HealthStream Announces First Quarter 2010 Results

HealthStream, Inc. a leading provider of learning and research solutions for the healthcare industry, announced today results for the first quarter ended March 31, 2010.

Revenues for the first quarter of 2010 increased $1.2 million, or 9 percent, to $14.8 million, compared to $13.6 million for the first quarter of 2009. The Company’s revenue mix during the first quarter of 2010 was comprised of 69 percent of revenues from HealthStream Learning and 31 percent from HealthStream Research. This compares to 66 percent from HealthStream Learning and 34 percent from HealthStream Research during the first quarter of 2009.

Revenues from HealthStream Learning increased by $1.3 million, or 15 percent, when compared to the first quarter of 2009.

Revenues from our Internet-based subscription products increased by $2.0 million over the prior year quarter, and were comprised of revenue increases from the HealthStream Learning Center(R) (HLC) of $1.2 million and from courseware subscriptions of $751,000. Revenues from Internet-based subscription products increased 27 percent over the prior year quarter due to a higher number of subscribers and more courseware consumption by subscribers. Revenues associated with implementation, development, and consulting services decreased $516,000 from the prior year quarter, impacted primarily by lower revenues associated with fewer project-based development projects. Additionally, revenues from live events, study guides, and other project-based activities, collectively declined $210,000 from the same quarter in the prior year.

Revenues from HealthStream Research decreased by $91,000, or two percent, when compared to the first quarter of 2009.

Revenues from patient surveys–a product that generates recurring revenues–increased by $183,000, or six percent, but were more than offset by the combined revenue declines from employee, physician, and community surveys of $274,000. Of these revenue declines, the employee category decreased by $194,000 which was impacted by delayed survey start-ups for a few large projects when compared to the prior year quarter.

Cost of revenues (excluding depreciation and amortization) approximated 37 percent of revenues for the first quarter of 2010 compared to 39 percent for the first quarter of 2009. This improvement was primarily influenced by the strong revenue growth from Internet-based subscription products. The increase in cost of revenues of $194,000 resulted from increased royalties paid by us associated with growth in courseware subscription revenues and additional staffing to support growth from patient surveys. These increases were partially offset by lower costs associated with the decline in development revenues compared to the prior year quarter.

In the aggregate, all other operating expenses increased by seven percent over the prior year same quarter. Sales and marketing expenses increased $247,000 compared to the prior year quarter due to additional sales personnel and related expenses. Depreciation and amortization increased $124,000 due to capital expenditures and other general and administrative expense increased $185,000 due to various operating costs.

Operating income for the first quarter of 2010 improved by 51 percent to $1.4 million compared to $936,000 for the first quarter of 2009, primarily resulting from the strong revenue growth mentioned above.

In the fourth quarter of 2009, we released substantially all of the remaining balance of our valuation allowance against our deferred tax assets in accordance with generally accepted accounting principles ("GAAP"), which resulted in a non-cash $9.1 million tax benefit in net income, or approximately $0.41 per share.

Our effective income tax rate in the quarter ended March 31, 2010 was 42.5 percent. Because the Company previously maintained a full valuation allowance for its deferred tax assets, net income for the first quarter of 2009 did not include deferred income tax expense. Therefore, because of the changes in income tax accounting between the first quarters of 2009 and 2010, net income is not comparable between periods due to the valuation allowance maintained during the prior year.

Net income for the first quarter of 2010 was $807,000, or $0.04 per share (diluted), compared to $878,000, or $0.04 per share (diluted), for the first quarter of 2009. Net income for 2010 includes an income tax provision of $597,000, or $0.03 per share.

Adjusted EBITDA (which we define as net income before interest, income taxes, share-based compensation, and depreciation and amortization) was $3.0 million for the first quarter of 2010, compared to $2.3 million for the first quarter of 2009. This improvement is consistent with the factors mentioned above. Our reconciliation of this calculation to measures under GAAP is attached in the Summary Financial Data.

About HealthStream

HealthStream is a leading provider of research and learning solutions for the healthcare industry, transforming insight into action to deliver outcomes-based results for healthcare organizations. Through HealthStream’s learning solutions–which have been contracted by over two million hospital-based healthcare professionals–healthcare organizations create safer environments for patients, increase clinical competencies of their workforces, and facilitate the rapid transfer of the latest knowledge and technologies. Through our research products, executives from healthcare organizations gain valuable insight about patients’ experiences, workforce challenges, physician relations, and community perceptions of their services. Based in Nashville, Tennessee, HealthStream has two satellite offices. For more information about Health Stream’s learning and research solutions, visit www.healthstream.com or call us at 800-933-9293.