HealthStream eyeing M&A

CEO says there's plenty of capital to deploy

Email | Print By Erin Lawley

Bobby Frist

HealthStream CEO Bobby Frist discussed growth plans for his health care learning and research company during the company’s third-quarter earnings call this morning. The short version: Look for a more active approach to mergers and acquisitions.

“We’re going to get more aggressive” and “be more opportunistic,” in buying product lines and companies that fit HealthStream’s line of business, Frist said. To do so, HealthStream will deploy the capital it’s accumulating on its balance sheet.

HealthStream had $10 million in cash on its balance sheet as of Sept. 30, up from about $4 million in the third quarter of last year. Frist said the company also has $15 million on an untapped line of credit.

CFO Gerard Hayden explained the company went from a working capital deficit of $285,000 last year to about $6.2 million in the positive this year.

“So roughly a $6.5 million swing in the last 12 months,” Hayden said. “We’re seeing the entire balance sheet poised for additional growth, both in lack of debt and strong working capital position.”

HealthStream’s last acquisition was the March 2007 purchase of The Jackson Group.

Though he didn’t provide specific projections, Frist also pointed to growth opportunities for HealthStream’s research segment in the home health market, where the company recently received approval from the Centers for Medicare and Medicaid Service as a survey vendor for the Home Health Care Consumer Assessment of Healthcare Providers and Systems (HH-CAHPS), which home health agencies must complete in order to receive their full annual payment update.

Given the its performance in the quarter, HealthStream (Ticker: HSTM) raised its earnings guidance from 16 cents to 19 cents per share to a range of 19 cents to 21 cents per share. Chris Blackman of Empirical Capital Markets said on the call he was “surprised how conservative” the guidance is.

Frist explained that guidance reflects the above-mentioned investment in growth, as well as investments like growing its sales force, as well as some challenges the company is facing in non-recurring revenue streams.

The company has been winding down some of its project-based business while also dealing with declines in revenue from employee, physician and community surveys – where customers have deferred conducting the surveys for financial considerations. The company’s revenue from live events declined $316,000 in the quarter, and research revenue was down $542,000 in the quarter.