | ) | (33,487 | ) | ||||
| Total shareholders' equity | 128,977 | 120,915 | ||||||
| Total liabilities and shareholders' equity | $ | 161,858 | $ | 154,237 | ||||
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(1) Derived from audited financial statements contained
in the Company's filing on Form 10-K for the year ended |
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| Unaudited | ||||||||
| Nine Months Ended | ||||||||
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September 30, | |||||||
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2012 |
2011 |
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| Operating activities: | ||||||||
| Net income | $ | 5,824 | $ | 5,152 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 4,779 | 3,868 | ||||||
| Deferred income taxes | 4,200 | 2,902 | ||||||
| Share-based compensation | 837 | 597 | ||||||
| Provision for doubtful accounts | 70 | 45 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts and unbilled receivables | 451 | (1,920 | ) | |||||
| Prepaid and other assets | 1,662 | 1,190 | ||||||
| Accounts payable, accrued and other liabilities | (2,989 | ) | (1,094 | ) | ||||
| Deferred revenue | 768 | 3,748 | ||||||
| Net cash provided by operating activities | 15,602 | 14,488 | ||||||
| Investing activities: | ||||||||
| Acquisition, net of cash acquired | (2,904 | ) | -- | |||||
| Changes in marketable securities | (60,158 | ) | 5,623 | |||||
| Changes in other investments | (250 | ) | -- | |||||
| Purchases of property and equipment | (3,185 | ) | (3,560 | ) | ||||
| Payments associated with capitalized software development | (3,097 | ) | (5,199 | ) | ||||
| Net cash used in investing activities | (69,594 | ) | (3,136 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from exercise of stock options | 791 | 1,020 | ||||||
| Payments on capital leases | -- | (4 | ) | |||||
| Net cash provided by financing activities | 791 | 1,016 | ||||||
| Net (decrease) increase in cash and cash equivalents | (53,201 | ) | 12,368 | |||||
| Cash and cash equivalents at beginning of period | 76,904 | 17,868 | ||||||
| Cash and cash equivalents at end of period | $ | 23,703 | $ | 30,236 | ||||
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Reconciliation of GAAP to Non-GAAP Financial Measures(1) |
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Three Months Ended
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Nine Months Ended
September 30, |
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2012 |
2011 |
2012 |
2011 |
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| GAAP net income | $ | 1,977 | $ | 1,796 | $ | 5,824 | $ | 5,152 | ||||||||
| Interest income | (52 | ) | (5 | ) | (123 | ) | (36 | ) | ||||||||
| Interest expense | 13 | 13 | 38 | 35 | ||||||||||||
| Income tax provision | 1,796 | 890 | 4,376 | 3,213 | ||||||||||||
| Share-based compensation expense | 296 | 223 | 837 | 597 | ||||||||||||
| Depreciation and amortization | 1,672 | 1,471 | 4,779 | 3,868 | ||||||||||||
| Adjusted EBITDA | $ | 5,702 | $ | 4,388 | $ | 15,731 | $ | 12,829 | ||||||||
| GAAP revenues | $ | 26,380 | $ | 20,618 | $ | 75,894 | $ | 60,175 | ||||||||
| Add: deferred revenue write-down | 92 | -- | 92 | -- | ||||||||||||
| Non-GAAP revenues | $ | 26,472 | $ | 20,618 | $ | 75,986 | $ | 60,175 | ||||||||
| GAAP operating income | $ | 3,731 | $ | 2,694 | $ | 10,113 | $ | 8,357 | ||||||||
| Add: deferred revenue write-down | 92 | -- | 92 | -- | ||||||||||||
| Non-GAAP operating income | $ | 3,823 | $ | 2,694 | $ | 10,205 | $ | 8,357 | ||||||||
| GAAP net income | $ | 1,977 | $ | 1,796 | $ | 5,824 | $ | 5,152 | ||||||||
| Add: deferred revenue write-down, net of tax | 53 | -- | 53 | -- | ||||||||||||
| Non-GAAP net income | $ | 2,030 | $ | 1,796 | $ | 5,877 | $ | 5,152 | ||||||||
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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 2012 that involve risks and uncertainties regarding
Chief
Financial Officer
ir@healthstream.com
or
Media:
Associate Vice President,
mollie.condra@healthstream.com
Source:
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