HealthStream Announces Third Quarter 2006 Results

Business Wire,  Oct 24, 2006  

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NASHVILLE, Tenn. -- HealthStream, Inc. (NASDAQ: HSTM):

Highlights:

* Revenues of $7.5 million in the third quarter of 2006, up $650,000, or 9.5%, over the third quarter of 2005

* Net income of $474,000 in the third quarter of 2006, including $166,000 of share-based compensation expense, compared to $554,000 in the third quarter of 2005

* EBITDA of $1.2 million in the third quarter of 2006, compared to $1.1 million in the third quarter of 2005

* 1,334,000 healthcare professional subscribers fully implemented on our Internet-based learning network at September 30, 2006

* New four-year agreement signed with HCA, as of October 1, 2006

* Gerard M. Hayden, Jr. and Dale W. Polley join board of directors

HealthStream, Inc. (NASDAQ: HSTM), a leading provider of learning solutions for the healthcare industry, announced today results for the third quarter ended September 30, 2006.

Financial Results:

Third Quarter 2006 Compared to Third Quarter 2005

Revenues for the third quarter of 2006 increased by $650,000, or 9.5 percent, to $7.5 million, compared to $6.8 million for the third quarter of 2005. Revenues from our hospital-based business increased $894,000 compared to the prior year quarter, including growth of $636,000 from our HealthStream Learning Center[TM] (HLC) subscriber base and $341,000 related to growth from our survey and research products. Revenues from our survey and research products increased by 26 percent when compared to the third quarter of 2005 due to growth in sales to existing customers as well as growth in new customer accounts. Revenues from our pharmaceutical and medical device business declined $244,000 compared to the prior year quarter, primarily associated with a decline in live events of $354,000, which was offset by modest revenue increases in other products.

The portion of revenues derived from our Internet-based subscription products, which includes revenues from the HLC, courseware subscriptions, online training services (RepDirect(TM)), and HospitalDirect(TM), increased by $627,000, or 15 percent, over the prior year quarter. The percentage of total revenues from Internet-based subscription products improved to approximately 64 percent for the third quarter of 2006 from 60 percent for the third quarter of 2005, primarily due to the growth in these products.

Gross margins, which we define as revenues less cost of revenues (excluding depreciation and amortization) divided by revenues, improved to 68 percent from 65 percent for the third quarter of 2005. This change resulted from the change in revenue mix and improved margins associated with growth in our Internet-based subscription products and survey and research products, as mentioned above.

Net income for the third quarter of 2006 was $474,000, or $0.02 per share (basic and diluted), compared to $554,000, or $0.03 per share (basic) and $0.02 per share (diluted), for the third quarter of 2005. Consistent with our adoption of SFAS 123R beginning on January 1, 2006, share-based compensation expense was $166,000 during the third quarter of 2006 compared to $0 for the third quarter of 2005. Share-based compensation expense is allocated to all operating categories consistent with the classification of related personnel. We also experienced increases in sales and marketing expenses, other general and administrative expenses, and product development expenses, all primarily due to additional personnel. Amortization of capitalized content and feature enhancements also increased over the same quarter in the prior year. Interest income also improved over the same quarter in the prior year due to both higher cash and investment balances in 2006 and improved rates of return.

EBITDA (which we define as earnings before interest, taxes, share-based compensation, depreciation, and amortization) improved to $1.2 million for the third quarter of 2006, compared to $1.1 million for the third quarter of 2005. This improvement is consistent with the factors mentioned above.

Other Financial Indicators

At September 30, 2006, the Company had cash, investments, and related interest receivable of $13.3 million, compared to $13.4 million at June 30, 2006. The primary change in cash and investment balances resulted from capital expenditures and investments in new product development and feature enhancements totaling approximately $1.3 million during the third quarter of 2006, which was virtually offset by cash generated from operations. The Company also maintains full availability under the $7.0 million line of credit put in place during July 2006.

Days sales outstanding (DSO), which we calculate by dividing the accounts receivable balance (excluding unbilled and other receivables) by average daily revenues for the quarter, improved to 54 days for the third quarter of 2006 from approximately 57 days for the third quarter of 2005, primarily due to improvements in the collection of receivables for the hospital-based business.

Hospital-based Customer Channel (HCO) Update