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Operating expenses, acquisitions keep HealthStream earnings flat


By Rachel Landen
Posted: April 22, 2014 - 2:45 pm ET
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HealthStream's revenue for the first three months of 2014 benefited from increased subscriber use of ICD-10 training products but increased operating expenses and acquisition costs kept earnings flat, the Nashville-based company reported Monday.

A provider of Internet-based learning and research programs for healthcare organizations, HealthStream reported $38.3 million in revenue for the first quarter of 2014, a 29% improvement from revenue of $29.6 million in the same period last year.

That jump was due, in large part, to the addition of subscribers to the company's platform applications and its courseware. Revenue from courseware associated with ICD-10 training touched about $6.6 million for the quarter, up from $5 million in the previous quarter and $2 million in the year-ago quarter.

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Despite the revenue boost, HealthStream's net income remained stagnant at $1.9 million for the first quarter, the same as it was in the first quarter of 2013. Management in part blamed increased operating expenses associated with higher royalties, personnel additions, sales commissions, depreciation and amortization for the flat earnings.

Another $350,000 in one-time transaction costs associated with HealthStream's recent acquisition of Health Care Compliance Strategies further cut into the company's bottom line. Those acquisition costs translated into a penny per share earnings impact, the company said. “Thus, earnings per share were even stronger than they appear at first blush, in our view,” William Blair & Co. analyst Ryan Daniels wrote. Earnings per share stood at $0.07 for the quarter.

HealthStream purchased HCCS in March for approximately $13 million in cash and $2.4 million in shares of HealthStream's common stock, plus an additional $750,000 in cash that is subject to the achievement of certain performance milestones.

Despite Congress' decision to postpone ICD-10 implementation until at least 2015, Daniels thinks the company's revenue should continue to climb.

“We expect this growth to remain fairly solid through the recently pushed-out deadline for the new coding initiative,” Daniels wrote in a note to investors. “In fact, we believe the deadline pushout might allow the company to capture additional sales and renewal revenue, while smoothing out the eventual tapering of ICD-10-related revenue.”

The company itself is projecting revenue growth of 25 to 29 percent in 2014 compared with 2013 levels. Also projected is a decrease in operating income of between two and 11% because of costs associated with the acquisition, it said in its earnings release.

Follow Rachel Landen on Twitter: @MHrlanden


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