HealthStream Inc (HSTM) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and full-year 2009 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions).

I would now like to introduce your host for today's conference, Robert A. Frist, CEO and Chairman.

Good morning, thank you, and welcome to our fourth quarter and full-year 2009 earnings conference call. Also in the room with me are Gerry Hayden, Senior Vice President and CFO, and Mollie Condra, Associate Vice President of Communications, Research, and Investor Relations. Gerry, would you please read the forward-looking statements?

Sure, Bobby. Good morning. This conference call will contain forward-looking statements regarding future events in the performance of HealthStream that involve risks and uncertainties that could cause the actual results to differ materially from those projected in the forward-looking statements. Information containing these risks and other factors that could cause 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, Gerry. This is an exciting report to give. When we reflect back on this last year, it's easy to say that many records were broken throughout the course of the year and in particular, during the fourth quarter of the year. Hitting a nice milestone of $15.1 million in top line establishes a top-line revenue record for the company overall. Building underneath that were tremendous and strong operational metrics. For example, during the year we added 261,000 employees to our Learning Platform. And over 99,000 were contracted during the fourth quarter. So, both implementations and contracted added subscribers were very strong throughout the year.

And generally we speak of a goal of 20,000 to 50,000 per quarter; clearly the 99,000 in the fourth quarter surged above what our general target and goals for adding subscribers to our Learning Platform. The renewal rates were equally impressive for the year, with 99% of those up for renewal during the fourth quarter renewing, and the contract value showing a little bit of pricing power,;109% in contract value during the fourth quarter. Full-year also impressive, both in excess of 100%. 102% for the subscriber base, and 103% for the contract value. Again, that reflects that -- a little bit of pricing power, so that those that did renew we got a slightly higher price for, and at institutions that renew they added subscribers on net. So, both exciting numbers looking back at renewal rates.

The activity on the Learning Platform continues to grow. It's fun to look back at old metrics that we used to track like page loads. Over 1.9 billion pages were served out of our platform in the last 12 months during the year. And over 20 million course completions during that same time frame. 34 million log-ins to the platform during the year, shows that our core infrastructure is strong and robust and serves our customers well. It's also fun to note that our service levels are improving, which are -- I believe reflected in our strong renewal rates. Over 5,170 customer sat surveys were issued throughout the year after being contacted in our call center for support. We scored a 3.8 out of 4 stars on those surveys in -- on aggregate across 5,170 customer satisfaction surveys. So I think the service levels are high, which is again, reflected in the renewal rates, and we're still attracting new customers to the core platforms which is all very exciting.

Across our research business, a little more challenged on the growth side. The highly recurring revenue of the patient satisfaction research that we do, grew in excess of 17% in the fourth quarter alone, which is good because about 55% of the full-year revenues for our research operations come from the recurring revenue of the patient-satisfaction surveys. So to see that line grow was encouraging. On the other hand, the more elective employee surveying, physician opinion surveying was down, and offset the growth in the patients. So, a bit of a disappointment there. We hope that we'll see people come back and cycle back up in the next year. Those slightly more elective forms of research that we conduct.

Good steady sales performance, and throughout the year we were -- added to our research sales organization. We added over 69 customers while also building the sales organization itself. So we're very excited to see, and I think we're well positioned for research growth entering into the next year. In fact, if you look at our guidance you'll see that we have forecasted growth in excess of 10% next year for our research business. So it'll be good to get that back on track. And slightly higher growth is forecasted for our learning business for next year. At this time, I'll turn it over to Gerry for a little bit more of a dive into the financials.

Thank you, Bobby. And good morning, everyone. The financials reflect much of the same information that Bobby just mentioned. The leverage in our company is apparent. If you look at the revenue growth over all, it's 11% for the year, for 2009 over 2008. But operating income more than doubled and EBITDA, another measure of profitability for us grew by a very healthy 35%. The margins of operating EBITDA also showed the same trends. Operating margin improved from 4.8% in 2008 to 8.9% in 2009, and the EBITDA margin went from 15.6% to about 19%, so the same -- the same leverage showed both in the numbers and the relative growth rates.

You saw the press release that we released, the valuation allowance against our deferred tax assets, which we believe is another indication of our growing financial strength. As we made that decision, and considered releasing the evaluation allowance against the deferred tax assets, we came to the conclusion we have a sustainable level of profitability (inaudible) losses will be utilized over the course of the next foreseeable future against our taxable income. The best way to state the -- the tax situation in -- it's very positive is that we have profitability, but the NOLs are $32 million on the federal side and traditionally on the state side mean (inaudible) cash taxes for the future. In -- our (inaudible) show income tax expense in the future. We'll be discussing that as time goes on, and be focusing a lot on operating income and EBITDA, which are the measures that have not -- that will not change before or after the whole income tax accounting change. So, we'll have a lot of information on that, but once again one more indication of our growing financial -- our strength.

And the best way to summarize this year, look ahead a little bit, is the balance sheet. The cash balance has improved by -- grown by $8.2 million year-over-year to over $12 million as of the end of the year. We have no debt on the balance sheet per se, so we're very well positioned from a capital standpoint for growth and development, which we're very excited about. We also have enough room in the capital structure as you saw on the press release we introduced considering another share repurchase program up to about $4 million. So we felt very confident we had enough room for both growth and the ability to try to maximize shareholder returns by looking for opportunities to buy -- do some share repurchasing if the time is right. So overall, we -- very strong year, but more importantly, we're very well poised to go forward into 2010 and beyond.

Thank you, Gerry. It's exciting to come off a challenging global economic year and have, really record performance. It's a testament to the teams at HealthStream and how we pursued the market. We have an exciting year in front of us as well, forecasting growth in revenues and profits. Both of our core businesses are expected to launch new products throughout the year. For HealthStream Learning, we have the HealthStream Competency Center, which continues to gain a little bit of traction in the first half of this year, we're looking forward to a stronger second half. We added over 4,500 subscribers to the Competency Center platform during the fourth quarter. So it's a small -- hopefully a small indicator of great things to come, and very excited to see that product continue to evolve.

For HealthStream Research, the HealthStream Improvement Center, which was announced in the fourth quarter will launch during the first quarter. The Improvement Center is a set of tools that is web-based ASP-delivered that allows for action planning around the results of your survey. So it's exciting to see the research business launch recurring revenue products that will be used by our customers that are web delivered in the planning on how to take action to improve results after receiving their survey results. So we see a movement in both research and learning to add more subscription-based recurring revenue, web-based tool sets. And those two tools, I'm looking forward to contributions from them in the second half of the year. But you can already see some sales coming in on them now.

I'd like to take a moment to thank Dr. Jim Daniell. Jim Daniell is one of our longest-standing serving Board members. He served the Company and its shareholders for over 15 years, and provided a guiding light and great depth of knowledge of the healthcare industry to management and represented shareholders very well with his objectivity and support for our mission and vision. Thank you, Dr. Jim Daniell for your service. He will serve on the Board until the reelection period, which is our annual shareholder meeting in May. So I appreciate his continued service through May. And we're proud of his association with our company over the past 15 years.

I would also like to congratulate Michael Sousa. You may have noted in the press release that one of our rising stars in the company that has helped develop some of our largest accounts successfully,growing revenues, focused on retention and development of those accounts is Michael Sousa. Michael, in January, was promoted from Vice President of Learning in the sales organization, to a Senior Vice President responsible for the learning sales organization, and the strategic accounts program across the entire company. Congratulations to Michael Sousa and welcome to the Senior Executive team.

I would like to mention two other things -- or one other thing, the summit -- our annual customer summit will return in May of this year, the 17th through the 20th, and we invite those that are interested in seeing our products and services and our excited customer base to come to the summit. That's May 17th through the 20th. We already have over 400 paid registrants to attend the summit and looking forward to that number growing over the next few months as we further promote it to our base. So, very excited to have 400 leading educators in award-winning healthcare organizations that have been recognized for their excellence in patient care through our survey work coming to celebrate their accomplishments and share best practices. So we're very excited about reinvigorating the summit program.

And finally, thank you to all of our employees. Many records were broken in almost all categories of operational and financial metrics. We started the year by tightening all of our financial controls, and I think that that has resulted in a stronger company coming out the back end of 2009 as we enter 2010. I thank those employees for helping make all this happen and I look forward to 2010. At this time, I'd like to turn it over for questions.

Thank you. (Operator instructions). And our first question comes from Vincent Colicchio from Noble Financial.

Good morning. Nice quarter, guys.

Thanks, Vince.

Thank you.

Bobby, just -- you know, you had a very good year in terms of subscriber growth and the new platform clearly was a factor. Could you remind us of what the clients like about the new platform and how that helped you improve traction?

Yeah, Vince, I would say that the stability is the number one focus of our customers. Reliability and stability, meaning the primary use of our platform in employee development is tracking performance, and when these hospitals get audited by the joint commission, and they need to pull up an employee's record, the -- right there on the spot in front of that reviewer -- our system has to be reliable and perform it and give them the data that they need in a timely fashion. I think in spite of adding over a quarter million implemented subscribers, we've been able to deliver that stability, and the new platform we put in place a little over two years ago is a core reason for that stability and power that underlies the platform. Our customers want reliability and stability almost above all else.

Obviously a key element to the customer experience. Another topic -- moving to, you know, research. Research has been a tough business to predict for you, it's sort -- rather lumpy in terms of the nonrecurring product side. How comfortable are you with the outlook for 2010? And also is there anything you can do to improve predictability in that business?

Yes, Vince, couple of things there. One, we have forecasted the 10% to 12% top-line growth for research. We're confident of that growth. You know, it's subject to obviously the greater environment, but we see some improvement during the fourth quarter in selling the recurring revenue. The things we'll do to improve that business, we'll see an increased focus on the recurring revenue, which means regulated patient satisfaction surveying, which is called the HCAHPS survey. Again, its kind of mandated and it has a very recurring nature to it and that's now 55% of the research business. So we're excited to see that part growing.

The second thing is our new products, and I've announced one in the fourth quarter that will be launched in the first quarter called the HealthStream Improvement Center. These are some of the first web-based tools to be sold by the research organization to customers that are planning-based tools. And so, we're excited to see them launch software as a service applications around the utilization and dissemination of action planning around their survey results. So, a new product to sell. We have another set of new products that we'll be announcing in the next conference call for research that have the same nature to them. So new products, and -- an increased focus on the recurring revenue patients at business are the two ways we hope to reduce the lumpiness and the variability.

And, Gerry one for you. Cash from operations in the quarter, do you have that number?

I do not have it in front of me. I will get that for you, though.

Okay. I'll go back in the queue. Nice quarter, guys.

Thank you.

(Operator instructions). And our next question comes from Harvey Poppel from Poptech LP.

Yes, congratulations on a great year. Just one comment and one question. The comment is, I really would appreciate in your press releases going forward, if you could include quarter-to-quarter or sequential comparisons especially on the subscribers under contracts statistics, because I find myself, and I'm sure others do this too, really trying to monitor your quarterly progress in what isn't a highly seasonal business, it's difficult. I always have to go back to my notes and figure that out. So, that's the comment. As far as the question, it's really longer range. 2010, your forecast certainly looks very promising. How much longer do you see -- how much runway do you have in the marketplace? For example, to continue to sustain double-digit growth?

Well, you know, our forecast carries us out one year, as you know. We certainly have built three-year strategic plans that reflect continued growth. I think one of the keys to continued growth in the double-digit range are the continued introduction of new and exciting products. Some of those products that we're most excited about I have mentioned earlier.

I would also say in the content category, we're getting increasing traction on our partnership with Laerdal Corporation, one of the world's leading -- or the world's leading provider of medical simulation training. And their products, the BLS training products, and ACLS training products are gaining real traction in the market. We think the traction on that product alone can help continue drive growth beyond the 2010 forecast. So, in summary the introduction of new products, the continue propulsion of products like the Laerdal BLS/ACLS will drive growth hopefully in the double digits for the foreseeable future. Of course our current forecast, my caveat to that, is that our current forecast only extends for 2010.

Yes, I understand that. Thank you very much.

Thank you.

Our next question comes from the line of Steven Hart from Heller Capital.

Hi, guys. Bobby, a job well done again.

Thank you, Steven, and to the whole team. It was a good year in a tough environment. We appreciate you recognizing that.

Yes. On the financial outlook for 2010, I know that in the past you have issued, I think, EPS guidance. I'm reading from the press release here about the effective income tax applied to pre-tax income will be between 40% and 42%, but your NOLs are 32 and 26 federal and state. Is that -- are those inputs clouding your EPS calculation, or can you -- can you give us an EPS calculation?

Steve this is Gerry, how are you?

Hi. Good, Gerry.

Couple of things. We tried -- in the guidance tried to focus on what would not change before and after the income taxes, and the most prevalent things, of course revenue growth, operating income, EBITDA. The -- the income taxes -- there's two things to keep in mind in this -- it is kind of mutually exclusive. The most important one is the NOLs that we have on the books will minimize, eliminate our cash taxes paid. So what we have -- what we have to work with is, you know, the GAAP (inaudible) accounting principals, and those requirements for how we report income taxes, and so we will have income taxes on the income statement for financial reporting purposes while not paying cash taxes say to the governments, federal or state.

So, we want to get through to the first quarter, and try to get some guidance on what we think we might -- you know, in a general way with net income, but be more precise as the first quarter comes out, and also give some kind of pro forma comparisons against the prior year. But the emphasis I would suggest people take is the economics of the company haven't changed. We don't pay cash taxes, but the best barometers of how to measure that economic progress, would be operating income and EBITDA, which once again remain unchanged before or after the income tax accounting.

Great. So we'll -- we'll be -- from an investor and analyst perspective is probably the -- the best way to measure, I guess on a multiple, is it using this -- I guess what you are calling an adjusted EBITDA number, which in 2009, you generated $10.9 million, is that right?

Yes, that would be one of the metrics that might be under consideration. And the other one, of course would be operating income, which you see on the face of the income statement. That was $5.1 million in 2009.

Okay. Great. All right. Thanks very much, guys.

Thank you.

Thanks, Steven.

(Operator instructions). And I'm showing no further questions in the queue.

Thank you. We'll go ahead and conclude the conference call. We do appreciate the continued support of those investors on the line. And again, congratulate our employees for their performance in 2009 and look forward to our next report in early 2010. Thank you all, and see you soon.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.