EXHIBIT 99.1
For Immediate Release:
Contact: Arthur Newman
Chief Financial Officer
(615) 301-3178
art.newman@healthstream.com
Media
Mollie Elizabeth Condra
Communications & Investor Relations
(615) 301-3237
mollie.condra@healthstream.com
HEALTHSTREAM ANNOUNCES THIRD QUARTER 2004 RESULTS
HIGHLIGHTS:
- Record revenues of $5.0 million in third quarter 2004, up 16% from third
quarter 2003
- Net loss of $177,000, an improvement of $446,000 over same quarter in 2003
- EBITDA of $297,000, an improvement of $223,000 over same quarter in 2003,
with cash and investments of $16.4 million at quarter end
- 987,000 healthcare professional subscribers fully implemented on
Internet-based learning network, up 14% from 864,000 in prior quarter
- Henry Ford Health System signs 3-year agreement to train their 16,000
employees on HealthStream Learning Center
- Through HospitalDirect, approximately 50 hours of new device training and
device-related education launched to provider-based healthcare
professionals
NASHVILLE, TENN. (OCTOBER 26, 2004)--HealthStream, Inc. (NASDAQ/NM: HSTM), a
leading provider of learning solutions for the healthcare industry, announced
today results for the third quarter ended September 30, 2004.
FINANCIAL RESULTS:
THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003
Revenues for the third quarter of 2004 were $5.0 million, up 16 percent from
$4.3 million for the third quarter of 2003. This year over year increase is the
result of an increase of $670,000, or 33 percent, in revenues from our growing
subscriber base of our HealthStream Learning Center(TM). Content development
revenues also increased $185,000 over the prior year quarter. These revenue
increases were partially offset by lower maintenance fees related to our
installed learning management products of $180,000 as well as lower content
subscription revenues of approximately $120,000. The portion of revenues derived
from our Internet-based subscription products increased to 68 percent of
revenues for the third quarter of 2004 from 63 percent during the same quarter
in 2003.
Gross margins (which we define as revenues less cost of revenues divided by
revenues) declined from approximately 68 percent for the third quarter of 2003
to 65 percent in the third quarter of 2004. This decline is primarily a result
of personnel expenses associated with our
Competency Compass and HospitalDirect solutions that were accounted for in
product development expenses in 2003. Now that both products have been launched,
these personnel costs were included in cost of revenues in the third quarter of
2004. In addition, the gross margin decline resulted from the increase in
content development revenues, which have lower margins than our Internet-based
subscription products.
Net loss for the third quarter of 2004 was $177,000, or ($0.01) per share,
compared to a net loss of $623,000, or ($0.03) per share, for the third quarter
of 2003. The improvement in net loss over the prior year quarter resulted
primarily from increased revenues and reduced amortization expense due to the
expiration of estimated useful lives associated with certain acquisitions
completed in 2000. Product development expense was lower for the third quarter
of 2004 due to the redesignation of personnel related to Competency Compass and
HospitalDirect, as mentioned above. Sales and marketing expense increased,
resulting from additions to our sales force and the related commission expense.
EBITDA (which we define as earnings or loss before interest, taxes,
depreciation, and amortization) improved to earnings of $297,000 for the third
quarter of 2004, compared to earnings of $74,000 for the third quarter of 2003.
This improvement is consistent with the factors mentioned above.
OTHER FINANCIAL INDICATORS
At September 30, 2004, the Company had cash, investments, and related interest
receivable of $16.4 million, compared to $16.9 million at June 30, 2004. This
decline is primarily the result of $0.9 million in capital expenditures, content
purchases, and an increase in accounts receivable, which was partially offset by
an increase in accounts payable and accrued liabilities during the third quarter
of 2004.
DSO (which we calculate by dividing the accounts receivable balance, excluding
unbilled and other receivables, by average daily revenues for the quarter)
increased from approximately 49 days for the second quarter of 2004 to
approximately 55 days for the third quarter of 2004. The increase in DSO is a
result of slower cash collections from our healthcare organization customer
base.
HOSPITAL-BASED CUSTOMER CHANNEL (HCO) UPDATE
Our learning solutions are helping healthcare organizations improve their
required regulatory training, while also offering an opportunity to train their
employees in multiple clinical areas. In addition, our products are designed to
improve knowledge of medical devices, thereby reducing organizational risks and
improving patient safety.
At September 30, 2004, approximately 987,000 healthcare professionals were fully
implemented to use our Internet-based HealthStream Learning Center for training
and education, including approximately 80,000 subscribers related to Tenet
Healthcare. This number was up from approximately 864,000 at the end of the
second quarter of 2004 and up from 730,000 at the end of the third quarter of
2003. Revenue recognition commences when a contract is fully implemented. The
total number of contracted subscribers at September 30, 2004 was approximately
1,057,000, up from approximately 997,000 at the end of the second
quarter of 2004. "Contracted subscribers" include both those already implemented
(987,000) and those in the process of implementation (70,000).
Among the organizations that selected the HealthStream Learning Center in the
third quarter was the Henry Ford Health System, a "top ten" health system in the
nation. In a three-year agreement, Henry Ford will utilize HealthStream's
learning platform with the core OSHA/JCAHO regulatory course curriculum, our
exclusive patient safety series, and our long-term care course curriculum for
their 16,000 hospital-based employees.
We continue to make progress with renewals associated with our HealthStream
Learning Center customers. As discussed in prior quarters, we measure our
renewal rates by both the number of customer accounts that are renewed and by
the annual contract value renewed. During the third quarter of 2004, the account
renewal rate was 84 percent and the annual contract value renewal rate was 83
percent. Cumulatively, for the first three quarters of 2004, our account renewal
rate was 79 percent and the annual contract value renewal rate was 81 percent.
PHARMACEUTICAL AND MEDICAL DEVICE CUSTOMER CHANNEL (PMD) UPDATE
HealthStream works with its pharmaceutical and medical device company customers
to develop education and training solutions for three primary audiences:
provider-based healthcare professionals; medical device and pharmaceutical sales
professionals; and physicians. Revenues from the PMD business were comparable
with the prior quarter, but did grow by approximately 8 percent over the third
quarter of 2003. As noted above, this growth was related primarily to content
development services.
Recently, HospitalDirect(TM) was selected by a leading manufacturer of medical
diagnostic and therapeutic devices for a pilot program that includes training on
seven of their devices. To date, medical device companies have contracted to
train hospital-based healthcare professionals on, collectively, 25 devices.
HospitalDirect is our new software tool set that provides medical device
companies a unique gateway into the nation's single largest network of hospitals
on a common, online learning platform. HealthStream launched approximately 50
hours of new device training and device-related education activities through
HospitalDirect in the third quarter of 2004. Concurrently, the number of courses
completed through HospitalDirect increased to approximately 12,400 for the third
quarter, up from approximately 5,000 for the second quarter. Since the start of
2004, approximately 20,000 courses have been completed through HospitalDirect.
In addition to HospitalDirect courses, HealthStream helps medical device
companies reach hospital-based healthcare professionals through clinical
education programs. In the third quarter, approximately 7,000 hospital-based
healthcare professionals utilized this learning solution. Clinical education
programs are instructor-led continuing education activities directed by
HealthStream that typically take place in acute-care hospitals.
FINANCIAL EXPECTATIONS
Full year revenues are expected to approximate $20.0 million, with growth during
the fourth quarter expected to result from our HealthStream Learning Center
product and our education services related to our association business. We
expect that gross margins as a percentage of revenues will decline somewhat
during the fourth quarter due to the growth in the lower margin association
business. We expect that product development and sales and marketing expenses
will increase modestly during the fourth quarter, due to the full quarter impact
of certain personnel additions and marketing expenses associated with new
content introductions. We expect to continue to achieve cash flow positive
results, as measured by EBITDA, for the fourth quarter of 2004.
Given our growing subscriber base and traction with new content solutions, we
expect 2005 revenue growth to approximate 15 to 20 percent over 2004. In
addition, we expect to achieve positive net income during 2005.
Commenting on third quarter 2004 results and anticipated growth, Robert A.
Frist, Jr., chief executive officer, said, "After achieving strong third quarter
results, we are setting new performance milestones. We expect to cross over the
1,000,000 mark of fully implemented subscribers in the fourth quarter, achieve
2005 revenue growth of 15 to 20 percent over 2004, and turn net income positive
during 2005."
A conference call with Robert A. Frist, Jr., chief executive officer, Arthur
Newman, chief financial officer, Susan Brownie, vice president of finance and
human resources, and Mollie Condra, director of communications and investor
relations, will be held on Wednesday, October 27, 2004 at 9:00 a.m. (EDT). To
listen to the conference, please dial 800-361-0912 (confirmation number: 815396)
if you are calling within the domestic U.S. If you are an international caller,
please dial 913-981-5559 (confirmation number: 815396). The conference may also
be accessed online by going to http://www.healthstream.com/investors.htm for the
simultaneous Webcast of the call, which will subsequently be available for
replay.
ABOUT HEALTHSTREAM
HealthStream (NASDAQ: HSTM) is a leading provider of learning solutions for the
healthcare industry. Approximately 1,057,000 contracted healthcare professionals
have selected the Internet-based HealthStream Learning Center(TM),
HealthStream's learning platform. The Company's learning products and services
are used by healthcare organizations to meet the full range of their training
needs, while, concurrently, supporting business objectives. Once subscribed to
the HealthStream Learning Center(TM), customers benefit from increased
compliance, reduced risks, and improved learning effectiveness. In addition,
HealthStream has pioneered a new collaboration with pharmaceutical and medical
device companies to assist them in product launch and market education
initiatives within the Company's nationwide network of hospital customers. Nine
of the top ten medical device companies and eight of the top ten pharmaceutical
companies are among the organizations in HealthStream's growing customer base.
(www.healthstream.com)
HEALTHSTREAM, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- -----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues $ 5,032 $ 4,342 $ 14,631 $ 13,429
Operating expenses:
Cost of revenues 1,776 1,402 5,417 4,502
Product development 659 770 1,940 2,536
Sales and marketing 1,101 938 3,462 3,303
Depreciation and amortization 536 787 1,529 2,541
Other general and administrative 1,202 1,153 3,568 3,855
------------- ------------- ------------- -------------
Total operating expenses 5,274 5,050 15,916 16,737
Operating loss (242) (708) (1,285) (3,308)
Other income, net 65 85 160 314
------------- ------------- ------------- -------------
Net loss $ (177) $ (623) $ (1,125) $ (2,994)
============= ============= ============= =============
Net loss per share:
Net loss per share, basic and diluted $ (0.01) $ (0.03) $ (0.05) $ (0.15)
============= ============= ============= =============
Weighted average shares outstanding:
Basic and diluted 20,656 20,421 20,561 20,363
============= ============= ============= =============
SUMMARY FINANCIAL DATA - CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME (LOSS) BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION, EBITDA(1):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- -----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net loss $ (177) $ (623) $ (1,125) $ (2,994)
Interest income (69) (100) (172) (338)
Interest expense 3 10 9 18
Income taxes 4 -- 4 --
Depreciation and amortization 536 787 1,529 2,541
------------- ------------- ------------- -------------
Income (loss) before interest, taxes, depreciation and
amortization $ 297 $ 74 $ 245 $ (773)
============= ============= ============= =============
(1) In order to better assess the Company's financial results, management
believes that EBITDA is an appropriate measure for evaluating the operating
performance of the Company at this stage in its life cycle because EBITDA
reflects net loss adjusted for non-cash and non-operating items. EBITDA is
also used by many investors to assess the Company's results from current
operations. EBITDA is a non-GAAP financial measure and should not be
considered as a measure of financial performance under generally accepted
accounting principles. Because EBITDA is not a measurement determined in
accordance with generally accepted accounting principles, it is susceptible
to varying calculations. Accordingly, EBITDA, as presented, may not be
comparable to other similarly titled measures of other companies.
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2004 2003(1)
---- ----
ASSETS
Current assets:
Cash, short term investments and related interest receivable $ 16,422 $ 18,021
Accounts and unbilled receivables, net (2) 3,763 3,090
Prepaid and other current assets 1,397 1,045
------------- -------------
Total current assets 21,582 22,156
Property and equipment, net 2,475 2,003
Goodwill and intangible assets, net 3,556 3,817
Other assets 320 423
------------- -------------
Total assets $ 27,933 $ 28,399
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 2,367 $ 2,742
Deferred revenue 3,872 3,059
Current portion of long-term liabilities 26 39
------------- -------------
Total current liabilities 6,265 5,840
Long-term liabilities, net of current portion 36 1
------------- -------------
Total liabilities 6,301 5,841
Shareholders' equity:
Common stock 91,622 91,417
Accumulated deficit and other comprehensive income (69,990) (68,859)
------------- -------------
Total shareholders' equity 21,632 22,558
Total liabilities and shareholders' equity $ 27,933 $ 28,399
============= =============
(1) Derived from audited financial statements contained in the Company's filing
on Form 10-K for the year ended December 31, 2003.
(2) Includes unbilled receivables of $736 and $593 and other receivables of $14
and $14 at September 30, 2004 and December 31, 2003, respectively.
This press release includes certain forward-looking statements (statements other
than solely with respect to historical fact), including statements regarding
expectations for the financial performance for the fourth quarter of 2004 and
fiscal year 2005 that involve risks and uncertainties regarding HealthStream.
These statements are based upon management's beliefs, as well as assumptions
made by and data currently available to management. This information has been,
or in the future may be, included in reliance on the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such results or events predicted in these statements may differ materially
from actual future events or results. The Company's preliminary financial
results, while presented with numerical specificity, are forward-looking
statements which are based on a variety of assumptions regarding the Company's
operating performance that may not be realized, and which are subject to
significant uncertainties and potential contingencies associated with the
Company's year-end financial and accounting procedures and other matters
referenced in the Company's Annual Report in Form 10-K and referenced from time
to time in the Company's other filings with the Securities and Exchange
Commission. Consequently, such forward-looking information should not be
regarded as a representation or warranty by the Company that such projections
will be realized. Many of the factors that will determine the Company's future
results are beyond the ability of the Company to control or predict. Readers
should not place undue reliance on forward-looking statements, which reflect
management's views only as of the date hereof. The Company undertakes no
obligation to update or revise any such forward-looking statements.