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| HSTM > SEC Filings for HSTM > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-2009
Quarterly Report
Special Cautionary Notice Regarding Forward-Looking Statements
You should read the following discussion and analysis in conjunction with our
condensed consolidated financial statements and related notes included elsewhere
in this report and our audited consolidated financial statements and the notes
thereto for the year ended December 31, 2008, appearing in our Annual Report on
Form 10-K that was filed with the Securities and Exchange Commission ("SEC") on
March 27, 2009 (the "2008 Form 10-K"). Statements contained in this Quarterly
Report on Form 10-Q that are not historical fact are forward-looking statements
that the Company intends to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Statements that are predictive in nature, that depend on or refer
to future events or conditions, or that include words such as "anticipates,"
"believes," "could," "estimates," "expects," "intends," "may," "plans,"
"potential," "predicts," " projects," "should," "will," "would," and similar
expressions are forward-looking statements.
The Company cautions that forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause actual results,
performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by the forward-looking
statements. Forward-looking statements reflect our current views with respect to
future events and are based on assumptions and subject to risks and
uncertainties. Given these uncertainties, you should not place undue reliance on
these forward-looking statements.
In evaluating any forward-looking statement, you should specifically consider
the information regarding forward-looking statements and the information set
forth under the caption "Item 1A. Risk Factors" in our 2008 Form 10-K and the
information regarding forward-looking statements in our earnings releases, as
well as other cautionary statements contained elsewhere in this report,
including the matters discussed in "Critical Accounting Policies and Estimates."
We undertake no obligation beyond that required by law to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future. You should read this report and
the documents that we reference in this report and have filed as exhibits to
this report completely and with the understanding that our actual future results
may be materially different from what we expect.
Overview
HealthStream's services are focused on the professionals who work within
healthcare organizations, and include the delivery of education and training
products and services ("HealthStream Learning"), as well as survey and research
services ("HealthStream Research"). HealthStream Learning products and services
are used by healthcare organizations to meet a broad range of their training and
assessment needs, while HealthStream Research products and services provide our
customers valuable insight into measuring quality and satisfaction of patients,
physicians, employees, and members of the community. Across both our
HealthStream Learning and HealthStream Research segments, our customers include
approximately 2,500 healthcare organization facilities (predominately acute-care
facilities) throughout the United States.
The Company's flagship learning product is the HealthStream Learning Center®
("HLC"), our proprietary, Internet-based learning platform. We deliver
educational and training courseware to our customers through the HLC platform.
HealthStream Learning products and services are focused on education and
training initiatives designed to reach hospital-based healthcare professionals,
as well as physicians and medical device and pharmaceutical industry sales
representatives.
HealthStream Research products and services include quality and satisfaction
surveys, data analyses of survey results, and other research-based measurement
tools focused on patients, physicians, employees, and members of the community.
HealthStream Research services are designed to provide customers thorough
analyses that provide insightful recommendations for change, benchmarking
capabilities using our comprehensive databases, and consulting services to
identify solutions based on their survey results. As a certified vendor
designated by the Centers for Medicare & Medicaid Services, we offer our
customers HCAHPS® (Hospital Consumer Assessment of Healthcare Providers and
Systems) and HH-CAHPS® (Home Health Care Consumer Assessment of Healthcare
Providers and Systems) survey services.
Key financial and operational indicators for the third quarter and first nine
months of 2009 include:
• Revenues of $14.1 million in the third quarter of 2009, up 3% over the third
quarter of 2008
• Net income of $1.0 million and EPS of $0.05 in the third quarter of 2009, up 68% from a net income of $609,000 and EPS of $0.03 in the third quarter of 2008
• Revenues of $42.3 million for the first nine months of 2009, up 11% over the first nine months of 2008
• Net income of $3.6 million and EPS of $0.17 for the first nine months of 2009, up 157% from a net income of $1.4 million and EPS of $0.06 for the first nine months of 2008
• New milestone: Over two million healthcare professional subscribers have now contracted to learn on our Internet-based HLC
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, software development 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 infrastructure, 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 September 30, 2009 Compared to Three Months Ended
September 30, 2008
Revenues. Revenues increased approximately $443,000, or 3.2%, to $14.1 million
for the three months ended September 30, 2009 from $13.7 million for the three
months ended September 30, 2008. Revenues for 2009 consisted of $9.5 million, or
67% of total revenue, for HealthStream Learning and $4.6 million, or 33% of
total revenue, for HealthStream Research. In 2008, revenues consisted of $8.5
million, or 62% of total revenue, for HealthStream Learning and $5.2 million, or
38% of total revenue, for HealthStream Research.
Revenues for HealthStream Learning increased $1.0 million, or 11.6%, over the
third quarter of 2008. Revenues from our Internet-based subscription learning
products increased by $1.3 million over the prior year quarter, and were
comprised of revenue increases from the HLC of $769,000 and from courseware
subscriptions of $518,000. Revenues from our Internet-based subscription
products increased 18.4% over the prior year quarter due to a higher number of
subscribers and more courseware consumption by subscribers. Our HLC subscriber
base increased to 1,915,000 fully-implemented subscribers and 2,008,000
contracted subscribers at September 30, 2009 compared to 1,692,000
fully-implemented subscribers and 1,762,000 contracted subscribers at
September 30, 2008. Revenues associated with implementation, development, and
consulting services increased $170,000 over the prior year quarter due to
increased courseware development service activity 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 $316,000 from the third quarter of 2008 due to a
de-emphasis on live events and other similar project-based services. The prior
year quarter also included $180,000 of conference fee revenues associated with
our annual customer conference known as the "Summit." We did not conduct this
customer event during 2009.
Revenues for HealthStream Research decreased $542,000, or 10.5%, compared to the
third quarter of 2008. Revenues from recurring patient surveys increased by
$297,000 over the prior year quarter, but were more than offset by the combined
declines in revenue from employee, community and physician surveys. The revenue
decline in these survey categories is primarily attributable to customer
decisions to defer conducting the surveys based on budgetary, operational, and
other considerations. Consequently, revenue fluctuations are more likely within
these survey categories than patient surveys, which are conducted on continuous
quarterly cycles.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues
increased approximately $254,000, or 4.9%, to $5.4 million for the three months
ended September 30, 2009 from $5.2 million for the three months ended
September 30, 2008. Cost of revenues as a percentage of revenues was 38.3% of
revenues for the three months ended September 30, 2009 compared to 37.7% of
revenues for the three months ended September 30, 2008. Cost of revenues for
HealthStream Learning increased approximately $381,000 to $3.0 million and
approximated 32.1% and 31.3% of revenues for the three months ended
September 30, 2009 and 2008, respectively. The expense increase is primarily
associated with increased royalties paid by us resulting from growth in
courseware subscription revenues. Cost of revenues for HealthStream Research
decreased approximately $127,000 to $2.4 million and approximated 51.1% and
48.2% of revenues for the three months ended September 30, 2009 and 2008,
respectively. The decrease in cost of revenues for
HealthStream Research is primarily the result of reduced revenues as well as
operating efficiencies within our interviewing center compared to the same
quarter in the prior year, while the increase as a percentage of revenues is a
result of lower revenues associated with changes in revenue mix.
Product Development. Product development expenses increased approximately
$89,000, or 5.8%, to $1.6 million for the three months ended September 30, 2009
from $1.5 million for the three months ended September 30, 2008. Product
development expenses as a percentage of revenues were 11.5% and 11.2% of
revenues for the three months ended September 30, 2009 and 2008, respectively.
Product development expenses for HealthStream Learning increased approximately
$98,000 and approximated 14.6% and 15.1% of revenues for the three months ended
September 30, 2009 and 2008, respectively. This expense increase resulted from
additional personnel expenses associated with both product portfolio management
and maintenance and support of our learning platform products. Product
development expenses for HealthStream Research decreased approximately $9,000
and approximated 5.1% and 4.8% of revenues for the three months ended
September 30, 2009 and 2008, respectively.
Sales and Marketing. Sales and marketing expenses, including personnel costs,
decreased approximately $497,000, or 15.9%, to $2.6 million for the three months
ended September 30, 2009 from $3.1 million for the three months ended
September 30, 2008. Sales and marketing expenses approximated 18.6% and 22.8% of
revenues for the three months ended September 30, 2009 and 2008, respectively.
As previously disclosed, we elected not to hold our customer Summit during 2009,
which contributed to essentially all of the decrease in sales and marketing
expenses compared to the prior year third quarter.
Sales and marketing expenses for HealthStream Learning decreased $386,000 and
approximated 18.5% and 25.2% of revenues for the three months ended
September 30, 2009 and 2008, respectively. Sales and marketing expenses for
HealthStream Research decreased approximately $138,000, and approximated 17.0%
and 17.9% of revenues for the three months ended September 30, 2009 and 2008,
respectively. The expense decrease for both HealthStream Learning and
HealthStream Research resulted from lower marketing expenses resulting from not
holding our annual customer Summit during 2009.
Other General and Administrative. Other general and administrative expenses were
comparable between periods and approximated $2.1 million for both the three
months ended September 30, 2009 and 2008. Other general and administrative
expenses as a percentage of revenues decreased to 14.7% for the three months
ended September 30, 2009 from 15.3% for the three months ended September 30,
2008. The percentage decrease is a result of maintaining the same level of
expenses while generating the revenue increases mentioned above.
Other general and administrative expenses for HealthStream Learning decreased
$57,000 compared to the prior year quarter, primarily due to lower employee
recruiting fees. Other general and administrative expenses for HealthStream
Research decreased approximately $109,000 compared to the prior year quarter,
primarily due to lower consulting expenses. The unallocated corporate portion of
other general and administrative expenses increased $143,000 over the prior year
quarter, primarily associated with various overhead expenses to support the
company's infrastructure.
Depreciation and Amortization. Depreciation and amortization increased
approximately $131,000, or 11.1%, to $1.3 million for the three months ended
September 30, 2009 from $1.2 million for the three months ended September 30,
2008. The increase resulted from depreciation expense associated with capital
expenditures and amortization of capitalized software features.
Other Income (Expense). Other income (expense) decreased approximately $28,000
to an expense of $9,000 for the three months ended September 30, 2009 from
income of $19,000 for the three months ended September 30, 2008. Interest income
decreased $28,000 from the prior year quarter resulting from lower yield rates
on cash and cash equivalents. Interest expense decreased modestly from the prior
year quarter due to reductions in debt and capital lease balances, but was
partially offset by higher interest expense under our revolving credit facility.
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 $1.0 million for the three months ended
September 30, 2009, up from $609,000 for the three months ended September 30,
2008. Net income per share was $0.05 per share for the three months ended
September 30, 2009, up from $0.03 per share for the three months ended
September 30, 2008. This improvement is a result of the factors mentioned above.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenues. Revenues increased approximately $4.2 million, or 11.1%, to
$42.3 million for the nine months ended September 30, 2009 from $38.1 million
for the nine months ended September 30, 2008. Revenues for 2009 consisted of
$27.8 million, or 66% of total revenue, for HealthStream Learning and
$14.5 million, or 34% of total revenue, for HealthStream Research. In 2008,
revenues consisted of $24.2 million, or 63% of total revenue, for HealthStream
Learning and $13.9 million, or 37% of total revenue, for HealthStream Research.
Revenues for HealthStream Learning increased $3.6 million, or 15.0%, over the
first nine months of 2008. Revenues from our Internet-based subscription
learning products increased by $3.8 million over the prior year period, and were
comprised of revenue increases from the HLC of $2.1 million and from courseware
subscriptions of $1.6 million. Revenues from Internet-based subscription
products increased 18.2% over the prior year period due to an increase in the
number of subscribers and more courseware consumption by subscribers. Our HLC
subscriber base increased to 1,915,000 fully-implemented subscribers and
2,008,000 contracted subscribers at September 30, 2009 compared to 1,692,000
fully-implemented subscribers and 1,762,000 contracted subscribers at
September 30, 2008. Revenues associated with implementation, development, and
consulting services increased $1.0 million 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 $1.2 million from the prior year period due to a
de-emphasis on live events and other similar project-based services.
Revenues for HealthStream Research increased $587,000, or 4.2%, over the first
nine months of 2008. Revenue from recurring patient surveys increased
$1.2 million over the prior year period, but was partially offset by the revenue
declines from both employee and physician surveys. The revenue decline in these
survey categories is primarily attributable to customer decisions to defer
conducting the surveys based on budgetary, operational, and other
considerations. These factors can result in significant fluctuations of revenues
between periods.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues
increased approximately $1.4 million, or 9.3%, to $15.9 million for the nine
months ended September 30, 2009 from $14.5 million for the nine months ended
September 30, 2008. Cost of revenues as a percentage of revenues was 37.6% of
revenues for the nine months ended September 30, 2009 down from 38.2% of
revenues for the nine months ended September 30, 2008. Cost of revenues for
HealthStream Learning increased approximately $1.1 million to $9.0 million and
approximated 32.2% and 32.6% of revenues for the nine months ended September 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
$271,000 to $6.9 million and approximated 47.8% and 47.9% of revenues for the
nine months ended September 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 for our patient survey category
compared to the prior year. Cost of revenues as a percentage of revenues was
impacted favorably by improved operating efficiencies compared to the prior
year, but was partially offset by the effect of lower revenues from the employee
and physician survey categories.
Product Development. Product development expenses increased approximately
$456,000, or 11.0%, to $4.6 million for the nine months ended September 30, 2009
from $4.1 million for the nine months ended September 30, 2008. Product
development expenses as a percentage of revenues were 10.9% of revenues for both
the nine months ended September 30, 2009 and 2008.
Product development expenses for HealthStream Learning increased approximately
$459,000 and approximated 13.9% and 14.1% of revenues for the nine months ended
September 30, 2009 and 2008, respectively. This expense increase resulted from
additional personnel expenses associated with both product portfolio management
and maintenance and support of our learning platform products. Product
development expenses for HealthStream Research decreased approximately $3,000
and approximated 5.0% and 5.3% of revenues for the nine months ended
September 30, 2009 and 2008, respectively.
Sales and Marketing. Sales and marketing expenses, including personnel costs,
decreased approximately $433,000, or 5.2%, and approximated $7.9 million for the
nine months ended September 30, 2009 compared to $8.4 million for the nine
months ended September 30, 2008. Sales and marketing expenses approximated 18.8%
and 22.0% of revenues for the nine months ended September 30, 2009 and 2008,
respectively.
Sales and marketing expenses for HealthStream Learning decreased $120,000 and
approximated 19.4% and 22.9% of revenues for the nine months ended September 30,
2009 and 2008, respectively. This expense decrease primarily resulted from lower
marketing expenses associated with our decision not to conduct our annual
customer Summit during 2009, but rather defer the event until 2010. This
decrease was partially offset by expense increases associated with hiring
additional sales personnel. Sales and marketing expenses for HealthStream
Research decreased approximately $358,000, and approximated 15.9% and 19.2% of
revenues for the nine months ended September 30, 2009 and 2008, respectively.
This decrease resulted primarily from fewer sales and marketing personnel and
related expenses when compared to the prior year. The unallocated corporate
portion of sales and marketing increased $49,000 over the prior year due to
additional personnel.
Other General and Administrative. Other general and administrative expenses
increased approximately $118,000, or 1.9%, and approximated $6.2 million for the
nine months ended September 30, 2009 compared to $6.1 million for the nine
months ended September 30, 2008. Other general and administrative expenses as a
percentage of revenues decreased to 14.6% for the nine months ended
September 30, 2009 from 15.9% for the nine months ended September 30, 2008. The
percentage decrease is a result of controlling expenses and the revenue
increases mentioned above.
Other general and administrative expenses for HealthStream Learning increased
$101,000 compared to the prior year period, primarily due to employee bonuses
and bad debt expense. Other general and administrative expenses for HealthStream
Research decreased slightly compared to the prior year period, but included
expense increases associated with employee recruiting fees, employee bonuses,
bad debt expense, and office expenses, and were offset by lower consulting
. . .
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