HealthStream's CEO Discusses F2Q12 Earnings Results - Earnings Call Transcript

HealthStream, Inc. (HSTM)

F2Q12 Earnings Call

July 24, 2012 9:00 am ET

Executives

Mollie Condra – Associate Vice President of Investor Relations

Robert A. Frist, Jr. – Chairman of the Board, President & Chief Executive Officer

Gerard M. Hayden, Jr. – Chief Financial Officer & Senior Vice President

Analyst

Richard Close – Avondale Partners, LLC.

Nick Halen – Sidoti & Company

Ryan Daniels – William Blair & Company, LLC

Matt Hewitt – Craig-Hallum Capital

Vincent Colicchio – Noble Financial Capital Markets

Andrew Albert – Invicta Capital Management

Presentation

Operator

Welcome to the HealthStream second quarter 2012 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference call is being recorded. Now, I’ll turn the conference over to Mollie Condra, Associate Vice President of Investor Relations

Mollie Condra

Thank you for joining us today to discuss our second quarter 2012 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 and may 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 10K and 10Q. With that, I’ll turn the call over to our CEO Robert Frist.

Robert A. Frist, Jr.

We’ll start by highlighting a few financials and then turn to operational performance and then turn to your questions shortly thereafter. On a financial highlights standpoint consolidated revenues were up 23% to $25.8 million in the second quarter over the prior year same quarter while operating income was up a strong 30% to $4 million in the same time period. Net income was up 33% to $2.4 million in the second quarter over the prior year same quarter an adjusted EBITDA was strong at about $5.9 million in the second quarter which is up 27% over the prior year same quarter. Gerry Hayden, our CFO will go into greater detail on the financials after I do a bit of an operational performance overview.

The sales execution during the quarter was very strong. We added approximately 125,000 new subscribers that were contracted to use the learning platform during the quarter. This performance exceeds the range of our long standing and well stated quarterly goal of contacting 20,000 to 50,000 net new subscribers in a quarter so we congratulation the sales organization for bringing in a strong lift to the counts including [Parkman] Health & Hospital System which importantly also contracted for the HealthStream Competency Center. Sharp Healthcare a large integrated delivery network based in San Diego California, Good Samaritan Hospital Medical Center, Evergreen Healthcare and the Ohio State Health Network were among many others during the quarter, but clearly a strong operational performance from the sales organization this quarter.

We look forward to celebrating with all our employees as we crossover the three million contracted subscriber milestone in the future. The good news also is the sales execution was well supported by execution of our implementation teams. We implemented approximately 124,000 new subscribers that were added to the learning platform during the second quarter. We now have 2.78 million healthcare subscribers implemented. That’s an important milestone because we begin revenue recognition once contracted subscribers become implemented subscribers.

If we look at one gage of satisfaction we see that our renewal rates for the second quarter were 108% based on FTEs and 102% based on contract value. The trailing four quarter period ended June 30, 2012 customers representing 99% of subscribers that were up for renewal did indeed renew while renewal based on contract value over the same four quarter period was 102%.

Turning our attention to revenues from our patient survey business which is the recurring revenue of survey product, revenue from that product line increased 7% over the prior quarter. Growth in the patient surveys however was offset by a decline in what we call our point in time surveys which include our physician, employee, and community surveys which resulted in overall research product group revenue decrease of 1% for the quarter. Clearly not at expectations.

Our HCAHPS products however continue to show steady demand including sales of our new CG-CAHPS Survey which yielded 17 new contracts for the quarter so we see steady demand for the HCAHPS Patient Survey work of our research product lines.

Our talent management strategy was bolstered with the acquisition of Decision Critical which was completed on June 29 th, that’s an Austin Texas based company that’s specializes in learning and competency management products for hospitals. We welcome the employees of Decision Critical on board and feel they have much to add to our direction as a talent management company and as the strategy continues to evolve.

Through the acquisition we added to our talent management product suite with the additional of Critical Portfolio. That’s a patented electronic portfolio. The portfolio is used to store and view the qualifications and competencies of the hospital work force. This is important for hospitals for example, that participate in various quality programs, particularly those embarking on the Magnet journey, a designation they can achieve for the quality of their work force.

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