HealthStream, Inc. Second Look at Misunderstood Quarter; Momentum Is Clear, Investments Aim to Capture a Large Opportunity

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On Tuesday HealthStream reported solid fourth quarter 2013 results. More specific, total sales rose 33% year-over-year, to $37.1 million, easily topping the consensus target of $35.7 million; adjusted EBITDA—the key profit metric we monitor—were $5.9 million, spot on the $5.9 million consensus estimate, and GAAP EPS were $0.06—a penny below the $0.07 consensus forecast, but solely because of a much higher-than-anticipated GAAP tax rate of 51%.

The company also provided initial 2014 guidance that easily exceeded consensus estimates for sales (revenue growth between 22% and 26%, compared with the consensus expectation for 21% growth) but was behind expectations for operating income (operating income growth of 10% to 15%) because of continued investments in initiatives to expand both the company’s product portfolio and addressable market (we note that guidance was recently updated to incorporate a small acquisition, which we discuss in the financial section below).

The company also reported a number of highly favorable developments in the quarter, which we detail below, and we believe it was one of the strongest overall reports we have seen from HealthStream over the last several years. Still, the stock sold off roughly 8.5% the day of the quarterly conference call and now lies roughly 9% below where it traded heading into the quarterly print—this despite already trading down from the $40 level in mid-October.

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