HealthStream Announces First Quarter 2008 Results

Business Wire, April 22, 2008

NASHVILLE, Tenn. -- HealthStream, Inc. (NASDAQ: HSTM), a leading provider of learning and research solutions for the healthcare industry, announced today results for the first quarter ended March 31, 2008.

Highlights:

* Revenues of $11.4 million in the first quarter of 2008, up 41% over the first quarter of 2007

* Net income of $66,000 in the first quarter of 2008, up from $45,000 in the first quarter of 2007

* Adjusted EBITDA of $1.4 million in the first quarter of 2008, up from $0.9 million in the first quarter of 2007

* 1,594,000 healthcare professional subscribers fully implemented on our Internet-based learning network at March 31, 2008, up from 1,379,000 at March 31, 2007

* Gerard M. Hayden, Jr. joins the Company as senior vice president and chief financial officer

* Jeffrey S. Doster joins the Company as senior vice president and chief technology officer

Financial Results:

First Quarter 2008 Compared to First Quarter 2007

Revenues for the first quarter of 2008 increased $3.3 million, or 41 percent, to $11.4 million, compared to $8.1 million for the first quarter of 2007. The Company's revenue mix during the first quarter of 2008 was comprised of 66 percent of revenues from HealthStream Learning and 34 percent from HealthStream Research. This compares to 80 percent from HealthStream Learning and 20 percent from HealthStream Research during the first quarter of 2007. This revenue mix change is primarily a result of the acquisition of The Jackson Organization Research Consultants, Inc. (TJO) during March 2007, whose revenues are included in HealthStream Research.

Revenues from HealthStream Learning increased by $1.0 million when compared to the first quarter of 2007. Of this increase, $1.5 million was derived from our Internet-based subscription learning products, which includes revenue increases from the HealthStream Learning Center[R] (HLC) of $900,000 and from courseware subscriptions and online training services of $616,000. Revenues from these products increased 30 percent over the prior year quarter and approximated $6.6 million for the first quarter of 2008. Revenues associated with implementation, development, and consulting services increased $302,000 over the prior year quarter. Our increase in revenues was partially offset by a decrease in revenues from our live event business, including association activities, which declined $663,000 from the prior year quarter, primarily due to fewer live events and association activities during the first quarter of 2008 than in the first quarter of 2007.

Revenues from HealthStream Research increased $2.3 million when compared to the first quarter of 2007, primarily resulting from the impact of the March 2007 acquisition of TJO. Revenue increases over the prior year quarter included $1.7 million from patient surveys, $525,000 from employee surveys, and $94,000 from physician surveys. TJO revenues during the first quarter of 2007, prior to our acquisition and not included in our results for the first quarter of 2007, approximated $2.6 million.

Gross margin, which we define as revenues less cost of revenues (excluding depreciation and amortization) divided by revenues, declined to 60 percent for the first quarter of 2008 from 64 percent for the first quarter of 2007. The decline in gross margin resulted from changes in revenue mix and related cost of revenues. In HealthStream Research, we experienced lower gross margins related to increased revenues from patient surveys, which have lower margins than physician and employee surveys. In HealthStream Learning, gross margins were up slightly compared to the prior year quarter due to the increase in HLC revenues, but were somewhat offset by increased royalties paid by us associated with increased revenues from a portion of our courseware subscription products.

Other operating expenses, including product development, sales and marketing, depreciation and amortization, and other general and administrative expenses also increased over the prior year quarter. These expense increases resulted primarily from the impact of TJO personnel and operating expenses, as well as the addition of sales personnel for both HealthStream Learning and HealthStream Research. Depreciation and amortization increases were associated with capital expenditures, software enhancements, and intangible assets. Other income and expense decreased $118,000 when compared to the prior year quarter due to lower cash and investments balances.

Net income for the first quarter of 2008 was $66,000, or $0.00 per share (diluted), up slightly from $45,000, or $0.00 per share (diluted), for the first quarter of 2007.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) was $1.4 million for the first quarter of 2008, compared to $912,000 for the first quarter of 2007. This improvement is consistent with the factors mentioned above. Our reconciliation of this calculation to measures under generally accepted accounting principles is attached in the Summary Financial Data.