HealthStream is a leading provider of cloud-based software and content solutions for the healthcare industry, focused on developing, credentialing, and scheduling the healthcare workforce. The company's comprehensive suite of SaaS-based applications are designed to improve business and clinical outcomes by supporting the people who deliver patient care.

HealthStream has established itself as a profitable, highly recurring revenue healthcare technology company. For the full year 2023, the company reported annual revenue of $279.1 million, annual net income of $15.2 million, annual operating cash flow of $64.0 million, and annual free cash flow of $36.0 million. This strong financial performance has enabled HealthStream to initiate a quarterly dividend program, with the company recently declaring a $0.028 per share dividend payable in August 2024.

In the second quarter of 2024, HealthStream generated revenues of $71.6 million, up 3.4% year-over-year. Subscription revenues, which account for 96% of total revenues, increased 4% to $69.0 million. The company reported operating income of $4.4 million, up 10.1% from the prior year period, and net income of $4.2 million, up 0.8% year-over-year. Adjusted EBITDA, a key metric for the company, was $15.8 million, an increase of 3.3% compared to the second quarter of 2023.

HealthStream's financial performance in the quarter was impacted by two one-time customer-related events. First, the company experienced a timing anomaly with one of its larger customers, where a change in administrative responsibility for assigning course completion requirements resulted in a temporary slowdown in content consumption. HealthStream expects this issue to self-correct over the remainder of the year, with accelerated consumption normalizing the full-year revenue contribution from this customer.

The second event was the bankruptcy filing of one of HealthStream's strategic accounts, Steward Health Care System. This resulted in the company recording a $1.0 million operating loss in the quarter related to uncollected fees prior to the bankruptcy. HealthStream has factored the potential for $1.0 million in lost revenue and $0.5 million in lost profits from this customer bankruptcy into its financial expectations for the second half of 2024.

Despite these temporary headwinds, HealthStream reiterated its full-year 2024 guidance, expecting consolidated revenues to range between $292 million and $296 million, net income between $16.7 million and $18.6 million, and adjusted EBITDA between $64.5 million and $67.5 million. The company also anticipates capital expenditures to range between $28 million and $30 million for the year.

Business Overview

HealthStream provides a comprehensive suite of SaaS-based applications and content solutions designed to support the healthcare workforce. The company's offerings span three core areas: learning, credentialing, and scheduling.

In the learning domain, HealthStream's flagship product is the HealthStream Learning Center, which provides online training and education for healthcare professionals. The company has also introduced new solutions, such as its Insights Plus Reporting and Analytics tool, that expand the capabilities of the learning platform and drive increased wallet share with existing customers.

HealthStream's credentialing solutions, led by the CredentialStream application, offer healthcare organizations a robust platform for managing the credentialing, privileging, and enrollment of physicians and other clinical staff. The company has seen strong demand for CredentialStream, with 34 new customer organizations added in the second quarter, including several highly respected healthcare systems.

The company's scheduling solutions, anchored by the ShiftWizard application, have also experienced significant growth, with revenues increasing 34% year-over-year in the second quarter. ShiftWizard has become the largest revenue generator within HealthStream's scheduling portfolio, surpassing the company's legacy ANSOS and Enterprise Visibility products.

HealthStream's strategy is centered around its hStream technology platform, which serves as the foundation for the company's diverse ecosystem of solutions. The hStream platform enables interoperability between HealthStream's applications, as well as integration with customers' other key systems, such as ERP and EHR platforms. This approach is designed to enhance the value proposition for customers by creating a seamless and interconnected workflow.

A key component of the hStream platform is the hStream ID, a single identifier for all individuals in HealthStream's ecosystem. The company has been actively integrating the hStream ID functionality into its internal applications, with 14 of its 23 eligible applications now utilizing the hStream ID. This centralized identity management capability supports HealthStream's efforts to expand its direct-to-professional sales channels, which saw a 41% sequential increase in revenue in the second quarter.

HealthStream is also leveraging the hStream platform to address new market opportunities, such as the health plan segment. The company has recently signed 10 health plan customers for its Network by HealthStream solution, which offers a tailored credentialing and network relationship management system for payors. While still in the early stages, HealthStream believes this expansion into the health plan market represents a significant growth opportunity.

Financials

HealthStream's financial performance reflects the strength of its recurring revenue model and the company's ability to drive growth across its core product suites. For the full year 2023, the company reported annual revenue of $279.1 million, annual net income of $15.2 million, annual operating cash flow of $64.0 million, and annual free cash flow of $36.0 million.

In the second quarter of 2024, HealthStream generated revenues of $71.6 million, up 3.4% year-over-year. Subscription revenues, which account for 96% of total revenues, increased 4% to $69.0 million, while professional services revenues declined 5.5% to $2.5 million. The company's operating income was $4.4 million, up 10.1% from the prior year period, and net income was $4.2 million, up 0.8% year-over-year. Adjusted EBITDA, a key metric for the company, was $15.8 million, an increase of 3.3% compared to the second quarter of 2023.

HealthStream's balance sheet remains strong, with $83.0 million in cash and investments as of June 30, 2024, and no outstanding debt. The company's days sales outstanding (DSO) improved to 45 days in the second quarter, compared to 50 days in the prior year period. HealthStream's robust financial position and cash flow generation provide the company with the flexibility to pursue strategic initiatives, including potential acquisitions, while also returning capital to shareholders through its quarterly dividend program.

Outlook

HealthStream has reiterated its full-year 2024 guidance, expecting consolidated revenues to range between $292 million and $296 million, net income between $16.7 million and $18.6 million, and adjusted EBITDA between $64.5 million and $67.5 million. The company anticipates capital expenditures to range between $28 million and $30 million for the year.

Looking ahead, HealthStream sees several avenues for continued growth and value creation. The company's focus on enhancing the capabilities and interoperability of its hStream platform is expected to drive increased adoption and cross-selling opportunities within its existing customer base. The expansion into the health plan market with the Network by HealthStream solution also represents a promising new growth avenue, as the company leverages its credentialing expertise to address the needs of payors.

Additionally, HealthStream's direct-to-professional sales channels, enabled by the hStream platform's identity management and commerce capabilities, are showing strong momentum, with a 41% sequential increase in revenue in the second quarter. As the company continues to refine its go-to-market strategies and product offerings for this channel, it could become an increasingly meaningful contributor to HealthStream's overall growth.

Conclusion

HealthStream is a well-positioned healthcare technology company that has demonstrated its ability to deliver consistent financial performance and shareholder value. The company's comprehensive suite of SaaS-based solutions, underpinned by its innovative hStream platform, addresses the critical workforce development and management needs of healthcare organizations.

Despite facing some temporary headwinds in the second quarter, HealthStream has reiterated its full-year 2024 guidance and continues to execute on its strategic initiatives. With a strong balance sheet, recurring revenue model, and growing portfolio of high-value solutions, HealthStream appears well-equipped to capitalize on the ongoing digital transformation and workforce optimization trends within the healthcare industry.