HSTM

HealthStream, Inc. (HSTM)

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HealthStream, Inc. (HSTM)

Q1 2014 Earnings Conference Call

April 22, 2014 9:00 AM ET

Executives

Mollie Condra - VP, IR and Communications

Robert Frist - CEO and Chairman

Gerry Hayden - SVP and CFO

Analysts

Ryan Daniels - William Blair & Company

Matt Hewitt - Craig-Hallum Capital Group

Scott Berg - Northland Capital Markets

Brent Hogan - Avondale Partners

Frank Sparacino - First Analysis Securities Group

Terry Lally - Spotlight Funds

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the HealthStream, First Quarter 2014 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 turn the conference over to Mollie Condra, Vice President, Investor Relations & Communications, you may begin.

Mollie Condra

Thank you, and good morning. Thank you for joining us today to discuss our first quarter 2014 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 Frist

Thank you, Mollie. Good morning everyone, and welcome to our conference call. I want to start with a quick review of our business segments. We operate in two business segments, the Workforce Development Solutions and the Research/Patient Experience Solutions segments. For us a solution is a combination of products and/or services that we offer to healthcare organization focused on helping them achieve a specific business or clinical outcome.

Our Workforce Development segment offers market leading solutions in compliance, resuscitation, ICD-10 training, performance management, competency management and learning management among others. In addition to government mandated surveys our Research and Patient Experience segment combines survey results with consulting a creative solution to improve a patient’s experience while in a clinical setting.

As we think about those solution sets which reflect on the quarter’s performance. The quarterly revenue is up 29%, adjusted EBITDA up 13% and operating income up 4%. Let’s look at some of the underlying contributors to the growth that the Company is demonstrating. Within our ecosystem, each individual end-user utilizes at least one HealthStream subscription-based solution, is counted as one subscriber. Regardless of the number of subscriptions contracted for by or for that end-user.

As of March 31, 2014 HealthStream had approximately 3.58 million total subscribers implemented and 3.85 million total subscribers contracted to use one or more of its subscription-based solutions. In the first quarter, we contracted approximately 140,000 net new subscribers. Contributing to this strong quarterly growth was the win of a large multi-facility health system with over 30,000 employees. This system entered into an enterprise-wide contract for our performance center, competency center and learning center under a multi-year agreement. So it’s nice when we see the solid performance of 140,000 subscribers, but also see a large system win in the quarter.

The Workforce Solutions Development segment continues to benefit from both an increase in the number of total subscribers, as well as greater courseware and application consumption across the subscriber base. As a result our metric, annualized revenue per subscriber increased by 17% from 28.47 in Q1, 2013 to 33.33 this quarter, which is noteworthy given that implemented subscriber count, the denominator in that formula is growing by 18%. The last eight quarters we’ve seen a steady upward trajectory which is indicative of our progress in selling more and more solutions to our growing customer base. Strong contributors to this growth include product sales from ICD-10 solution set, our HeartCode also in the resuscitation category. Our clinical content offerings and our new, relatively new application extensions including our competency and performance center software applications.

Let’s take a moment and turn the call over to Gerry and hit the highlights of the financial analysis and then I’ll come back and address product line specific and marketplace specific updates, go ahead Gerry.

Gerry Hayden

Thank you Bobby and good morning everyone. I’ll provide some additional color on our results. First the financial highlights, as a reminder all the following quarterly numbers show our results in the first quarter of 2014, compared to the first quarter of 2013. As Bobby mentioned briefly, our consolidated revenues were up 29% to $38.3 million and operating income was up 4% to $3.3 million. Net income was $1.9 million in both the first quarter of 2014 and 2013. Adjusted EBITDA was up 13% to $6.1 million.

Let’s look at four areas of our income statement to start off some comments here, revenue growth, gross margin, operating expenses and operating income. First, revenue growth, the foundation to our financial performance continues to be organic revenue growth. As you’ve seen and as Bobby mentioned, our overall growth rates were 29% for the first quarter over 2013. The ICD-10 product contributed about $6.6 million to first quarter revenues, compared to $2 million in last year’s first quarter. This product has been a strong performer for us, but we also want to point out that overall first quarter of 2014 growth was about 15% if you exclude the ICD-10 results.

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