EXHIBIT 99.1
Contact: Arthur Newman
Chief Financial Officer
(615) 301-3178
ir@healthstream.com
Media
Mollie Elizabeth Condra
Communications & Investor Relations
(615) 301-3237
mollie.condra@healthstream.com
HEALTHSTREAM ANNOUNCES FOURTH QUARTER & FULL YEAR 2005 RESULTS
HIGHLIGHTS:
FOURTH QUARTER
o Revenues of $8.0 million in the fourth quarter of 2005, up 48% over
the fourth quarter of 2004
o Net income of $1.2 million in the fourth quarter of 2005, compared to
net income of $77,000 in the fourth quarter of 2004
o EBITDA of $1.7 million in the fourth quarter of 2005, compared to
EBITDA of $572,000 in the fourth quarter of 2004
o Michael D. Shmerling joins HealthStream's board of directors
FULL YEAR
o Revenues for the year of $27.4 million, up 36% over 2004
o Net income for the year of $1.9 million, compared to a net loss of
$1.0 million for 2004
o 1,173,000 healthcare professional subscribers fully implemented on our
Internet-based learning network at December 31, 2005, up from
1,040,000 at December 31, 2004, a 13% year over year increase
o EBITDA of $4.3 million for 2005, up from EBITDA of $818,000 for 2004
NASHVILLE, TENN. (FEBRUARY 21, 2006)--HealthStream, Inc. (NASDAQ: HSTM), a
leading provider of learning solutions for the healthcare industry, announced
today results for the fourth quarter and full year ended December 31, 2005.
FINANCIAL RESULTS:
FOURTH QUARTER 2005 COMPARED TO FOURTH QUARTER 2004
Revenues for the fourth quarter of 2005 increased by $2.6 million, or 48
percent, to $8.0 million, compared to $5.4 million for the fourth quarter of
2004. Revenue increases of $1.9 million resulted from the March 28, 2005
acquisition of Data Management and Research, Inc. (DMR). Revenues from our
HealthStream Learning Center(TM) (HLC) subscriber base increased $385,000, or 14
percent, while content subscription revenues increased $225,000, or 33 percent,
over the prior year quarter. Revenues from our pharmaceutical and medical device
business increased by $148,000, or 10 percent, compared to the prior year
quarter, due primarily to growth associated with live events.
Revenues derived from our Internet-based subscription products, which includes
revenues from the HLC, content subscriptions, online training services
(RepDirect(TM)), and HospitalDirect(TM), increased by $705,000, or 19 percent,
over prior year quarter. Since DMR products are not Internet-based,
the percentage of total revenues from Internet-based subscription products
approximated 54 percent for the fourth quarter of 2005, down from 67 percent
during the same quarter in 2004.
Gross margins (which we define as revenues less cost of revenues divided by
revenues) for the fourth quarter of 2005 were 64 percent, compared to 66 percent
for the prior year quarter. Our revenues increased over the prior year quarter,
with the changes in revenue mix resulting in increased royalties paid by us
associated with content subscription revenues and increased costs associated
with our DMR revenues, which resulted in lower overall gross margins.
Net income for the fourth quarter of 2005 was $1.2 million, or $0.06 per share
(basic) and $0.05 per share (diluted), compared to $77,000, or $0.00 per share
(basic and diluted), for the fourth quarter of 2004. The increase over 2004
resulted from the addition of DMR, as well as improvements in HLC and content
subscription revenues. The fourth quarter has historically been and was in 2005
the strongest quarter for DMR with regard to revenue and profitability.
EBITDA (which we define as earnings before interest, taxes, depreciation, and
amortization) improved to $1.7 million for the fourth quarter of 2005, compared
to $572,000 for the fourth quarter of 2004. This improvement is consistent with
the factors mentioned above.
FULL YEAR 2005
Revenues for the year ended December 31, 2005 were $27.4 million, up 36 percent
from $20.1 million for 2004. The growth in revenues was split between the impact
of the DMR acquisition of $4.5 million and growth in the existing business of
$2.8 million. Revenues for 2005 consisted of $21.2 million from our
hospital-based customer channel (HCO, which includes DMR) and $6.2 million from
our pharmaceutical and medical device company customer channel (PMD). In 2004,
revenues consisted of $14.0 million for HCO and $6.1 million for PMD.
Full year 2005 revenues from our HealthStream Learning Center(TM) subscriber
base also grew $2.0 million, or 18 percent, over 2004, while full year 2005
content subscription revenues increased $0.9 million, or 37 percent, over 2004.
In addition, revenues related to content maintenance services increased $158,000
over the prior year. These revenue increases for HCO were partially offset by a
$368,000 decline associated with maintenance fees from our installed learning
management products. PMD revenues increased modestly as a result of increases in
RepDirect(TM) of $391,000 and live events of $272,000, partially offset by
declines of $527,000 related to project-based development services.
Gross margins were comparable, approximating 64 percent for both 2005 and 2004.
The increase in revenues and the changes in revenue mix during 2005 resulted in
a corresponding increase in the cost of revenues, primarily resulting from
personnel and direct expenses associated with DMR and increased royalties paid
by us associated with content subscription revenues.
Net income for 2005 was $1.9 million, or $0.09 per share (basic and diluted),
compared to a net loss of $1.0 million, or $(0.05) per share (basic and
diluted), for 2004. The improvement over the prior year was split almost evenly
between improvements in the existing business and the impact of the DMR
acquisition.
EBITDA improved to $4.3 million for 2005 compared to $818,000 for 2004. This
improvement is a result of the factors mentioned above.
OTHER FINANCIAL INDICATORS
At December 31, 2005, the Company had cash, investments, and related interest
receivable of $12.2 million, up from $9.9 million at September 30, 2005, but
down from $16.5 million at December 31, 2004. The increase over the prior
quarter resulted from favorable operating results and strong cash collections.
In March 2005, we paid approximately $9.3 million of cash in connection with the
acquisition of DMR. During 2005, we generated $5.0 million of cash from
operations and the exercise of stock options.
Our days sales outstanding (DSO, which we calculate by dividing the average
accounts receivable balance, excluding unbilled and other receivables, by
average daily revenues for the year) improved to 64 days for the full year 2005
from 72 days for the full year 2004.This is the result of continued improvements
in collections from our HCO customers, but was somewhat offset by longer
collection cycles from our PMD customers.
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 improving patient safety and
reducing organizational risks.
At December 31, 2005, approximately 1,173,000 healthcare professionals were
fully implemented to use our Internet-based HealthStream Learning Center(TM)
(HLC) for training and education. Revenue recognition commences when a contract
is fully implemented. This number was up from approximately 1,040,000 at
December 31, 2004. The total number of contracted subscribers at December 31,
2005 was approximately 1,272,000, up from approximately 1,168,000 at December
31, 2004. "Contracted subscribers" include both those already implemented
(1,173,000) and those in the process of implementation (99,000).
At February 15, 2006, approximately 1,234,000 healthcare professionals were
fully implemented to use our Internet-based HealthStream Learning Center(TM)
(HLC) for training and education. The total number of contracted subscribers at
February 15, 2006 was approximately 1,309,000. "Contracted subscribers" include
both those already implemented (1,234,000) and those in the process of
implementation (75,000).
The volume of our HealthStream Learning Center customers' accounts up for
renewal during 2005 increased over prior year levels. We measure our renewal
rates by the number of full time equivalents (FTEs) renewed and by the annual
contract value renewed. For the quarter ended December 31, 2005, approximately
98 percent of FTEs renewed, and the annual contract value renewal rate was 97
percent. For full year 2005, approximately 92 percent of FTEs renewed, and the
annual contract value renewal rate was 89 percent. We have excluded the impact
of HCA's automatic renewal from this calculation.
We are continuing our discussions with HCA regarding a revised longer-term
agreement. Our current agreement with HCA was automatically renewed on October
1, 2005 in accordance with its terms, for one year, following the expiration of
the initial four-year term. Either party may terminate the agreement upon
45-days notice to the other party. HealthStream's agreement with Tenet
Healthcare was automatically renewed for an additional year in the fourth
quarter of 2005 in accordance with its terms. We also renewed our agreement with
Sutter Health for four years during the fourth quarter, which includes
additional product offerings for their 31,000 employees. In addition, Providence
Healthcare renewed for a three-year term, increasing the number of subscribers
from 16,000 to 29,000.
PHARMACEUTICAL AND MEDICAL DEVICE CUSTOMER CHANNEL (PMD) UPDATE
HealthStream works with its pharmaceutical and medical device company customers
to develop education initiatives that reach hospital-based healthcare
professionals. Our innovative learning solutions are also used by these
customers in their product launch plans and in support of their sales training
efforts.
During 2005, we focused on transitioning many of our PMD service offerings to
Internet-based products. This transition resulted in an increase in revenues
from subscription-based products and a decrease in revenues from project-based
development services. Our efforts have also resulted in revised product
nomenclature to reflect the three audiences our pharmaceutical and medical
device customers need to reach with education and training: their own sales
reps, physicians, and provider-based staff. The resulting product groups are
RepDirect(TM), PhysicianDirect(TM), and HospitalDirect(TM).
Our RepDirect(TM) products are designed to increase the clinical knowledge of
medical device sales reps to improve their ability to function safely and
effectively in the clinical environment and consist primarily of online
activities. Our PhysicianDirect(TM) products are designed to improve physicians'
knowledge and adoption of new techniques or advances with new treatments and
consist of a range of live workshop, online CME, online product training, print
CME, preceptorship and proctorship activities. Finally, our HospitalDirect(TM)
products are designed to increase the speed of adoption of new products and the
awareness of new protocols among provider-based staff and consist of a range of
online product training, online CE, rep-delivered CE, print CE, live workshop,
and association conference activities.
We are working to migrate the distribution, registration, and tracking of our
traditionally offline activities to the HLC to improve service and provide a
single view of learner activity. During 2005, we continued to improve adoption
of both RepDirect(TM) and HospitalDirect(TM). During 2005, the initial adopters
of HospitalDirect(TM) either expanded the number of products for which training
is available or extended the term for the distribution of such training.
EXECUTIVE PERSONNEL ANNOUNCEMENTS
Arthur Newman will be promoted to executive vice president, upon filing the
Company's Form 10-K for 2005. He has served as HealthStream's chief financial
officer and senior vice president since 2000, where he has played a key role in
HealthStream's executive leadership. In his new role, Mr. Newman will assume
executive leadership of all IT systems applications, customer services, and
human resources.
Susan Brownie, currently senior vice president of finance and human resources,
will be promoted to chief financial officer and senior vice president. Since
joining HealthStream in November 1999, Mrs. Brownie has had day-to-day
responsibility for all accounting and financial operations, while also holding
numerous leadership roles throughout the Company. Her promotion will be
effective upon filing the Company's Form 10-K for 2005.
Fred Perner, senior vice president, has accepted a position with a global
healthcare company and will, therefore, complete his service to the Company in
March of 2006. Mr. Perner joined HealthStream in August of 2000 with our
acquisition of Education Design, Inc., and has served on the executive team
during his tenure, holding a number of leadership responsibilities.
During the fourth quarter of 2005, we announced that Michael D. Shmerling joined
the Company's Board of Directors. As Senior Advisor and former executive vice
president at Marsh Kroll, Mr. Shmerling will be a valuable addition to the Board
in overseeing HealthStream's corporate and strategic initiatives. His
distinguished record of accomplishments will prove valuable to the Company,
further enhancing HealthStream's competitive edge. Mr. Shmerling is the eighth
"independent" director under the current NASDAQ National Market Listing
Standards, and brings the total number of directors on HealthStream's Board to
nine.
FINANCIAL OUTLOOK 2006
Revenues for the first quarter of 2006 are expected to approximate $7.0 to 7.2
million, an increase of $1.3 to $1.5 million over the same prior year quarter,
with growth expected from DMR (which was acquired at the end of the first
quarter 2005), as well from HLC and content subscription revenues. PMD revenues
are expected to remain comparable with the same prior year quarter. We also
expect gross margins to be comparable with the same prior year quarter.
We expect net income to improve modestly when compared to the same prior year
quarter as a result of revenue growth, which will be partially offset by
increases in product development, sales and account management expenses. In
addition, depreciation and amortization will also increase due to the impact of
DMR and, as a result of implementing SFAS 123R effective January 1, 2006, we
will reflect share-based compensation expense in our first quarter of 2006.
Full year 2006 revenues are expected to grow between 13-15 percent over 2005
with each quarter improving over the same quarter from the prior year. Gross
margins are expected to be comparable to 2005 levels. We anticipate net income
for the full year of 2006 will be comparable to 2005 as a result of revenue
growth, however such growth will be offset due to implementing SFAS 123R
effective January 1, 2006. We estimate the implementation of SFAS 123R will
result in share-based compensation expense of approximately $0.6 million for
2006.
In addition to increased expenses associated with share-based compensation, we
also expect increases in product development, sales, and account management
expenses. These increases are associated with enhancements to our product
platform, new products, and additional personnel. We also expect depreciation
and amortization to increase, resulting from anticipated increases in capital
expenditures and the full year impact of DMR. Capital expenditures and content
purchases are expected to approximate $3.5 million in 2006. Approximately $2.5
million of the anticipated spending is expected for the purchase of hardware and
software associated with delivery of our products and services. The remainder
relates to development of new products, feature enhancements, and content.
Commenting on results, Robert A. Frist, Jr., chief executive officer, said,
"With a 36 percent increase in revenues in 2005, HealthStream is entering 2006
in a strong position for continued growth. Moreover, we ended 2005 with net
income of $1.9 million, which exceeded our expectations. Approximately half of
our growth in net income was attributable to organic growth and half to our
acquisition of DMR. Our confidence in continued growth is further supported by a
high customer retention rate over the past year of 92 percent, which included
renewals of many of our largest accounts--like Tenet Healthcare, Sutter Health,
and Providence Healthcare."
A conference call with Robert A. Frist, Jr., chief executive officer, Arthur
Newman, senior vice president and chief financial officer, Susan Brownie, senior
vice president of finance and human resources, and Mollie Condra, director of
communications, research, and investor relations will be held on Wednesday,
February 22, at 9:00 a.m. (EST). To listen to the conference, please dial
888-569-5033 (passcode #6778472) if you are calling within the domestic U.S. If
you are an international caller, please dial 719-457-2653 (passcode #6778472).
The conference may also be accessed by going to
http://www.healthstream.com/Investors/index.htm for the simultaneous Webcast of
the call, which will subsequently be available for replay. The replay telephone
numbers are 888-203-1112 (passcode #6778472) for domestic callers and
719-457-0820 (passcode #6778472) for international callers.
ABOUT HEALTHSTREAM
HealthStream (NASDAQ: HSTM) is a leading provider of learning solutions for the
healthcare industry. Approximately 1.3 million 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, including training and assessment. 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. (www.healthstream.com)
HEALTHSTREAM, INC.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2005 2004 2005 2004
------- -------- ------- --------
Revenues $ 8,040 $ 5,426 $27,359 $ 20,057
Operating expenses:
Cost of revenues 2,858 1,860 9,746 7,277
Product development 829 591 2,928 2,531
Sales and marketing 1,321 1,336 5,452 4,799
Depreciation and amortization 648 578 2,678 2,107
Other general and administrative 1,292 1,067 4,980 4,634
------- -------- ------- --------
Total operating expenses 6,948 5,432 25,784 21,348
Operating income (loss) 1,092 (6) 1,575 (1,291)
Other income, net 100 83 338 243
------- -------- ------- --------
Net income (loss) $ 1,192 $ 77 $ 1,913 $ (1,048)
======= ======== ======= ========
Net income (loss) per share:
Net income (loss) per share, basic $ 0.06 $ 0.00 $ 0.09 $ (0.05)
======= ======== ======= ========
Net income (loss) per share, diluted $ 0.05 $ 0.00 $ 0.09 $ (0.05)
======= ======== ======= ========
Weighted average shares outstanding:
Basic 21,253 20,660 21,051 20,586
======= ======== ======= ========
Diluted 21,881 21,124 21,942 20,586
======= ======== ======= ========
SUMMARY FINANCIAL DATA - CONTINUED
(IN THOUSANDS)
INCOME BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION OR EBITDA(1):
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
2005 2004 2005 2004
------- ------- ------- -------
Net income (loss) $ 1,192 $ 77 $ 1,913 $(1,048)
Interest income (108) (86) (355) (258)
Interest expense 8 3 24 13
Income taxes -- -- 52 4
Depreciation and amortization 648 578 2,678 2,107
------- ------- ------- -------
Income before interest, taxes, depreciation and amortization $ 1,740 $ 572 $ 4,312 $ 818
======= ======= ======= =======
(1) In order to better assess the Company's financial results, management
believes that income before interest, taxes, depreciation and amortization
("EBITDA") is an appropriate measure for evaluating the operating
performance of the Company at this stage in its life cycle because EBITDA
reflects net income (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)
DECEMBER 31, DECEMBER 31,
2005 2004(1)
------------ ------------
ASSETS
Current assets:
Cash, short term investments and related interest receivable $ 12,194 $ 16,492
Accounts and unbilled receivables, net(2) 5,397 4,467
Prepaid and other current assets 1,636 1,393
-------- --------
Total current assets 19,227 22,352
Property and equipment, net 2,103 2,319
Goodwill and intangible assets, net 13,582 3,473
Other assets 304 292
-------- --------
Total assets $ 35,216 $ 28,436
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities $ 4,531 $ 2,786
Deferred revenue 4,503 3,867
Current portion of long-term liabilities 166 24
-------- --------
Total current liabilities 9,200 6,677
Long-term liabilities, net of current portion 216 30
-------- --------
Total liabilities 9,416 6,707
Shareholders' equity:
Common stock 93,800 91,642
Accumulated deficit (68,000) (69,913)
-------- --------
Total shareholders' equity 25,800 21,729
-------- --------
Total liabilities and shareholders' equity $ 35,216 $ 28,436
======== ========
(1) Derived from audited financial statements contained in the Company's filing
on Form 10-K for the year ended December 31, 2004.
(2) Includes unbilled receivables of $706 and $476 and other receivables of $10
and $20 at December 31, 2005 and December 31, 2004, 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 2006 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 forward-looking statements are subject to significant
uncertainties and other risks, including our ability to reach agreement on the
terms of a revised agreement with HCA and other risks referenced in the
Company's Annual Report on Form 10-K and 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.
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