HealthStream Acquires The Jackson Organization; Launches HealthStream Research™

Business Wire,  March 12, 2007  

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Hospitals Gain Insight Through HealthStream Research[TM] and Turn Insight into Action Through HealthStream Learning[TM]

NASHVILLE, Tenn. -- HealthStream, Inc. (NASDAQ: HSTM) announced today that it has acquired The Jackson Organization (TJO), a privately held leader in healthcare research. Building on the success of HealthStream's existing Data Management & Research (DMR) unit, the Company also announced the launch of its research group, which will be known as HealthStream Research[TM]. J. Edward Pearson, who joined HealthStream in June 2006, will continue to serve as senior vice president of HealthStream and as president of the HealthStream Research[TM].

Robert A. Frist, Jr., president and chief executive officer, HealthStream, commented, "With the launch of HealthStream Research[TM], we believe HealthStream becomes a more powerful strategic partner for healthcare organizations, offering insight through research and improved performance through learning."

Based in Maryland, TJO has approximately 300 healthcare facility customers, which, when combined with HealthStream's existing DMR customer base, represents over 1,100 healthcare facilities, or approximately 22 percent of the nation's acute-care hospitals. HealthStream Research[TM]--now comprised of TJO and DMR--provides valuable insight about patients' experiences, workforce engagement, physician relations, and community perceptions of hospital services. Executives at client healthcare organizations will be presented with a compelling opportunity to transform insight into action with HealthStream's industry-leading learning solutions.

"TJO and DMR's product strengths and customer bases are highly complementary. As a result, HealthStream Research[TM] enters the market with a strong, full-service product offering," said J. Edward Pearson, president, HealthStream Research[TM]. "Moreover, the combination of their historical research amassed about hospital employees, physicians, patients, and community perceptions establishes HealthStream as one of the industry's foremost benchmarking resources."

Both TJO and DMR experienced growth during 2006 as a result of adding new customers and expanding relationships with existing customers. Industry-wide, interest is increasing in research, due, in part, to the CAHPS([R])(Consumer Assessment of Health Plan Survey) Hospital Survey launched by the Centers for Medicare & Medicaid Services (CMS) in partnership with the Agency for Healthcare Research and Quality (AHRQ). According to the Deficit Reduction Act of 2005, hospitals must now submit data for all required quality measures--which includes the CAHPS([R])Hospital Survey--in order to receive the full market basket increase to their reimbursement payment rates from CMS. Hospitals that fail to submit this survey data, beginning in July 2007, will incur a reduction of 2.0 percentage points in payment rates in 2008. TJO and DMR have both been designated as certified vendors, and will continue to offer CAHPS([R])Hospital Survey services as HealthStream Research[TM].

"HealthStream is an ideal fit for The Jackson Organization to grow our customer base and advance our service to the healthcare industry," said David Jackson, president and chief executive officer of The Jackson Organization, who will serve as a consultant to HealthStream. "Our companies share a common vision of improving healthcare and expect an exciting future as HealthStream Research[TM]".

From HealthStream Research[TM], TJO and DMR customers will continue to receive the same high level of service and quality research they have grown accustomed to receiving. Routine operations at TJO and DMR will remain in their respective offices in Laurel, Maryland and Franklin, Tennessee, respectively. In addition, the strong management teams that have successfully led each of these organizations will remain on board with their respective personnel as part of HealthStream Research[TM]. J. Edward Pearson, who has provided senior leadership to the Company's research business since joining HealthStream last June, will continue to lead this operating group--now HealthStream Research[TM].

Historical Results and Transaction Terms

For the full year 2006, TJO's unaudited revenues approximated $10.8 million, net income approximated breakeven, and earnings before interest, taxes, depreciation and amortization (EBITDA) approximated $0.2 million. Net Income adjusted to exclude certain compensation of $0.7 million, interest expense of $0.1 million and expenses associated with relocation to a new office of $0.2 million, approximated $1.0 million. Adjusted EBITDA, including the further exclusions listed above, approximated $1.3 million for 2006.

HealthStream has purchased all of the shares of TJO for approximately $12.65 million, consisting of approximately $11.65 million of cash consideration and 252,616 shares of HealthStream common stock. A significant portion of both the cash and stock consideration is subject to escrow. Additional payments totaling $650,000 will be made under a consulting agreement and for achieving certain financial objectives.