HSTM

HealthStream, Inc. (HSTM)

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HealthStream, Inc. (HSTM)

Q3 2013 Earnings Conference Call

October 22, 2013 09:00 AM ET

Executives

Mollie Condra – Associate Vice President-Investor Relations and Corporate Communications

Robert A. Frist Jr. – Chief Executive Officer

Gerard M. Hayden – Senior Vice President and Chief Financial Officer

Analysts

Ryan S. Daniels – William Blair & Co. LLC

Dillon K. Hoover – Craig-Hallum Capital Group LLC

Scott R. Berg – Northland Capital Markets

Frank Sparacino – First Analysis Securities Group

Terry M. Lally – Spotlight Funds Management

Richard Close – Avondale Partners LLC

Presentation

Operator

Good day, ladies and gentlemen and welcome to the HealthStream, Inc. Third Quarter 2013 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference Mollie Condra, Associate Vice President, Investor Relations and Communications. Ma'am, you may begin.

Mollie Condra

Thank you and good morning. Thank you for joining us today to discuss our third 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.

So with that I will now turn the call over to our CEO, Bobby Frist.

Robert A. Frist Jr.

Thank you. Good morning and welcome. We have many items to cover; financial metrics, operational metrics and product updates and then some event updates as well. So we’ll dive right in. In the third quarter, just a quick scan on the financial metrics, we clearly had solid performance across the board with consolidated revenues up 28% to $33.7 million. Operating income came in up 4% to $3.9 million. Net income was up 16% to $2.3 million, and adjusted EBITDA was up 10% to $6.3 million. Just kind of a quick sampling across our financial metrics shows, solid and within projections – financial performance.

As you may recall, as we talk about our business we continue to think about introducing new metrics and we introduced our new metric in the first quarter of this year 2013, that took a look at the progress in growing the value of our customer base. That new metric is our Annualized Revenue per Implemented Subscriber. It represents the quarter’s revenue from Internet-based subscription products divided by the average implemented subscribers for that quarter, annualized.

In the third quarter of 2013, our revenue per implemented subscriber was $30.95 which was 15% higher than the third quarter of 2012. If we look back over the last eight quarters, we’ve seen a steady upward trajectory which is indicative of our objective to provide more and more solutions to our customers through the channels we’ve been establishing through our platform.

Given the expansion of HealthStream suite of solutions over the last several quarters, we’re working to introduce additional new metrics that continue to capture what’s happening in this ecosystem. Since historically our HLC was the single core application on our platform we’ve made a routine to report the number of subscribers on the HLC, the HealthStream Learning Center, along with renewal rates in our quarterly earnings releases.

At this time, however our range of solutions has significantly broadened to be a more enterprise-class talent management suite and there are now several applications on our platform that work in combination with our other products to create targeted solution sets.

Our array of solutions has increased as customer relationships have evolved to meet changing and expanding market needs and consequently we are working to provide additional new metrics that better explain the ins and outs of this more comprehensive talent management platform.

Until that time as we continue to develop those metrics, we’re excited to celebrate this one new metric this year Revenue per Implemented Subscriber. And we look forward to introducing additional new metrics that maybe better capture renewal rates in additions to our network as we look forward the next couple of quarters.

Overall we implemented over 80,000 new subscribers in the third quarter, bringing our total to 3.196 million subscribers. Importantly, net of loss and attrition we added a 151,000 net new subscribers under contract. And that brings our total under contract of 3.411 million contracted subscribers. I think that for the longest time I stated that our quarterly goal of net new subscribers is 20,000 to 50,000 per quarter. So obviously, this is an exceptional quarter by any measure and I think we can provide a little more color on – on how that looks.

Roughly a third of the new contracted subscribers in the third quarter were from an amalgamation of new healthcare organizations. So, spread across the entire spectrum. And so that’s consistent with past targets and goals, so a third of the new 151,000 came across the host range of healthcare organizations, hospitals, home care. So we’re excited to see that base line performance.

Another third resulted from additions specific to selected content sales or in this case largely ICD-10, which has clearly been a driver of adding new subscribers even when they are on competing platforms. We see that we have a market leading solution for ICD-10 and we’re able to add subscribers by tracking into that solution, which we feel is a great foot in the door with additional market opportunity.

The third and final part of the 151,000 came from our Brentwood, Brookdale Senior Living, which we announced last quarter with – but it actually got signed at the beginning of this quarter. And now we’re well on our way to implementing Brookdale Senior Living. And so you can see a really nice balance across these three, kind of thirds, 151,000 net new subscribers; a third from the open market, a third from bringing in new ICD-10 customers, and a third from Brookdale Senior Living, which is now in the process of implementation.

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