Tuesday, October 26, 2010

Healthstream ( HSTM - Nasdaq ) - Solid Q3 Results

Healthstream (HSTM $6.00) reported excellent on target Q3 results.  Earnings advanced 50% to $.06 a share, excluding non cash stock option and intangible amortization expense.  (Please refer to out "Accounting Notes" button.)  Sales improved 18% to $16.6 million.  Educational and training products gained 22% and represented 66% of total revenues.  The number of medical workers covered by subscriptions increased by 99,000.  The renewal rate was 100%.  Prices increased by an average of 6% year to year.  Most of that reflected the addition of more content by existing customers.  Healthstream's struggling research business bounced back as expected in the quarter, fueled by beefed up marketing efforts.  That line grew 10% year to year and could post faster gains in upcoming periods.  Project revenues declined, holding back the size of the overall advance.  That segment varies from period to period and is less profitable than the core learning business. 

For the entire year we estimate earnings will finish at $.22 a share, up 22%.  Next year initial contributions from the high potential SimVentures line will emerge.  That should offset the drag exerted this year by the program's development costs, and perhaps generate some incremental profit.  Both the learning and research segments are poised to keep expanding at above average rates.  Overhead expenses are likely to remain steady, enabling earnings to once again grow faster than sales.  We estimate 2011 earnings will attain $.28-.30 a share.  Longer term, explosive gains are achievable if the SimVentures effort realizes its potential.

(Click on table to enlarge)

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