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| HSTM > SEC Filings for HSTM > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
• Net income of $1.7 million in the second quarter of 2009, up from $739,000 in the second quarter of 2008
• Earnings per share (EPS) of $0.08, up from $0.03 in the second quarter of 2008
• Revenues of $28.2 million for the first six months of 2009, up 15% over the first six months of 2008
• Net income of $2.6 million and EPS of $0.12 for the first six months of 2009, up from a net income of $805,000 and EPS of $0.04 for the first six months of 2008
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP"). These
accounting principles require us to make certain estimates, judgments and
assumptions during the preparation of our financial statements. We believe the
estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time they are made. These estimates,
judgments and assumptions can affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of revenues and expenses during the periods presented. To the extent
there are material differences between these estimates, judgments or assumptions
and actual results, our financial statements will be affected.
The accounting policies and estimates that we believe are the most critical in
fully understanding and evaluating our reported financial results include the
following:
• Revenue recognition
• Accounting for income taxes
• Product development costs and related capitalization
• Goodwill, intangibles, and other long-lived assets
• Allowance for doubtful accounts
• Accrual for service credits
• Stock based compensation
• Nonmonetary exchange of content rights and deferred service credits
In many cases, the accounting treatment of a particular transaction is
specifically dictated by US GAAP and does not require management's judgment in
its application. There are also areas in which management's judgment in
selecting among available alternatives would not produce a materially different
result. See Notes to Consolidated Financial Statements in our 2008 Form 10-K,
which contains additional information regarding our accounting policies and
other disclosures required by US GAAP. There have been no changes in our
critical accounting policies and estimates from those reported in our 2008 Form
10-K.
Revenues and Expense Components
The following descriptions of the components of revenues and expenses apply to
the comparison of results of operations.
Revenues. Revenues for our HealthStream Learning business segment consist of the
provision of services through our Internet-based HLC, authoring tools, a variety
of courseware subscriptions (add-on courseware), implementation and consulting
services, maintenance of third party content, online sales training courses
(RepDirect™), online training and content development, HospitalDirect®, and a
variety of other educational activities for physicians, nurses and other
professionals within healthcare organizations. Revenues for our HealthStream
Research business segment consist of quality and satisfaction surveys, data
analyses of survey results, and other research-based measurement tools focused
on patients, physicians, employees, and other members of the community.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues
(excluding depreciation and amortization) consists primarily of salaries and
employee benefits, stock based compensation, employee travel and lodging,
royalties paid by us to content providers based on a percentage of revenues,
materials, outsourced phone survey support, contract labor, hosting costs, as
well as other direct expenses associated with revenues. Personnel costs within
cost of revenues are associated with individuals that facilitate product
delivery, provide services, conduct, process and manage phone and paper-based
surveys, handle customer support calls or inquiries, manage the technology
infrastructure for our hosted applications, manage content and survey services,
coordinate content maintenance services, and provide training or implementation
services.
Product Development. Product development expenses consist primarily of salaries
and employee benefits, stock based compensation, content acquisition costs
before technological feasibility is achieved, costs associated with the
development of content and expenditures associated with maintaining, developing
and operating our training, delivery and administration platforms. In addition,
product development expenses are associated with the development of new software
feature enhancements and new products. Personnel costs within product
development include our systems, application development, and quality assurance
teams, product managers, and other personnel associated with content and product
development.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
salaries, commissions and employee benefits, stock based compensation, employee
travel and lodging, advertising, trade shows, promotions, and related marketing
costs. Personnel costs within sales and marketing include our HealthStream
Learning and HealthStream Research sales teams, strategic account management,
and marketing personnel, as well as our account management group.
Depreciation and Amortization. Depreciation and amortization consist of
depreciation of property and equipment, amortization of intangibles considered
to have definite lives, amortization of content development fees, and
amortization of capitalized software feature enhancements.
Other General and Administrative Expenses. Other general and administrative
expenses consist primarily of salaries and employee benefits, stock based
compensation, employee travel and lodging, facility costs, office expenses, fees
for professional services, and other operational expenses. Personnel costs
within general and administrative expenses include individuals associated with
normal corporate functions (accounting, legal, human resources, administrative,
internal information systems, and executive management) as well as personnel who
maintain our accreditation status with various organizations.
Other Income/Expense. The primary component of other income is interest income
related to interest earned on cash and cash equivalents. The primary component
of other expense is interest expense related to a promissory note, capital
leases and our revolving credit facility.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Revenues. Revenues increased approximately $1.6 million, or 12.1%, to
$14.6 million for the three months ended June 30, 2009 from $13.0 million for
the three months ended June 30, 2008. Revenues for 2009 consisted of
$9.3 million, or 64% of total revenue, for HealthStream Learning and $5.3
million, or 36% of total revenue, for HealthStream Research. In 2008, revenues
consisted of $8.2 million, or 63% of total revenue, for HealthStream Learning
and $4.8 million, or 37% of total revenue, for HealthStream Research.
Revenues for HealthStream Learning increased $1.1 million, or 14.0%, over the
second quarter of 2008. Revenues from our Internet-based subscription learning
products increased by $1.2 million, and were comprised of revenue increases from
the HLC of $696,000 and from courseware subscriptions of $505,000. Revenues from
our Internet-based subscription products increased 18.0% over the prior year
quarter due to a higher number of subscribers and more courseware consumption by
more subscribers. Our HLC subscriber base increased to 1,863,000
fully-implemented subscribers and 1,945,000 contracted subscribers at June 30,
2009 compared to 1,639,000 fully-implemented subscribers and 1,758,000
contracted subscribers at June 30, 2008. Revenues associated with
implementation, development, and consulting services increased $287,000 over the
prior year quarter due to increased courseware development service revenues
compared to the prior year. These increases in revenues were partially offset by
a decline in revenues from live events, study guides, and other project-based
activities, which collectively declined $376,000 from the second quarter of 2008
due to a de-emphasis on live events and other similar project-based services.
Revenues for HealthStream Research increased $428,000, or 8.8%, over the second
quarter of 2008. This revenue growth is attributable to increased survey volumes
with new and existing customers compared to the prior year quarter. HealthStream
Research provides four survey product lines: patient, physician, employee and
community.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues
increased approximately $365,000, or 7.5%, to $5.2 million for the three months
ended June 30, 2009 from $4.9 million for the three months ended June 30, 2008.
Cost of revenues as a percentage of revenues were 35.8% of revenues for the
three months ended June 30, 2009 down favorably from 37.4% of revenues for the
three months ended June 30, 2008. Cost of revenues for HealthStream Learning
increased approximately $159,000 to $2.9 million and approximated 31.2% and
33.7% of revenues for the three months ended June 30, 2009 and 2008,
respectively. The expense increase was primarily associated with increased
royalties paid by us resulting from growth in courseware subscription revenues
and were partially offset by expense decreases associated with the declines in
live events and other project-based revenues. Cost of revenues for HealthStream
Research increased approximately $206,000 to $2.3 million and approximated 44.0%
and 43.6% of revenues for the three months ended June 30, 2009 and 2008,
respectively. The increase in cost of revenues for HealthStream Research is
primarily a result of the costs associated with increased survey volumes
compared to the same quarter in the prior year.
Product Development. Product development expenses increased approximately
$117,000, or 8.8%, to $1.4 million for the three months ended June 30, 2009 from
$1.3 million for the three months ended June 30, 2008. Product development
expenses as a percentage of revenues were 9.9% and 10.2% of revenues for the
three months ended June 30, 2009 and 2008, respectively. Product development
expenses for the three months ended June 30, 2009 has been reduced by $105,000
to reflect the correction of an error related to software development that
should have been capitalized during the first quarter of 2009.
Product development expenses for HealthStream Learning increased approximately
$161,000 and approximated 13.4% and 13.3% of revenues for the three months ended
June 30, 2009 and 2008, respectively. This expense increase resulted from
additional personnel and contract labor associated with maintenance and support
of our learning platform products. Product development expenses for HealthStream
Research decreased approximately $44,000 and approximated 3.8% and 5.1% of
revenues for the three months ended June 30, 2009 and 2008, respectively. The
decrease was a result of using internal resources for software development
projects which were eligible for capitalization.
Sales and Marketing. Sales and marketing expenses, including personnel costs,
decreased approximately $92,000, or 3.4%, to $2.6 million for the three months
ended June 30, 2009 from $2.7 million for the three months ended June 30, 2008.
Sales and marketing expenses approximated 17.8% and 20.7% of revenues for the
three months ended June 30, 2009 and 2008, respectively.
Sales and marketing expenses for HealthStream Learning increased $36,000 and
approximated 19.4% and 21.7% of revenues for the three months ended June 30,
2009 and 2008, respectively. This expense increase primarily resulted from
additional sales personnel and related expenses and was partially offset by
lower travel expenses. Sales and marketing expenses for HealthStream Research
decreased approximately $135,000, and approximated 13.6% and 17.5% of revenues
for the three months ended June 30, 2009 and 2008, respectively. This decrease
resulted primarily from fewer sales and marketing personnel and related expenses
when compared to the prior year quarter.
Other General and Administrative. Other general and administrative expenses were
comparable between periods and approximated $2.2 million for both the three
months ended June 30, 2009 and 2008. Other general and administrative expenses
as a percentage of revenues decreased to 15.0% for the three months ended
June 30, 2009 from 16.8% for the three months ended June 30, 2008. The
percentage decrease is a result of the revenue increases mentioned above.
Other general and administrative expenses for HealthStream Learning increased
$22,000 compared to the prior year quarter. Other general and administrative
expenses for HealthStream Research increased approximately $85,000 over the
prior year quarter, primarily due to recruiting fees and bad debt expense. The
unallocated corporate portion of other general and administrative expenses
decreased $106,000 from the prior year quarter, primarily due to lower stock
based compensation, facility costs, recruiting fees, and travel expense, offset
by expense increases associated with additional personnel and related costs.
Depreciation and Amortization. Depreciation and amortization increased
approximately $41,000, or 3.4%, to $1.3 million for the three months ended
June 30, 2009 from $1.2 million for the three months ended June 30, 2008. The
increase resulted from depreciation expense associated with capital
expenditures.
Other Income (Expense). Other income (expense) decreased approximately $25,000,
or 108.9%, to an expense of $2,000 for the three months ended June 30, 2009 from
income of $23,000 for the three months ended June 30, 2008. Interest income
decreased $33,000 from the prior year quarter resulting from lower yield rates
on cash and cash equivalents. Interest expense decreased $8,000 from the prior
year quarter due to reductions in debt and capital lease balances.
Provision for Income Taxes. The Company's income tax provision primarily
consists of the federal alternative minimum tax and state income taxes. Taxable
income for 2009 is expected to be substantially offset by the utilization of our
net operating loss carryforwards.
Net Income. Net income was approximately $1.7 million for the three months ended
June 30, 2009, up from $739,000 for the three months ended June 30, 2008. Net
income per share was $0.08 per share for the three months ended June 30, 2009,
up from $0.03 per share for the three months ended June 30, 2008. This
improvement is a result of the factors mentioned above.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Revenues. Revenues increased approximately $3.8 million, or 15.4%, to
$28.2 million for the six months ended June 30, 2009 from $24.4 million for the
six months ended June 30, 2008. Revenues for 2009 consisted of $18.3 million, or
65% of total revenue, for HealthStream Learning and $9.9 million, or 35% of
total revenue, for HealthStream Research. In 2008, revenues consisted of $15.7
million, or 64% of total revenue, for HealthStream Learning and $8.8 million, or
36% of total revenue, for HealthStream Research.
Revenues for HealthStream Learning increased $2.6 million, or 16.8%, over the
first six months of 2008. Revenues from our Internet-based subscription learning
products accounted for $2.5 million of the increase, and were comprised of
revenue increases from the HLC of $1.3 million and from courseware subscriptions
of $1.1 million. Revenues from Internet-based subscription products increased
18.0% over the prior year period due to a higher number of subscribers and more
courseware consumption by more subscribers. Our HLC subscriber base increased to
1,863,000 fully-implemented subscribers and 1,945,000 contracted subscribers at
June 30, 2009 compared to 1,639,000 fully-implemented subscribers and 1,758,000
contracted subscribers at June 30, 2008. Revenues associated with
implementation, development, and consulting services increased $846,000 over the
prior year period due to increased courseware development service revenues
compared to the prior year. These increases in revenues were partially offset by
a decline in revenues from live events, study guides, and other project-based
activities, which collectively declined $676,000 from the prior year period due
to a de-emphasis on live events and other similar project-based services.
Revenues for HealthStream Research increased $1.1 million, or 12.9%, over the
first six months of 2008. This revenue growth is attributable to increased
survey volumes with new and existing customers compared to the prior year.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues
increased approximately $1.1 million, or 11.8%, to $10.5 million for the six
months ended June 30, 2009 from $9.4 million for the six months ended June 30,
2008. Cost of revenues as a percentage of revenues were 37.2% of revenues for
the six months ended June 30, 2009 down favorably from 38.4% of revenues for the
six months ended June 30, 2008. Cost of revenues for HealthStream Learning
increased approximately $708,000 to $5.9 million and approximated 32.3% and
33.2% of revenues for the six months ended June 30, 2009 and 2008, respectively.
The expense increase was primarily associated with increased royalties paid by
us resulting from growth in courseware subscription revenues as well as
increased costs to support the growth in implementation, development, and
consulting revenues, and was partially offset by expense decreases associated
with the declines in live events and other project-based revenues. Cost of
revenues for HealthStream Research increased approximately $398,000 to
$4.6 million and approximated 46.3% and 47.7% of revenues for the six months
ended June 30, 2009 and 2008, respectively. The increase in cost of revenues for
HealthStream Research is primarily a result of the costs associated with
increased survey volumes compared to the prior year. The decrease in cost of
revenues as a percentage of revenues resulted from improved operating
efficiencies compared to the same period in the prior year.
Product Development. Product development expenses increased approximately
$367,000, or 14.0%, to $3.0 million for the six months ended June 30, 2009 from
$2.6 million for the six months ended June 30, 2008. Product development
expenses as a percentage of revenues were 10.6% and 10.7% of revenues for the
six months ended June 30, 2009 and 2008, respectively.
Product development expenses for HealthStream Learning increased approximately
$361,000 and approximated 13.6% of revenues for both the six months ended
June 30, 2009 and 2008. This expense increase resulted from additional personnel
and contract labor associated with maintenance and support of our learning
platform products. Product development expenses for HealthStream Research
increased approximately $6,000 and approximated 5.0% and 5.6% of revenues for
the six months ended June 30, 2009 and 2008, respectively.
Sales and Marketing. Sales and marketing expenses, including personnel costs,
increased approximately $64,000, or 1.2%, and approximated $5.3 million for both
the six months ended June 30, 2009 and 2008. Sales and marketing expenses
approximated 18.8% and 21.5% of revenues for the six months ended June 30, 2009
and 2008, respectively. The percentage decrease is a result of the revenue
increases mentioned above.
Sales and marketing expenses for HealthStream Learning increased $266,000 and
approximated 19.9% and 21.6% of revenues for the six months ended June 30, 2009
and 2008, respectively. This expense increase primarily resulted from additional
sales personnel and related expenses. Sales and marketing expenses for
HealthStream Research decreased approximately $220,000, and approximated 15.5%
and 19.9% of revenues for the six months ended June 30, 2009 and 2008,
respectively. This decrease resulted primarily from fewer sales and marketing
personnel and related expenses when compared to the prior year.
Other General and Administrative. Other general and administrative expenses
increased approximately $141,000, or 3.6%, and approximated $4.1 million for the
six months ended June 30, 2009 compared to $4.0 million for the six months ended
June 30, 2008. Other general and administrative expenses as a percentage of
revenues decreased to 14.5% for the six months ended June 30, 2009 from 16.2%
for the six months ended June 30, 2008. The percentage decrease is a result of
the revenue increases mentioned above.
Other general and administrative expenses for HealthStream Learning increased
$163,000 compared to the prior year period, primarily due to recruiting fees,
bad debt expense, and office expenses. Other general and administrative expenses
for HealthStream Research increased approximately $105,000 over the prior year
period, primarily due to recruiting fees, bad debt expense, and office expenses.
The unallocated corporate portion of other general and administrative expenses
decreased $127,000 from the prior year period, primarily due to lower stock
based compensation, facility costs, recruiting fees, and travel, which were
partially offset by expense increases associated with additional personnel and
related costs.
Depreciation and Amortization. Depreciation and amortization increased
approximately $61,000, or 2.5%, to $2.5 million for the six months ended
June 30, 2009 from $2.4 million for the six months ended June 30, 2008. The
increase resulted from depreciation expense associated with capital
expenditures.
Other Income (Expense). Other income (expense) decreased approximately $48,000,
or 106.6%, to an expense of $3,000 for the six months ended June 30, 2009 from
income of $45,000 for the six months ended June 30, 2008. Interest income
decreased $70,000 from the prior year period resulting from lower yield rates on
cash and cash equivalents. Interest expense decreased $22,000 from the prior
year period due to reductions in debt and capital lease balances.
Provision for Income Taxes. The Company's income tax provision primarily
consists of the federal alternative minimum tax and state income taxes. Taxable
income for 2009 is expected to be substantially offset by the utilization of our
net operating loss carryforwards.
Net Income. Net income was approximately $2.6 million for the six months ended
June 30, 2009, up from $805,000 for the six months ended June 30, 2008. Net
income per share was $0.12 per share for the six months ended June 30, 2009, up
from $0.04 per share for the six months ended June 30, 2008. This improvement is
a result of the factors mentioned above.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $5.9 million and
$4.1 million during the six months ended June 30, 2009 and 2008, respectively.
. . .
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