HSTM

HealthStream, Inc. (HSTM)

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HealthStream, Inc. (HSTM)

Q2 2008 Earnings Call Transcript

July 23, 2008 9:00 am ET

Executives

Robert Frist - CEO and Chairman

Gerry Hayden - SVP and CFO

Analysts

Vincent Colicchio - Global Financial

Presentation

Operator

Good day, and welcome to the HealthStream, Inc. Second Quarter 2008 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Robert A. Frist, CEO and Chairman. Please go ahead, sir.

Robert Frist

Thank you. Good morning and welcome to our second quarter 2008 earnings conference call. Also in the room with me are Gerry Hayden, Senior Vice President and Chief Financial Officer, and Mollie Condra, Senior Director of Communications, Research and Investor Relations. Gerry, would you read the forward-looking statement, please?

Gerry Hayden

Sure, Bobby. Good morning. This conference call will contain forward-looking statements regarding future events and the future performance of HealthStream that involve risks 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.

Robert Frist

Thank you, Gerry. Got a few things to report on and summarize a few of the highlights out of the second quarter earnings release that we did last evening. And then Gerry will make a few comments about our forward look, and I’ll come back around to wrap it up.

So, to make it very simple, revenues were up. EBITDA was up. Net income was up. And that’s true for both over prior quarter and prior year same quarter. Cash was up and debt was down. And we feel our stock was a good investment during the quarter, so we purchased back $1 million of it.

So overall, if you back up from our business and you look at the major indicators, that’s the quickest way I know to summarize our progress in the second quarter.

On the operational side, we have similar kinds of metrics. We set record levels of transactions on our core platform. In fact, on July, 1st of 2008, we had 74,293 course completions on our learning network, which was a record over the previous high on that single day by almost 10%. In addition, we implemented 45,000 net new subscribers during the quarter, so we saw new subscriber growth through implementations. And so, we’re excited about those metrics.

On the challenges side, and this is true for both entering the second quarter and the second half, growing our Research business has been somewhat of a challenge in the last quarter and looks like it will continue to be challenging in the second half. To answer that challenge we’ve begun to invest, in the first half of this year, in our sales forces for both Research and Learning. And we’ve added a net of 10 new sales people across both Research and Learning in the first half of the year.

With those opening statements, I’d like to turn it over to Gerry to get some of his thoughts more specifically about the quarter’s performance.

Gerry Hayden

Thank you, Bobby, and once again, good morning. In keeping with what we’ve provided in our prior earnings calls, I’m going to keep my remarks brief and try to highlight a few key areas. And then at the end we’ll have more than enough time for any questions you might have about the release.

I want to begin by emphasizing the growth reported in our Learning business segment. Our consolidated quarterly revenues increased 8% over the second quarter of 2007, all of which is core growth, but our Learning segment grew by about 30%. The growth in the Learning segment is driven by new subscribers, where we saw the number of subscribers grow from 1,422,000 at the end of the second quarter of 2007, to 1,639,000 million at June 30th of 2008. And that equates to a 15% year-over-year growth rate.

The same year-over-year comparisons – the revenue from our system business grew by 30%, and the increase is also due to the increased content sales to the same customer base.

While we showed a solid revenue growth, the operating income leverage is equally impressive. On a year-to-date basis through June 30, 2008, we showed 142% growth in operating income against the growth of 21% in revenues in the same period.

As we discussed in an earlier earnings release this year, we did experience a decline in revenues of approximately $708,000 from our Research business segment in the second quarter when compared to second quarter of 2007. A couple of factors affected that performance in HealthStream Research. We had one large customer that elected to not repeat an interim survey done in the same quarter last year. In addition, a few of our other larger customers chose to delay some research projects that were slated for the second quarter of 2008.

At the same time, though, we have continued to add new customers and business to HealthStream Research. Among our existing Research customers, 53 renewed their contracts for multiple-survey products, while 57 chose to contract for more Research services in the second quarter to add to their current level of service from the Research group.

In light of all these developments, we have adjusted our guidance for the full year of 2008. In light of the slower than expected sales activity in the HealthStream Research side, we have modified our revenue growth rates from 22% to 24% to 16% to 20%. Our revised earnings per share range is $0.11 to $0.13 for the full year of 2008. Our earlier guidance was $0.12 to $0.15.

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