HealthStream Inc (HSTM) 2004 Q3 法說會逐字稿

Good day and welcome to the HealthStream's third quarter earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to HealthStream's Chief Executive Officer, Mr. Robert A. Frist Jr. Please go ahead Sir.

Thank you. Good morning and welcome to our third quarter 2004 earnings conference call. Also in the room with me are Art Newman, Senior Vice President and CFO; Susan Brownie, Vice President of Finance and Human Resources and Mollie Condra, Director of Communications and Investor Relations. Art, would you read the forward-looking statement, please.

Sure Bob. This conference call will contain forward-looking statements regarding the future events and the future performance of HealthStream's that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements.

Information concerning these risks and other factors that could cause the results to differ materially from those forward-looking statements are contained in the company's filings with the SEC, including Forms 10-K and 10-Q.

Thank you, Art. Good morning, it's exciting time for HealthStream. We're glad to present our third quarter results. I want to cover some of the key metrics that -- and accomplishments achieved during the third quarter and then, towards the end of the conference call, I'll talk a little bit about the future looking into next year.

A couple of metrics, first HealthStream crossed into the 1 million marker from a contracted subscriber base and at the end of the third quarter we have 987,000 fully implemented subscribers. If you recall, that number is the number that are the billing -- where billing has begun and we've begun to recognize revenue on the 987,000. We're looking to, in the fourth quarter reporting that that number has crossed into the million mark as well.

We also had record implementations in the quarter up over 14% over the prior quarter, we added 123,000 activated users to our platform, including almost 80,000 from Tenet Healthcare, which was an exciting new account won in the middle to late second quarter. So, now they're fully activated up and we've begun revenue recognition on that account throughout the third quarter.

Approximately 15 million courses have been completed on our platform as of yesterday. We're averaging approximately 30,000 course completions per day on the HealthStream Learning Center. We continue to see growth in the utilization metrics at HealthStream. And then those kinds of metrics have turned into the strongest financial quarter that we've ever reported.

We wrapped up the quarter with record top line revenue of 5 million and that reflects growth over the prior quarter and this year and the same quarter in the prior year. And net loss also improved to a record low. We lost $177,000 which is an improvement of $450,000 from the same period in the prior year.

I'd like to talk little bit about our adoption rates on our new products. We've seen some really exciting traction of some of our new products. First is HealthStream Express, which is the streamlined economy scale version of our platform, which continues to be adopted at a rapid pace. It's more than doubling from our June 30th results. We've reached over 100 healthcare organizations with this product in the brief time since its introduction, I believe, in mid January.

And that product also carries a two-day implementation cycle. So revenue recognition starts almost immediately with the Express platform. We're very excited about that. That product targets the smaller acute care hospitals in the market and over 18,000 healthcare professionals have been added to our product and to our learning network through HealthStream Express.

Also in the third quarter, HospitalDirect, a new product that improves medical device training and allows medical device companies to deliver education into our market. We've launched approximately 50 hours of device training and device related education. And concurrently the number of courses completed through HospitalDirect increased to approximately 12,400 and that's up from 5,000 in the prior quarter. So we're starting to see some utilization traction on our new product, HospitalDirect.

I'd like to turn it over to Susan Brownie who will cover in more detail the financial results for the third quarter. Susan?

Thanks, Bobby. Revenues grew by 16% or almost 700,000 during the third quarter of 2004, compared to 2003 and we reached 5 million in top line revenue. The significant changes in revenue includes 670,000 associated with continued growth in our ASP based HealthStream Learning Center product, which represented an increase of 33% over the same quarter during 2003. We also increased by 185,000 associated with content development services, and experienced $180,000 decline in revenues associated with our installed learning management product. Finally, we had approximately 120,000 decline in content subscription revenues.

Revenues are split approximately 70%, 30% between the hospital and pharmaceutical based business during both the third quarter of 2004, the third quarter of 2003, as well as the comparable prior quarter of 2004.

The significant changes in the remainder of the business, which supported our $446,000 improvement in net loss include approximately 320,000 related to the impact of revenue changes, net of direct expenses, approximately 250,000 associated with reduced amortization due to the expiration of estimated useful lives of intangible assets that related to acquisitions completed during 2000. Those were offset by an increase of approximately 150,000 in sales expenses principally associated with additional personnel.

In addition to the financial results that I have highlighted, we've consistently presented two other metrics to help supplement an understanding of our business or financial position. The first metric is our renewal rate. As we announced in the earnings release, our third quarter renewal rate was 84% based on the number of accounts and 83% based on the annual value associated with renewed contracts.

Year-to-date results reflect a renewal rate of 79% based on the number of accounts and 81% based on the annual value of renewed accounts. These rates compare to our account renewal rate of 88% and 78% for annual contract value for renewals during the first three quarters of 2003, but we should add that the volume of accounts up for renewal during 2004 were much higher than that experienced in 2003.

The second metric is days sales outstanding or DSO. As we've detailed in our press release, DSO increased to approximately 55 days for the third quarter of 2004 from approximately 49 days at the end of the second quarter of 2004. And it's up slightly from 50 days for the third quarter of 2003. The decline for the -- over the second quarter resulted from forward collections. We did experience improvement during the first two weeks of October, however, collecting approximately 400,000 of past due balances. Art will now discuss our expectations for the fourth quarter of 2004 and guidance for 2005.

Thanks, Susan. Good morning. Revenues for the fourth quarter of 2004 are expected to approximate between 4. -- excuse me 5.4 and $5.5 million. This represents an increase of between 13% and 15% over the same quarter prior year, an increase of 8% to 10% over the prior quarter. The increases over both the prior year and the prior quarter are expected to come largely from continued growth in the hospital based business, related to the full quarter impact of the Tenet account, as well as the implementation of Henry Ford, Oschner, Corellian (ph), Bon Secours, Emory and other new healthcare learning center agreements.

We expect that the pharmaceutical and medical device business will grow modestly when compared to the prior quarter related primarily to the association business. When compared with the same quarter in the prior year, we expect the pharmaceutical and medical device business levels to be down consistent with the trend that we highlighted in the previous quarters of this year, that being the guidelines that were issued late in 2003 by the office of Inspector General and AdvaMed. As we mentioned in recent quarters, these guidelines have impacted our live events and training business for much of 2004.

We expect full year 2004 revenue growth of approximately 10% over 2003, which will represent approximately $20 million of top line revenues. We expect gross margins to be comparable with the third quarter due to changes in revenue mix. We expect that product development and sales and marketing expenses will grow moderately, primarily associated with additional personnel. We also anticipate minor increases in marketing associated with new content product launches this quarter. And finally general and administrative expenses are expected to decrease due to continued operational and personnel efficiencies.

During 2005, we expect continued growth of our HealthStream Learning Center products, as well as introduction of additional content products. As a result we are current -- currently expect to achieve between 15 and 20% top line revenue growth during 2005. This revenue growth is anticipated to result in achievement of net income profitability during 2005. I'll turn it back to Bobby for some closing comments.

Thank you, Art, Susan and Mollie for helping prepare us for this conference call. The first three-quarters of this year we gained several new clients. We're excited about the traction we're gaining and winning, what I would call the enterprise clients in the acute care market. With the addition of Tenet and Bon Secours, Henry Ford and Emory, we can see gaining great traction in the enterprise size clients in acute care, we're excited about that.

In fact, a couple of those have come directly from competitors, Bon Secours and Henry Ford and we're excited about our progress in getting -- switching over to HealthStream because of the completeness of our solution and we hope to continue to see -- we hope that that trend will continue on.

We also look forward to celebrating with you, our shareholders and interested investors when we cross over the 1 million mark of fully implemented learners. That's a very exciting milestone that represents over 20% of all healthcare professionals that work in acute care, in acute care settings, so it's about 5 million work in US hospitals and we expect to have some form of a celebration and we'll certainly let everyone know when we cross that milestone. It will be an exciting day for HealthStream.

Thinking about next year, our current forecast carries the 15 to 20% top line growth based on our best estimates of new product traction and new content offerings that are coming to market either late this quarter or early next year. We're very excited about that in that range would represent record top line growth for us. If we can stay in that range and again currently we believe we will.

And one other exciting milestone is we do expect to cross into net income positive during 2005. We currently do not have the date for that. We're being a little conservative on putting that date in the ground, probably right after the fourth quarter we'll come out and tell you which quarter next year is the quarter we expect to turn net income positive.

So today is a day of celebration inside of HealthStream for our employees and our customers that are watching us grow and breaking into the 5 million in the quarter revenue mark was an exciting milestone for all of us at HealthStream. I'd like to turn it over for some questions if we have any, if we don't, we'll wrap up the conference call and look forward to presenting to you in the next quarter. I'll turn it over for questions.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the "star" key followed by the digit "one" on your touchtone telephone. If you're using a speakerphone please be sure your mute function is turned off to allow your signal to reach our equipment. Once again that is "star" "one" if you'd like to pose a question at this time.

If there are no questions, we'll wrap up by saying thank you to the employees, thank you to the team at the table here for assembling the metrics for the quarter. We look forward to reporting our results for the fourth quarter in the next conference call. Thank you very much. That concludes our conference call.

Thank you for your participation. A sound byte replay of today's conference call will be available beginning at 11 a.m. Central Time today and will run through November the 27th at midnight Central Time. To access the replay, please dial 888-203-1112 or 719-457-0820. The pass code for the replay will be 815396. The numbers again are 888-203-1112 or 719-457-0820 and the replay pass code is 815396. Thank you for your participation. You may disconnect at this time.