HealthStream Announces Fourth Quarter & Full Year 2008 Results

Business Wire, Feb 25, 2009

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

Highlights:

Fourth Quarter

* Revenues of $13.5 million in the fourth quarter of 2008, up 13% over the fourth quarter of 2007

* Net income of $1.4 million (including the effect of a deferred income tax benefit of $375,000) for the fourth quarter of 2008, compared to $2.9 million (including the effect of a deferred income tax benefit of $2.0 million) for the fourth quarter of 2007

* Adjusted EBITDA of $2.5 million in the fourth quarter of 2008, compared to $2.2 million in the fourth quarter of 2007

Full Year

* Revenues for the year of $51.6 million, up 17% over 2007

* Net income of $2.9 million (including the effect of a deferred income tax benefit of $375,000) for 2008, compared to $4.1 million (including the effect of a deferred income tax benefit of $2.0 million) for 2007

* Adjusted EBITDA of $8.1 million, compared to $7.2 million for 2007

* 1,732,000 healthcare professional subscribers fully implemented on our Internet-based learning network at December 31, 2008, up from 1,541,000 at December 31, 2007

Financial Results:

Fourth Quarter 2008 Compared to Fourth Quarter 2007

Revenues for the fourth quarter of 2008 increased $1.5 million, or 13 percent, to $13.5 million, compared to $12.0 million for the fourth quarter of 2007. The Company's revenue mix during both the fourth quarter of 2008 and 2007 was comprised of 64 percent of revenues from HealthStream Learning and 36 percent of revenues from HealthStream Research.

Revenues from HealthStream Learning increased by $1.0 million when compared to the fourth quarter of 2007. Of this increase, $1.6 million was derived from our Internet-based subscription learning products, which includes revenue increases from the HealthStream Learning Center[R] (HLC) of $946,000 and courseware subscriptions and online training services of $669,000. Revenues from these Internet-based subscription products increased 26 percent over the prior year quarter and approximated $7.8 million for the fourth quarter of 2008. This increase in revenues was partially offset by a decline in revenues from live events, study guides, and association activities, which collectively declined $662,000 compared to the prior year quarter.

Revenues from HealthStream Research increased by $500,000 when compared to the fourth quarter of 2007. HealthStream Research provides four survey product lines: patient, physician, employee and community.

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

Product development and sales and marketing expenses both increased over the prior year quarter. Product development expense grew by $561,000, 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 $88,000 compared to the prior year quarter, primarily due to additional personnel and related selling costs for both HealthStream Learning and HealthStream Research. Depreciation and amortization increased $61,000 over the prior year quarter. Other general and administrative categories decreased slightly compared to the prior year quarter.

Net income for the fourth quarter of 2008 was $1.4 million, or $0.07 per share (diluted), compared to $2.9 million, or $0.13 per share (diluted), for the fourth quarter of 2007. Net income for the fourth quarters of 2008 and 2007 includes a deferred income tax benefit of $375,000 and $2.0 million, respectively. The recognition of these deferred income tax benefits resulted from a partial release of the valuation allowance on the Company's deferred tax assets. As of December 31, 2008, the Company maintains a valuation allowance of approximately $12.1 million for the remaining portion of its deferred tax assets, which primarily consist of net operating loss carryforwards.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) was $2.5 million for the fourth quarter of 2008, up from $2.2 million for the fourth quarter of 2007, an increase of 15 percent. 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.