HealthStream, Inc. (HSTM)

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HealthStream, Inc. (HSTM)

Q2 2013 Results - Earnings Call Transcript

July 23, 2013 09:00 AM ET


Mollie Condra - Associate VP, IR and Communications

Robert A. Frist, Jr. - CEO and Chairman

Gerry Hayden - Senior Vice President and CFO


Jeff Garro - William Blair & Company

Matt Hewitt - Craig-Hallum Capital Group

Richard Close - Avondale Partners

Frank Sparacino - First Analysis

Matt Hewitt from Craig-Hallum



Good day, ladies and gentlemen. And welcome to HealthStream second quarter 2013 earnings conference call. At this time all participants are in listen-only mode. Later we'll conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Mollie Condra, Associate Vice President, Investor Relations and Communications. Ma'am, you may begin.

Mollie Condra

Thank you and good morning. And thank you for joining us today to discuss our second quarter 2013 results. Also in the room with me are Robert A. Frist, Jr., CEO and Chairman of HealthStream; and Gerry Hayden, Senior Vice President and CFO.

I would also like to remind you that this conference call may contain forward-looking statements regarding future events and the future performance of HealthStream that involve risk and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K and 10-Q.

And with that, I will turn the call over to our CEO, Robert Frist.

Robert A. Frist, Jr.

Thank you, Mollie. Good morning and welcome to our conference call. We'll of course do some financial metrics and highlights. We'll cover operational performance and some product updates as well. I've got to start first with financial highlights, it was a strong quarter, with consolidated revenues up 24% to $31.9 million and operating income up 2% to $4.1 million. Net income came in at $2.4 million in both the second quarter of 2013 and it was the same in second quarter of 2012. Adjusted EBITDA was up 8% to $6.4 million and all these numbers are reflective of strong and well planned quarter for HealthStream on the financial performance metrics.

As you may recall, in the last quarter, we introduced a new metric, an additional measure of progress, as we try to capture the growing nature of our solutions sets that we offer to our customer base. The new metric, we refer to as the annualized revenue per implemented subscriber and it represents the quarter's revenue from our internet based subscription products divided by the average implemented subscribers for the quarter and then annualized.

In the second quarter of 2013, our revenue per implemented subscriber was $29.40 which is about 13% higher than the second quarter of 2012 and from the third quarter of 2011 to the second quarter of 2013, we've enjoyed a steady upward trajectory on this metric and in our earnings release last night, we put a table in that reflects several of the quarters, so you can review the trajectory. And the metric itself, we think, helps better capture the fact that so many new products and solutions are being sold in to the customer base.

Given the expansion of our suite of solutions over the last several quarters and really the last couple of years, we're working to introduce additional new metrics in addition to the annualize revenue per implemented subscriber, historically our HealthStream Learning Center was the single core application on our platform and represented the core product set that we sold to customers and so we made it a routines report on the number of subscribers on HLC, the HealthStream Learning Center along with renewal rates that reflect renewals on the HLC in our quarterly earnings releases. At this time, however the range of solutions have significantly broadened and there are now several applications on our platform. Like the Competency Center and the Sim manager products and the SimView products, there are essentially many new ways to join our ecosystem and come on to our platforms and we continue to look for new metrics to capture this phenomena as most of our historical metrics are really centered around measuring the progress of the HealthStream Learning Center only.

So until that time and of course recognizing that we already have one strong new metric in front of everyone, we'll review the traditional, the more traditional historical metrics. Overall for the quarter for example, we implemented 84,000 new subscribers in the second quarter, bringing our total implemented subscriber based to 3.116 million subscribers. We contracted 93,000 new subscribers in the second quarter bringing the total to 3.260 million contracted subscribers. And that exceeds our longstanding quarterly goal of contracting an additional 20,000 to 50,000 new subscribers per quarter.

So we're excited to have two strong measures of implementation which is tied to revenue recognition and contracting new subscribers which is tied to new sales as measures of progress on again the core HealthStream Learning Center component of our expanding platform. As a backlog we currently have 144,000 subscribers that are in the process of implementation and we continue to make steady quarter-over-quarter progress implementing the backlog of contracted subscribers.

Renewal rates for the second quarter of 2013 was strong, we delivered 102% based on full time equivalents or FTEs and 104% based on contract value. Our renewal rates reflect the addition of subscribers compared to previously contracted amounts combined with any pricing adjustment that may occur at renewal. We are particularly pleased to see the high renewal rate this quarter since the number of subscribers up for renewal in the second quarter was one of the highest in the last couple of years, so as a more heavily weighted quarter in terms of the importance of these metrics.

We've had over a quarter of a million up for renewal in the second quarter. Since some of our renewing customers chose to add subscribers to their contracts, the renewal metric exceeded 100% in the quarter. For the trailing four quarter period ending June 30, 2013 customers representing 96% of subscribers that were up for renewal renewed, while our renewal rate based on contract value again for the trailing four quarter period was 97%.

On the operational front, growth comes with some growing pains. For example in the Middle Tennessee market remains challenging to hire the technology personnel needed for our growth. We continue to develop innovative recruiting strategies and continue to grow and add to our base of Talent in and across HealthStream just not quite at the rate that we expected. And so we continue to work in creative ways to move up the rate of hiring. That said, we are adding and welcome dozens of new employees in the last quarter and we want to welcome them and also let them know that our office expansion process is underway in Nashville. So we expect some new office space to come online later in the year, which also requires capital outlay beginning in the second half of this year.

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