HealthStream, Inc. (HSTM)

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Healthstream Inc. (HSTM)

Q4 2013 Results Earnings Conference Call

February 19, 2014 9:00 AM ET


Gerry Hayden - Senior Vice President and CFO

Bobby Frist - Chairman and CEO


Richard Close - Avondale Partners

Matt Hewitt - Craig-Hallum

Ryan Daniels - William Blair

Frank Sparacino - First Analysis

Terry Lally - Spotlight Funds

Vincent Colicchio - Noble Financial



Good day, ladies and gentlemen. And welcome to the HealthStream, Inc. Fourth Quarter and Year End 2013 Earnings Conference Call. At this time, all participants are in a 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 conference call is being recorded. I would now like to introduce your host for today’s conference, Gerry Hayden, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Gerry Hayden

Thank you, and good morning, everyone. And welcome to today’s fourth quarter and full year 2013 results call for Healthstream. With me today in the room is Bobby Frist, our CEO and Chairman; and of course, me -- myself, Gerry Hayden, CFO.

I wanted to remind you this phone call -- this conference call may contain forward-looking statements regarding future events and 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 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’ll turn the call over to Bobby.

Bobby Frist

Thank you, Gerry. Good morning. We have a lot cover the year end update. We’ll have business line updates in about four, five areas, of course, financial highlights with Gerry. So we’ve got a lot to cover ever. A bit of cough this morning, so I may turn over to Gerry few points in the script, but we will get started here.

So, as many, I want to go back a little bit because we have adjusted our nomenclature and how we describe some of our business lines today as we go forward. And so, as many of you know, our earlier solution for healthcare organizations was our compliance solution.

Just before we went public in 2000 we began offering hospitals a better way to meet their joint commission in OSHA training requirements, where we blended our learning platform and it was bundled with online regulatory courses.

Our hospital customers use our joint commission OSHA solution to maintain compliance with mandated safety training for their employees. They generally deploy the system enterprise-wide.

Today, we believe that our joint commission OSHA solution is the most adopted in the industry. We build our network of customers for this solution and overtime, we began offering more and more courseware products to meet a wider range of their training needs. So the model has been established.

Along the way we established over 130 content partnerships and hundreds and hundreds of content products. In the same timeframe, we added multiple applications to our platform, so that now today we have Learning Center, the Performance Center, the Competency Center, SimManager, Authoring Center, HealthStream Video are all features of the -- and applications of the core technology offerings from HealthStream.

So for HealthStream solution is the combination of products and/or services where we provide health organizations a blended platform and content solution to achieve a specific business or clinical outcome.

And today we offer market-leading solutions in compliance which we just talked about our foundational product, for such occasion ICD-10 training, our three core areas where HealthStream has offered market-leading solutions.

Consequently, we've updated our nomenclature to better reflect our business as it is today. Our Learning and Talent Management segment, we now refer to as -- in a broader sense as our workforce development solutions as we’ve just talk.

The segment, we believe more accurately encompasses the broader scope of the solutions and our research segment is now referred to as our research/patient experience solutions segment. You can see a little more focus within was defined as a research segment has now focused on improving patient experience through patient solutions.

So these two re-brandings are largely consistent with our historical segment reporting. But we think are more reflective of the product sets and solutions sets that are now broader than they were many years ago when we identify the segments as Learning and Research.

You saw in earnings release that we -- we are also updating our subscriber count metric. We are now reporting the total number of individual end-users of HealthStream subscription-based solutions, which we refer to as total subscribers, each individual end-user utilizes at least one HealthStream subscription-based solution will be counted as one subscriber, regardless of the number of subscriptions contracted by or for that end-user.

For example, if one of the hospital clients purchases for each of its 1,000 nurses a subscription to Healthstream Learning Center, HealthStream Competency Center, resuscitation solution and ICD-10 training solutions. Those 1,000 nurses will count as 1,000 total subscribers, despite the fact that each of them is contracted for four HealthStream subscriptions.

At December 31, 2013, HealthStream had approximately 3.39 million total subscribers implemented to use it subscription-based solutions. Approximately 3.71 million total subscribers have contracted to use one or more subscription-based solutions from Healthstream as of December 31, 2013.

Overall, in the year, we contracted over 600,000 new subscribers to our platform in 2013, which is a 73% increase in new subscribers over the prior year. In the fourth quarter alone, we contracted approximately 289,000 new subscribers, which obviously far exceed the quarterly range we historically targeted of adding 20,000 to 50,000 new subscribers per quarter.

So our historical target range which we continuously communicate we think is a good run rate to be consistently targeting to grow our network but obviously we have an exceptional fourth quarter with 289,000 new subscribers.

Among the 289,000 new subscribers and they were contracted during the fourth quarter was the addition of one of the top five largest health systems in the nation, who entered into a long-term, multi-year enterprise-wide contract for our based HLC system and again it’s a multi-year agreements.

So we are very excited. Again exceptional quarter but really in the last month of the quarter we saw really some incredible sales of one very, very large health system, obviously, skews the number in the positive way, but add subscriptions under multi, multi-year agreement. We are very excited to extend our network in this way.

As you may recall we introduced a new metrics in our first quarter 2013 earnings release that provide additional measure of our 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 subscription-based products divided by the average implemented subscribers for that quarter annualized.

In the fourth quarter of 2013 our revenue per implemented subscriber was $32.41 -- $32.41 which is 20% higher over the fourth quarter of 2012. The last eight quarters we’ve seen a steady upward trajectory which we believe is indicative of our progress, selling more and more solutions to the existing customer base.

Given the update on our nomenclature and introduction of our performance metric of total subscribers, we’re retiring our HLC renewal metrics for our public reporting in 2014. Since our total subscribers’ metric encompasses the entire scope of our workforce development solutions, it provides a more comprehensive view of our business than the HLC renewal rate, HealthStream Learning Center renewal rate, which is by definition limited solely to HLC subscriptions.

So the new renewal rate, the new subscriber rate has been adjusted. It’s largely similar to the old one because most, all of our customers have at least the base HLC subscription. And so as we add new subscribers, they have revenue per subscriber but not new subscribers. So we added in unique subscribers for some of the other platform pieces but again most customers as you’ll see already subscribed to the base subscription.

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