HealthStream Announces First Quarter 2009 Results

Business Wire, April 27, 2009

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, 2009.

Highlights:

• Revenues of $13.6 million in the first quarter of 2009, up 19% over the first quarter of 2008
• Net income of $900,000 in the first quarter of 2009, up from $66,000 in the first quarter of 2008
• Earnings per share (EPS) of $0.04, up from $0.00 for same period last year
• Adjusted EBITDA of $2.3 million in the first quarter of 2009, up from $1.4 million in the first quarter of 2008

Financial Results:

First Quarter 2009 Compared to First Quarter 2008

Revenues for the first quarter of 2009 increased $2.2 million, or 19 percent, to $13.6 million, compared to $11.4 million for the first quarter of 2008. The Company’s revenue mix during both the first quarter of 2009 and 2008 was comprised of 66 percent of revenues from HealthStream Learning and 34 percent from HealthStream Research.

Revenues from HealthStream Learning increased by $1.5 million when compared to the first quarter of 2008. Of this increase, $1.1 million was derived from our Internet-based subscription learning products, which includes revenue increases from the HealthStream Learning Center® (HLC) of $498,000 and from courseware subscriptions and online training services of $591,000. Revenues from these products increased 17 percent over the prior year quarter and approximated $7.6 million for the first quarter of 2009. Revenues associated with implementation, development, and consulting services increased $559,000 over the prior year quarter. This increase in revenues was partially offset by a decline in revenues from live events, study guides, and other project-based activities, which collectively declined $151,000 from the same quarter in the prior year.

Revenues from HealthStream Research increased $701,000 when compared to the first quarter of 2008. HealthStream Research provides four survey product lines: patient, physician, employee and community. This revenue growth is attributable to increased volumes compared to the prior year quarter.

Gross margin, which we define as revenues less cost of revenues (excluding depreciation and amortization) divided by revenues, increased to 61 percent for the first quarter of 2009 from 60 percent for the first quarter of 2008. The improvement in gross margin resulted from changes in revenue mix and related cost of revenues. In HealthStream Research, we experienced improved gross margins compared to the prior year quarter, and in HealthStream Learning, gross margins were comparable to the same quarter in the prior year.

Other operating expenses, including product development, sales and marketing, depreciation and amortization, and other general and administrative expenses collectively increased by 8 percent over the prior year quarter. These expense increases resulted primarily from increased spending associated with product development, additions within our sales teams, and increases in other general and administrative expenses.

Net income for the first quarter of 2009 improved to $878,000, or $0.04 per share (diluted), compared to $66,000, or $0.00 per share (diluted), for the first quarter of 2008.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) was $2.3 million for the first quarter of 2009, compared to $1.4 million for the first quarter of 2008. 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.

Other Financial Indicators

At March 31, 2009, the Company had cash and related interest receivable of $4.8 million, compared to $4.1 million at December 31, 2008. The increase in cash resulted from favorable operating results, but was partially offset by capital expenditures. Capital expenditures and capitalized feature enhancement development totaled approximately $0.8 million for the first quarter of 2009.

Our 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, approximated 69 days for the first quarter of 2009 compared to 57 days for the first quarter of 2008. The increase in DSO is due to payment delays from customers, as well as higher balances with several customers that were billed in advance for annual fees rather than on a monthly subscription basis.