HealthStream Announces Third Quarter 2008 Results

Business Wire, Oct 28, 2008

NASHVILLE, Tenn. -- HealthStream, Inc. (NASDAQ: HSTM), a leading provider of learning and research solutions for the healthcare industry, announced today results for the third quarter ended September 30, 2008.

Highlights:

* Revenues of $13.7 million in the third quarter of 2008, up 16% over the third quarter of 2007

* Net income of $609,000, compared to $739,000 in the third quarter of 2007; annual customer Summit costs of $720,000 incurred in third quarter of 2008 versus second quarter of 2007

* Adjusted EBITDA of $1.9 million in the third quarter of 2008, compared to $2.1 million in the third quarter of 2007

* 1,692,000 healthcare professional subscribers fully implemented on our Internet-based learning network at September 30, 2008, up from 1,457,000 at September 30, 2007

* $3 million stock repurchase plan completed resulting in 1,119,900 shares purchased at average price of $2.68 per share

Financial Results:

Third Quarter 2008 Compared to Third Quarter 2007

Revenues for the third quarter of 2008 increased $1.9 million, or 16 percent, to $13.7 million, compared to $11.8 million for the third quarter of 2007. The Company's revenue mix during the third quarter of 2008 was comprised of 62 percent of revenues from HealthStream Learning and 38 percent of revenues from HealthStream Research. This compares to 58 percent from HealthStream Learning and 42 percent from HealthStream Research during the third quarter of 2007.

Revenues from HealthStream Learning increased by $1.7 million when compared to the third quarter of 2007. Of this increase, $1.8 million was derived from our Internet-based subscription learning products, which includes revenue increases from the HealthStream Learning Center[R] (HLC) of $883,000 and from courseware subscriptions and online training services of $874,000. Revenues from these products increased 32 percent over the prior year quarter and approximated $7.3 million for the third quarter of 2008. This increase in revenues was partially offset by a decrease in revenues from live events, study guides, and association activities, which collectively declined $333,000 compared to the prior year quarter.

Revenues from HealthStream Research increased by $187,000 when compared to the third quarter of 2007. HealthStream Research provides four survey product lines: patient, physician, employee and community. Revenue mix changes over the prior year quarter included increases of $601,000 in the patient and community product lines and decreases of approximately $493,000 in the physician and employee product lines. The decrease in the physician product line is partly attributable to the loss of one customer contract.

Gross margin, which we define as revenues less cost of revenues (excluding depreciation and amortization) divided by revenues, approximated 62 percent for the third quarter of 2008 and 63 percent for the third quarter of 2007. In HealthStream Research, we experienced lower gross margins as a result of lower revenues from physician and employee surveys, which have higher gross margins than patient and community surveys. In HealthStream Learning, gross margins improved slightly compared to the prior year quarter due to the increase in HLC revenues, but were somewhat offset by increased personnel expenses and increased royalties paid by us associated with increased revenues from a portion of our courseware subscription products.

Product development, sales and marketing, and other general and administrative expenses all increased over the prior year quarter. Product development grew by $366,000, which was primarily associated with maintenance and support of our HealthStream Learning products, as well as a redesignation of personnel to product development from general and administrative expenses within HealthStream Research. Sales and marketing expenses increased by $828,000 over the prior year quarter, of which $550,000 resulted from marketing expenses in conjunction with our annual Summit. For comparative purposes, this event was held during the second quarter of the prior year. Additions of sales personnel to both HealthStream Learning and HealthStream Research accounted for the remaining increases in sales and marketing expenses. Depreciation and amortization decreased $142,000 compared to the prior year quarter. Other general and administrative categories increased $124,000 over the prior year quarter.

Net income for the third quarter of 2008 was $609,000, or $0.03 per share (diluted), compared to $739,000, or $0.03 per share (diluted), for the third quarter of 2007. The decline in net income is consistent with the factors mentioned above.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) was $1.9 million for the third quarter of 2008, compared to $2.1 million for the third quarter of 2007. This result is consistent with the factors mentioned above, including the expense for our annual Summit of approximately $720,000. Our reconciliation of this calculation to measures under generally accepted accounting principles is attached in the Summary Financial Data.