Business Wire | Jul 27, 2020 04:30PM EDT

HealthStream Announces Second Quarter 2020 Results

Jul. 27, 2020

NASHVILLE, Tenn.--(BUSINESS WIRE)--Jul. 27, 2020--HealthStream, Inc. (Nasdaq: HSTM), a leading provider of workforce and provider solutions for the healthcare industry, announced today results for the second quarter ended June 30, 2020. In this earnings release, results for the six months ended June 30, 2020 and 2019 are presented for continuing operations only, unless otherwise indicated, as our results for the six months ended June 30, 2019 reflect a gain on the sale of our previously divested Patient Experience business included in discontinued operations. In contrast, our results for the three months ended June 30, 2020 and 2019 do not include any discontinued operations.

* Revenues of $60.6 million in the second quarter of 2020, down 5% from $63.8 million in the second quarter of 2019. * Operating income of $4.3 million in the second quarter of 2020 compared to $2.3 million in the second quarter of 2019. * Net income of $3.4 million in the second quarter of 2020, up 43% from $2.4 million in the second quarter of 2019. * Earnings per share (EPS) of $0.11 per share (diluted) in the second quarter of 2020 compared to $0.07 per share (diluted) in the second quarter of 2019. * Adjusted EBITDA1 of $12.0 million in the second quarter of 2020, up 2% from $11.8 million in the second quarter of 2019.

Financial Results:

Second Quarter 2020 Compared to Second Quarter 2019

Revenues for the second quarter of 2020 decreased by $3.2 million, or 5 percent, to $60.6 million, compared to $63.8 million for the second quarter of 2019.

Revenues from our Workforce Solutions segment were $48.9 million for the second quarter of 2020, compared to $52.4 million for the second quarter of 2019. Revenues from legacy resuscitation products accounted for this decline, as such products decreased by $4.8 million and were $10.7 million in the second quarter of 2020 compared to $15.5 million in the second quarter of 2019. Other workforce revenues increased by $1.3 million, representing an increase in platform and content subscriptions of $1.8 million, or 5 percent, offset by a decline in professional services revenues of $0.5 million, or 34 percent.

Revenues from our Provider Solutions segment were $11.7 million for the second quarter of 2020, compared to $11.4 million for the second quarter of 2019. Revenue growth of $0.3 million was primarily attributable to revenues from the CredentialMyDoc acquisition, which was completed in December 2019.

Operating income was $4.3 million for the second quarter of 2020 compared to $2.3 million from the second quarter of 2019. Operating costs and expenses were favorable compared to last year, primarily due to a $2.2 million charge for stock-based compensation and related expense recorded in the second quarter of 2019 related to a stock grant to employees facilitated by our CEO. Also, certain operating expenses declined during the second quarter in response to the COVID-19 pandemic. Notably, operating expenses related to travel declined by $1.1 million and operating expenses related to the cancellation of tradeshows declined $0.2 million, each when compared to the second quarter of 2019. Although these reductions to expense were favorable to operating income results during the second quarter of 2020, they also are indicative of the negative impact the pandemic is having on our ability to market and sell our products through traditional, in-person means, which resulted in lower sales volumes during the second quarter of 2020 compared to the prior year quarter. These favorable expense reductions were offset in part by higher personnel costs due to increased staffing levels and higher amortization associated with capitalized software and acquired intangibles.

Net income was $3.4 million in the second quarter of 2020, up 43 percent from $2.4 million in the second quarter of 2019, and EPS was $0.11 per share (diluted) in the second quarter of 2020, compared to $0.07 per share (diluted) for the second quarter of 2019.

Adjusted EBITDA was $12.0 million for the second quarter of 2020, up 2 percent from $11.8 million in the second quarter of 2019.

At June 30, 2020, the Company had cash and cash equivalents and marketable securities of $144.5 million. Capital expenditures incurred during the second quarter of 2020 were $4.3 million.

Year-to-Date 2020 Compared to Year-to-Date 2019

For the first six months of 2020, revenues were $122.1 million, a decrease of 5 percent over revenues of $129.0 million for the first six months of 2019. Operating income for the first six months of 2020 increased by 51 percent to $11.5 million, compared to $7.6 million for the first six months of 2019. Income from continuing operations for the first six months of 2020 was $10.5 million, up 47 percent from $7.2 million for the first six months of 2019. The first six months of 2019 were negatively impacted by the $2.2 million expense associated with the stock grant to employees facilitated by our CEO as noted above. Earnings per share from continuing operations were $0.33 per share (diluted) for the first six months of 2020, compared to $0.22 per share (diluted) for the first six months of 2019. Net income for the first six months of 2020 increased to $10.5 million, compared to $8.4 million for the first six months of 2019. Earnings per share were $0.33 per share (diluted) for the first six months of 2020, compared to $0.26 per share (diluted) for the first six months of 2019. Adjusted EBITDA from continuing operations decreased by 2 percent to $23.8 million for the first six months of 2020, compared to $24.2 million for the first six months of 2019. Adjusted EBITDA (from continuing and discontinued operations) decreased to $23.8 million for the first six months of 2020, compared to $25.9 million for the first six months of 2019.

Other Business Updates

At June 30, 2020, we had approximately 3.48 million contracted subscriptions to hStream(tm), our Platform-as-a-Service technology. hStream technology enables healthcare organizations and their respective workforces to easily connect to and gain value from the growing HealthStream ecosystem of applications, tools, and content.

Financial Outlook for 2020

The Company continues to believe that the extent, timing, and duration of COVID-19's negative impact on its operating results and financial condition will be driven by many factors, including the length and severity of the COVID-19 pandemic and the impact of the pandemic on economic activity, particularly with respect to healthcare organizations. As a result of the unpredictable and evolving environment related to the COVID-19 pandemic, at this time the Company cannot reasonably quantify the impact that the pandemic will have on its operating and financial results for the remainder of 2020. Due to this continued uncertainty, the Company is not providing 2020 guidance in this earnings release.

"At mid-year 2020, it appears that the coronavirus pandemic is on a dramatic upswing in the U.S., pressing healthcare providers with continued excessive demand to address the needs of COVID-19 patients," said Robert A. Frist, Jr., Chief Executive Officer, HealthStream. "Our commitment to support them remains strong as everyone faces great uncertainty, which I believe is understandably resulting in some delayed purchasing decisions."

A conference call with Robert A. Frist, Jr., Chief Executive Officer, Scott A. Roberts, Chief Financial Officer and Senior Vice President, and Mollie Condra, Vice President of Investor Relations and Corporate Communications, will be held on Tuesday, July 28, 2020, at 9:00 a.m. (ET). To listen to the conference, please dial 877-647-2842 (no conference ID needed) if you are calling within the domestic U.S. or Canada. If you are an international caller, please dial 914-495-8564 (no conference ID needed). The conference may also be accessed by going to http://ir.healthstream.com/events.cfm for the simultaneous Webcast of the call, which will subsequently be available for replay. The replay telephone numbers are 855-859-2056 (conference ID #8148633) for U.S. and Canadian callers and 404-537-3406 (conference ID #8148633) for international callers.

Use of Non-GAAP Financial Measures

This press release presents adjusted EBITDA from continuing operations and adjusted EBITDA, both of which are non-GAAP financial measures used by management in analyzing the Company's financial results and ongoing operational performance.

In order to better assess the Company's financial results, management believes that net income before interest, income taxes, stock based compensation, depreciation and amortization, changes in fair value of non-marketable equity investments, and the de-recognition of non-cash royalty expense resulting from our resolution of a mutual disagreement related to various elements of a past partnership which resulted in a reduction to cost of sales in the first quarter of 2020 ("adjusted EBITDA") is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain non-cash and non-operating items. Management also believes that adjusted EBITDA from continuing operations is a useful measure for evaluating the operating performance of the Company because such measure excludes the results of operations of the PX business that we no longer own and the gain on sale in connection with the sale of such business in February 2018 and thus reflects the Company's ongoing business operations and assists in comparing the Company's results of operations between periods. We also believe that adjusted EBITDA and adjusted EBITDA from continuing operations are useful to many investors to assess the Company's ongoing results from current operations. Adjusted EBITDA and adjusted EBITDA from continuing operations are non-GAAP financial measures and should not be considered as measures of financial performance under GAAP. Because adjusted EBITDA and adjusted EBITDA from continuing operations are not measurements determined in accordance with GAAP, such non-GAAP financial measures are susceptible to varying calculations. Accordingly, adjusted EBITDA and adjusted EBITDA from continuing operations, as presented, may not be comparable to other similarly titled measures of other companies and have limitations as analytical tools.

These non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance, which are prepared in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review the reconciliations of our GAAP to non-GAAP financial measures, which are set forth below in this release.

About HealthStream

HealthStream (Nasdaq: HSTM) is dedicated to improving patient outcomes through the development of healthcare organizations' greatest asset: their people. Our unified suite of solutions is contracted by healthcare organizations across the U.S. for workforce development, training & learning management, talent management, credentialing, privileging, provider enrollment, performance assessment, and managing simulation-based education programs. Based in Nashville, Tennessee, HealthStream has additional offices in Jericho, New York; Boulder, Colorado; Denver, Colorado; San Diego, California; Chicago, Illinois; and Portland, Oregon. For more information, visit http://www.healthstream.com or call 800-521-0574.

HEALTHSTREAM, INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Revenues, net $ 60,553 $ 63,781 $ 122,125 $ 128,967

Operating costs and expenses:

Cost of revenues(excluding depreciation 22,935 26,806 43,294 53,667 and amortization)

Product development 7,830 7,640 15,298 14,567

Sales and marketing 8,236 9,819 17,424 19,340

Other general and 10,098 10,306 19,963 20,276 administrative expenses

Depreciation and 7,150 6,942 14,599 13,480 amortization

Total operating costs and 56,249 61,513 110,578 121,330 expenses



Operating income 4,304 2,268 11,547 7,637



Other income, net 199 852 1,906 1,674



Income from continuingoperations before income 4,503 3,120 13,453 9,311 tax provision

Income tax provision 1,061 719 2,920 2,130

Income from continuing 3,442 2,401 10,533 7,181 operations

Discontinued operations:

Gain on sale of - - - 1,620 discontinued operations

Income tax provision - - - 426

Income from discontinued - - - 1,194 operations

Net income $ 3,442 $ 2,401 $ 10,533 $ 8,375



Net income per share - basic:

Continuing operations $ 0.11 $ 0.07 $ 0.33 $ 0.22

Discontinued operations - - - 0.04

Net income per share - $ 0.11 $ 0.07 $ 0.33 $ 0.26 basic



Net income per share - diluted:

Continuing operations $ 0.11 $ 0.07 $ 0.33 $ 0.22

Discontinued operations - - - 0.04

Net income per share - $ 0.11 $ 0.07 $ 0.33 $ 0.26 diluted



Weighted average sharesof common stock outstanding:

Basic 31,997 32,394 32,166 32,366

Diluted 32,025 32,434 32,191 32,406

HEALTHSTREAM, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

June 30, December 31,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 112,534 $ 131,538

Marketable securities 31,989 41,328

Accounts and unbilled receivables, net 33,865 30,376

Prepaid and other current assets 20,292 21,330

Total current assets 198,680 224,572



Capitalized software development, net 23,250 21,445

Property and equipment, net 22,936 26,065

Operating lease right of use assets, net 28,422 29,615

Goodwill and intangible assets, net 180,213 162,277

Deferred tax assets 269 269

Deferred commissions 17,024 17,645

Other assets 7,031 7,656

Total assets $ 477,825 $ 489,544



LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable, accrued and other liabilities $ 26,316 $ 39,674

Deferred revenue 66,126 65,511

Total current liabilities 92,442 105,185

Deferred tax liabilities 13,491 13,183

Deferred revenue, non-current 1,609 1,918

Operating lease liability, noncurrent 29,388 30,733

Other long-term liabilities 1,471 357

Total liabilities 138,401 151,376



Shareholders' equity:

Common stock 280,746 290,021

Accumulated other comprehensive income 1 4

Retained earnings 58,677 48,143

Total shareholders' equity 339,424 338,168

Total liabilities and shareholders' equity $ 477,825 $ 489,544

HEALTHSTREAM, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Six Months Ended

June 30, June 30,

2020 2019

Operating activities:

Net income $ 10,533 $ 8,375

Income from discontinued operations - (1,194 )

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,599 13,480

Stock based compensation 1,107 3,074

Amortization of deferred commissions 4,254 4,201

Deferred income taxes 2,427 2,066

Provision for doubtful accounts 351 48

Loss (gain) on equity method investments 50 (69 )

Non-cash royalty expense (3,440 ) -

Change in fair value of non-marketable equity (1,181 ) - investments

Other 121 (84 )

Changes in assets and liabilities:

Accounts and unbilled receivables (3,759 ) 12,019

Prepaid and other assets (2,006 ) 716

Accounts payable, accrued and other liabilities (9,755 ) (6,354 )

Deferred revenue 231 329

Net cash provided by operating activities 13,532 36,607



Investing activities:

Business combinations, net of cash acquired (21,449 ) (18,018 )

Proceeds from sale of discontinued operations - 6,222

Changes in marketable securities 9,241 (6,121 )

Proceeds from sale of fixed assets - 12

Payments to acquire non-marketable equity (1,000 ) (3,342 )investments

Purchases of property and equipment (1,268 ) (19,598 )

Payments associated with capitalized software (7,619 ) (8,374 )development

Net cash used in investing activities (22,095 ) (49,219 )



Financing activities:

Proceeds from exercise of stock options - 214

Taxes paid related to net settlement of equity (373 ) (985 )awards

Payment of earn-outs related to prior acquisitions - (37 )

Repurchases of common stock (10,009 ) -

Payment of cash dividends (31 ) (52 )

Net cash used in financing activities (10,413 ) (860 )



Effect of exchange rate changes on cash and cash (28 ) - equivalents

Net decrease in cash and cash equivalents (19,004 ) (13,472 )

Cash and cash equivalents at beginning of period 131,538 134,321

Cash and cash equivalents at end of period $ 112,534 $ 120,849

Reconciliation of GAAP to Non-GAAP Financial Measures^(1)

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

GAAP income from continuing $ 3,442 $ 2,401 $ 10,533 $ 7,181 operations

Interest income (237 ) (884 ) (831 ) (1,674 )

Interest expense 25 30 50 51

Income tax provision 1,061 719 2,920 2,130

Stock based compensation 557 2,558 1,107 3,074 expense

Depreciation and 7,150 6,942 14,599 13,480 amortization

Change in fair value ofnon-marketable equity (29 ) - (1,181 ) - investments

Non-cash royalty expense - - (3,440 ) -

Adjusted EBITDA from $ 11,969 $ 11,766 $ 23,757 $ 24,242 continuing operations



GAAP net income $ 3,442 $ 2,401 $ 10,533 $ 8,375

Interest income (237 ) (884 ) (831 ) (1,674 )

Interest expense 25 30 50 51

Income tax provision 1,061 719 2,920 2,556

Stock based compensation 557 2,558 1,107 3,074 expense

Depreciation and 7,150 6,942 14,599 13,480 amortization

Change in fair value ofnon-marketable equity (29 ) - (1,181 ) - investments

Non-cash royalty expense - - (3,440 ) -

Adjusted EBITDA $ 11,969 $ 11,766 $ 23,757 $ 25,862

(1) This press release contains certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA from continuing operations, which are used by management in analyzing its financial results and ongoing operational performance.

This press release includes certain forward-looking statements (statements other than solely with respect to historical fact), including statements regarding expectations for financial performance for 2020 as well as the anticipated impact of the COVID-19 pandemic on our financial results, that involve risks and uncertainties regarding HealthStream. These statements are based upon management's beliefs, as well as assumptions made by and data currently available to management. This information has been, or in the future may be, included in reliance on the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements, including, without limitation, as the result of developments related to the COVID-19 pandemic, such as the length and severity of the pandemic; business and economic conditions resulting from the pandemic; the impact on the pandemic on healthcare organizations; measures we are taking to respond to the pandemic; the impact of governmental action and regulation in connection with the pandemic (including the CARES Act); the timing and availability of effective medical treatments and vaccines; potential workforce disruptions; and the disruption in capital and financial markets; as well as risks referenced in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 26, 2020 and the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020 filed on April 30, 2020, and in the Company's other filings with the Securities and Exchange Commission from time to time. Consequently, such forward-looking information should not be regarded as a representation or warranty or statement by the Company that such projections will be realized. Many of the factors that will determine the Company's future results are beyond the ability of the Company to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. The Company undertakes no obligation to update or revise any such forward-looking statements.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200727005652/en/

CONTACT: Scott A. Roberts Chief Financial Officer (615) 301-3182 ir@healthstream.com

CONTACT: Media: Mollie Condra, Ph.D. Vice President, Investor Relations & Communications (615) 301-3237 mollie.condra@healthstream.com