HealthStream Announces Third Quarter 2016 Results

HealthStream, Inc. (NASDAQ: HSTM), a leading provider of workforce, patient experience, and provider solutions for the healthcare industry, announced today results for the third quarter ended September 30, 2016.
  • Revenues of $58.4 million in the third quarter of 2016, up 8% from $53.8 million in the third quarter of 2015
  • Operating income of $1.3 million in the third quarter of 2016, down 70% from $4.3 million in the third quarter of 2015
  • Net income of $1.2 million in the third quarter of 2016, down 56% from $2.6 million in the third quarter of 2015, and earnings per share (EPS) of $0.04 per share (diluted) in the third quarter of 2016, compared to $0.08 per share (diluted) in the third quarter of 2015
  • Adjusted EBITDA 1 of $7.8 million in the third quarter of 2016, down 17% from $9.3 million in the third quarter of 2015
  • Morrisey Associates, Inc. acquired on August 8, 2016 for approximately $48 million in cash

Financial Results:

Third Quarter 2016 Compared to Third Quarter 2015

Revenues for the third quarter of 2016 increased by $4.5 million, or eight percent, to $58.4 million, compared to $53.8 million for the third quarter of 2015.

Revenues from our HealthStream Workforce Solutions segment, which are primarily subscription-based, approximated $43.0 million for the third quarter of 2016 compared to $41.1 million for the third quarter of 2015. Revenue growth of $1.9 million from our workforce solutions products was partially offset by a decline in ICD-10 readiness revenue. Revenues from ICD-10-readiness training products declined by $5.0 million to $1.3 million in the third quarter of 2016, compared to $6.3 million in the prior year third quarter.

Revenues from our HealthStream Patient Experience Solutions segment increased by $138,000, or two percent, when compared to the third quarter of 2015. Revenues from Patient Insights™ surveys—a survey research product that generates recurring revenues—decreased by $361,000, or five percent, when compared to the third quarter of 2015. This decline is partially due to changes in product mix, such as the adoption of our e-survey products, which has both lower revenue and cost per survey than our traditional phone survey products. Revenues from other patient experience solutions, including surveys conducted on annual or bi-annual cycles and consulting/coaching services, collectively increased by $500,000, or 27 percent, when compared to the third quarter of 2015. This increase is primarily due to more engagements over the prior year period.

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1 Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to net income and disclosure regarding why we believe Adjusted EBITDA provides useful information to investors is included later in this release.
 

Revenues from our HealthStream Provider Solutions segment increased by $2.5 million, or 63 percent, when compared to the third quarter of 2015. Revenues from both the Health Line Systems (HLS) and Morrisey Associates, Inc. (MAI) acquisitions, which were consummated in March 2015 and August 2016, respectively, accounted for the majority of the increase in revenues during the third quarter of 2016. MAI revenues in the third quarter, following the consummation of the MAI acquisition on August 8, 2016, were approximately $841,000, net of deferred revenue write-downs associated with the MAI transaction as noted above.

Generally accepted accounting principles (GAAP) require companies to write down beginning balances of acquired deferred revenue balances as part of "fair value" accounting as defined by GAAP. During the third quarter of 2016, HealthStream reported a $1.2 million reduction to operating income and an $847,000 reduction to net income as a result of the deferred revenue write-down for the HLS and MAI acquisitions. During the third quarter of 2015, HealthStream reported a reduction of $2.1 million to operating income and $1.3 million to net income as a result of the deferred revenue write-down for the HLS acquisition. The table reconciling GAAP to non-GAAP financial measures included in this release shows the impact of beginning balance deferred revenue write-downs on operating income and net income.

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