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HealthStream Announces Third Quarter 2018 ResultsHealthStream, Inc. (NASDAQ: HSTM), a leading provider of workforce and provider solutions for the healthcare industry, announced today results for the third quarter ended September 30, 2018. In the following bullet-point highlights, (i) all results are from continuing operations only (i.e., 2017 and 2018 results exclude the gain on the sale of our divested Patient Experience business segment which was completed in February 2018 and the results of operations of such segment prior to this divestiture) and (ii) 2018 results are presented in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), whereas results for 2017 are presented in accordance with ASC 605.
Financial Results: Revenues for the third quarter of 2018 increased by $5.2 million, or 9 percent, to $59.9 million, compared to $54.7 million for the third quarter of 2017.
Revenues from our HealthStream Workforce Solutions segment were approximately $49.1 million for the third quarter of 2018, compared to $44.6 million for the third quarter of 2017. Revenue growth of $4.5 million from our workforce solutions products was primarily a result of an increase in subscription-based product revenues, including higher revenues from our resuscitation and compliance products. Revenues from our HealthStream Provider Solutions segment were approximately $10.8 million for the third quarter of 2018, compared to $10.1 million for the third quarter of 2017. Revenue growth of $657,000, net of related deferred revenue write-downs, was primarily a result of professional services revenues from Morrisey Associates, Inc. (MAI), which we acquired in August 2016. Generally accepted accounting principles (GAAP) require companies to write down beginning balances of acquired deferred revenue balances as part of "fair value" accounting as defined by GAAP. During the third quarter of 2018, HealthStream reported a reduction of $703,000 to operating income and a reduction of $519,000 to net income as a result of deferred revenue write-downs from prior acquisitions. During the third quarter of 2017, HealthStream reported a reduction of $146,000 to operating income and a reduction of $87,000 to net income as a result of deferred revenue write-downs from prior acquisitions. The table reconciling GAAP to non-GAAP financial measures included in this release shows the impact of beginning balance deferred revenue write-downs on operating income and net income during the three and nine months ended September 30, 2018 and 2017. Operating income was $4.7 million for the third quarter of 2018, up 71 percent from $2.7 million for the third quarter of 2017. Operating income was positively impacted by the increase in revenue and by the application of ASC 606 as noted above. The positive impact of these items on operating income was partially offset by higher operating expenses associated with increased royalties, amortization, and personnel costs and by the increased amount of deferred revenue write-downs in the third quarter of 2018 compared to the 2017 period. Income from continuing operations was $3.0 million in the third quarter of 2018, up 75 percent from $1.7 million in the third quarter of 2017. Income from continuing operations was positively impacted by the increase in revenue and the application of ASC 606 as noted above, partially offset by a decline in fair value of a minority equity investment accounted for under the cost method of accounting of $938,000, net of tax, and the increased amount of deferred revenue write-downs in the third quarter of 2018 compared to the 2017 period. EPS from continuing operations was $0.09 per share (diluted) in the third quarter of 2018, compared to $0.06 per share (diluted) for the third quarter of 2017. Net income (from continuing and discontinued operations) was $3.0 million in the third quarter of 2018, compared to $2.5 million in the third quarter of 2017. Earnings per share (diluted) were $0.09 per share for the third quarter of 2018, compared to $0.08 per share (diluted) for the third quarter of 2017. Adjusted EBITDA from continuing operations increased to $11.1 million for the third quarter of 2018, compared to $9.1 million for the third quarter of 2017. The application of ASC 606 had a positive impact of $1.1 million on Adjusted EBITDA from continuing operations during the third quarter of 2018. Adjusted EBITDA (from continuing and discontinued operations) was $11.1 million for the third quarter of 2018, compared to $11.0 million for the third quarter of 2017. At September 30, 2018, the Company had cash and cash equivalents and marketable securities of $174.3 million. Capital expenditures incurred during the third quarter of 2018 were approximately $4.1 million. At September 30, 2018, we had approximately 4,827,000 total subscribers implemented to use and 4,852,000 total subscribers contracted to use our subscription-based solutions. "Contracted subscribers" include both those already implemented and those under contract that are in the process of implementation. Revenue recognition generally commences when a contract is implemented.
Year-to-Date 2018 Compared to Year-to-Date 2017
Financial Impact of Adopting ASC 606
2018 Events
Management Team Announcements To ensure a smooth transition following Mr. Hayden's departure as CFO, Scott A. Roberts, HealthStream's Vice President, Accounting & Finance, will serve as Interim CFO. Mr. Roberts, who is a Certified Public Accountant, joined HealthStream 16 years ago after working at Ernst & Young. His broad experience in public financial reporting and deep knowledge of financial operations, both in general and Company-specific terms, makes him particularly qualified to serve as an Interim CFO and as a candidate to fill the position permanently.
Financial Outlook for 2018 The historical financial results of the PX business for periods prior to the closing of this transaction are reflected in the Company's consolidated financial statements as discontinued operations. Accordingly, this financial outlook for 2018 is for continuing operations only and does not include (a) the gain on the sale of our PX business, which we completed on February 12, 2018, or (b) the results of our PX business during 2017, or the period in 2018 prior to the sale of such business, for this financial outlook. Consistent with our most recent earnings release issued on July 23, 2018, we are presenting our updated 2018 financial outlook utilizing ASC 606 with respect to our anticipated 2018 results in light of the fact that our 2018 results are being presented under ASC 606. For 2018, we continue to anticipate that consolidated revenues will increase six to eight percent as compared to 2017. We continue to anticipate that revenue growth in our Workforce Solutions segment will be in the four to six percent range and our Provider Solutions segment to grow 10 to 20 percent when compared to 2017. We anticipate operating income for 2018 to increase between 45 and 60 percent as compared to 2017. We anticipate that capital expenditures will be approximately $19 million during 2018. We expect the annual effective income tax rate to range between 20 and 22 percent for 2018. This guidance does not include the impact of any acquisitions or strategic investments that we may complete during 2018. "As our CFO for the last decade and as a board member for two years prior to that, Gerry Hayden has served the Company extraordinarily well and his leadership has been instrumental in the Company's growth," said Robert A. Frist, Jr., Chief Executive Officer. "Gerry has been and will continue for the next several months to be a valuable member of our executive team. The standard he has set is one of the utmost integrity and commitment. We are grateful for his service and wish him success in whatever future endeavors he chooses to pursue." A conference call with Robert A. Frist, Jr., Chief Executive Officer, Gerard M. Hayden, Jr., Senior Vice President and Chief Financial Officer, and Mollie Condra, Vice President of Investor Relations and Corporate Communications, will be held on Tuesday, October 23, 2018, 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 #1996878) for U.S. and Canadian callers and 404-537-3406 (conference ID #1996878) for international callers.
Use of Non-GAAP Financial Measures In order to better assess the Company's financial results, management believes that net income before interest, income taxes, share-based compensation, depreciation and amortization, and changes in fair value of cost method investments ("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. Effective January 1, 2018, the Company adopted ASU 2016-01, which (among other things) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. During the three months ended September 30, 2018, the Company recorded a reduction to net income and net income from continuing operations from a change in the fair value of a minority equity investment accounted for under the cost method of accounting. The Company has included this adjustment in the calculation of adjusted EBITDA, and intends to continue to include any positive or negative changes in fair value of cost method investments in the calculation of adjusted EBITDA on a prospective basis, because management believes that such changes do not represent the ongoing operational performance of the Company. 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 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. In recent years, the Company has acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, following the completion of any such acquisition, the Company may record a write-down of deferred revenue to fair value as defined by GAAP. If the Company is required to record a write-down of deferred revenue, it may result in lower recognized revenue, operating income, and net income in subsequent periods. In connection therewith, this release presents below non-GAAP operating income and non-GAAP net income, which in each case reflects the corresponding GAAP figures adjusted to exclude the impact of the deferred revenue write-down associated with fair value accounting for acquired businesses as referenced above. Management believes that the presentation of these non-GAAP financial measures assists investors in understanding the Company's performance between periods, excluding the impact of this deferred revenue write-down, and provides a useful measure of the ongoing performance of the Company. Both on a quarterly and year-to-date basis, the revenue for any acquired business is deferred and typically recognized over a one-to-two year period following the completion of an acquisition, so our GAAP revenues for this one-to-two year period will not reflect the full amount of revenues that would have been reported if the acquired deferred revenue had not been written down to fair value. 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
This press release includes certain forward-looking statements (statements other than solely with respect to historical fact), including statements regarding expectations for the financial performance for 2018, 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 risks referenced in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 26, 2018, 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/20181022005794/en/ |