Feb 18 2010
Health Grades, Inc. (NASDAQ: HGRD), the leading independent healthcare
ratings company, today reported financial results for the fourth quarter
and year ended December 31, 2009.
Ratings and advisory revenue for the three months ended December 31,
2009 increased $3.1 million, or 28%, to $14.3 million from $11.2 million
for the three months ended December 31, 2008. For the year ended
December 31, 2009, ratings and advisory revenue increased $12.8 million,
or 32%, to $52.5 million from $39.7 million for the year ended December
31, 2008. Revenue growth for the three months ended December 31, 2009
was principally driven by an increase of $2.8 million, or 98%, from the
Company’s Internet Business Group compared to the three months ended
December 31, 2008. For the year ended December 31, 2009, Internet
Business Group revenue increased by $10.2 million, or 121%, and Provider
Services revenue increased by $2.4 million, or 8%, compared to the year
ended December 31, 2008.
Gross margins for the three months and year ended December 31, 2009 were
approximately 84% and 85%, respectively, compared with 82% and 83% for
the same periods of 2008. Operating margins for the three months and
year ended December 31, 2009 were approximately 17% and 20%,
respectively, compared to 14% and 17% for the same periods of 2008.
Operating income for the three months ended December 31, 2009 was $2.4
million, a $0.9 million increase, or 56%, over the three months ended
December 31, 2008. Operating income for the year ended December 31, 2009
was $10.5 million, a $3.8 million increase, or 57%, over the year ended
December 31, 2008.
Net income attributable to HealthGrades for the three months ended
December 31, 2009 was $1.9 million, or $0.06 per diluted share, compared
to $1.0 million, or $0.03 per diluted share, for the same period of
2008. Net income attributable to HealthGrades for the year ended
December 31, 2009 was $7.1 million, or $0.23 per diluted share, compared
to $4.7 million, or $0.14 per diluted share, for the year ended December
31, 2008.
Provider Services
For the three months ended December 31, 2009, Provider Services revenue,
which primarily includes sales of hospital marketing products and
quality-improvement products, was $8.2 million, an increase of $0.3
million, or 4%, over the same period of 2008. For the year ended
December 31, 2009, Provider Services revenue was $31.7 million, an
increase of $2.4 million, or 8%, over the year ended December 31, 2008.
These increases reflect increased revenue from both the Company’s
marketing and quality-improvement products. For the years ended December
31, 2009 and 2008, 33% and 34% of all new sales in Provider Services
were to existing clients, respectively. For the years ended December 31,
2009 and 2008, the Company retained or signed new contracts representing
approximately 80% of the annual contract value of hospitals whose
contracts had first or second year anniversary dates.
Internet Business Group
For the three months ended December 31, 2009, Internet Business Group
revenue, which includes the sale of HealthGrades’ quality reports and
subscriptions to consumers, revenue from the HealthGrades Connecting
Point™ product and internet advertising and sponsorship revenue, was
$5.7 million, an increase of $2.8 million, or 98%, over the same period
of 2008. For the year ended December 31, 2009, Internet Business Group
revenue was $18.6 million, an increase of $10.2 million, or 121%, over
the year ended December 31, 2008. This increase in revenue is a result
of strong growth from all products within the Internet Business Group,
including the contribution from the www.WrongDiagnosis.com
website we acquired in October 2008. For the three months and year ended
December 31, 2009, the Company’s internet advertising and sponsorship
revenue included approximately $1.6 million and $4.7 million,
respectively, from www.WrongDiagnosis.com.
The Company’s revenue from quality reports to consumers increased to
$1.1 million and $4.5 million for the three months and year ended
December 31, 2009, respectively, compared to $0.6 million and $2.4
million for the three months and year ended December 31, 2008,
respectively, due mainly to sales of its Watchdog subscription service.
Strategic Health Solutions
For the three months ended December 31, 2009, Strategic Health Solutions
revenue, which includes sales of HealthGrades’ quality information to
employers, benefit consultants, health plans and others, as well as any
sales of the Company’s data was $0.5 million, unchanged from the same
period in 2008. For the year ended December 31, 2009, Strategic Health
Solutions revenue was $2.2 million, an increase of $0.2 million, or 12%,
over the year ended December 31, 2008.
Operating Expenses
Operating expenses increased $1.9 million to $9.6 million for the three
months ended December 31, 2009 from $7.6 million for the three months
ended December 31, 2008. Operating expenses increased $8.0 million to
$34.2 million for the year ended December 31, 2009 from $26.2 million
for the year ended December 31, 2008.
Sales and marketing expenses for the three months ended December 31,
2009 were $3.5 million compared to $3.4 million for the three months
ended December 31, 2008. Sales and marketing expenses for the year ended
December 31, 2009 were $13.1 million compared to $10.8 million for the
year ended December 31, 2008. This increase is mainly due to increased
sales personnel, travel, search engine optimization and investments the
Company has made in its sponsorship and advertising business. In
addition, sales and marketing expenses increased due to costs related to
the www.WrongDiagnosis.com
and www.CureResearch.com
websites, which the Company acquired in October 2008.
Product development expenses for the three months ended December 31,
2009 were $2.8 million compared to $2.0 million for the three months
ended December 31, 2008. Product development expenses for the year ended
December 31, 2009 were $9.4 million compared to $7.3 million for the
year ended December 31, 2008. These increases are primarily due to
additional personnel hired to support product development efforts,
including both the improvement of existing products and the development
of new product offerings. In particular, the Company added personnel to
focus on advertising development initiatives, as well as several
projects that are in process with its search engine partners. The
Company also continues to invest in initiatives to both improve its
existing data and bring new and actionable data to consumers. The
Company maintains physician data relating to nearly 800,000 physicians.
The Company continues to acquire new physician data and refine the
Company’s data-matching process to improve both the impact and the
accuracy of its information.
General and administrative expenses for the three months ended December
31, 2009 were $3.3 million compared to $2.2 million for the three months
ended December 31, 2008. General and administrative expenses for the
year ended December 31, 2009 were $11.7 million compared to $8.1 million
for the year ended December 31, 2008. These increases are mainly due to
increased personnel costs and new hires, software expenses, and the
write-off of the Company’s investment in Healthcare Credit Solutions.
Upon the dissolution of Healthcare Credit Solutions, the Company
wrote-off $0.2 million of certain assets including fixed assets, the
non-competition agreement and the Company’s investment in the subsidiary.
Income Taxes
Income tax expense for the three months and year ended December 31, 2009
was $0.8 million and $3.9 million, respectively, while income tax
expense for the three months and year ended December 31, 2008 was $0.6
million and $2.7 million, respectively. For the three months and year
ended December 31, 2009, the Company’s effective income tax rates were
approximately 31% and 37%, respectively, compared with 40% and 38% for
the three months and year ended December 31, 2008, respectively. The
decreases in the effective tax rate for the three months and year ended
December 31, 2009 were principally due to losses related to the
write-off of the Company’s investment in Healthcare Credit Solutions.
Cash Position; Stock Repurchases
For the year ended December 31, 2009, the Company generated $9.2 million
in cash flow from operations. As of December 31, 2009, the Company had
$19.2 million in cash and cash equivalents, a 69% increase over the
balance at December 31, 2008. As of December 31, 2009, the Company has
accrued, as an increase to goodwill, $0.9 million of contingent
consideration related to the acquisition of the Adviware assets. This
amount is expected to be paid to the former Adviware shareholders in
early 2010. For the year ended December 31, 2009, the Company did not
repurchase any shares of its common stock.
2009 Results and Outlook
Kerry Hicks, Chairman and Chief Executive Officer of Health Grades, Inc.
stated, “In a difficult economic environment, we are very pleased with
our achievement of 32% annual revenue growth with operating margins of
20%. In particular, the performance of our Internet Business Group
exceeded expectations. With annual growth of more than $10 million in
this business, we are excited with the progress we have made. More
importantly to us, we believe we are positioned very well for continued
growth in 2010.”
Mr. Hicks continued, “As we noted previously, we are renaming our
Provider Services business as Professional Services. Beginning with the
first quarter of 2010 we will begin reporting revenues in two business
units, Professional Services and Internet Business Group. Other than the
name change for Professional Services the only other change will be that
we will report revenue from what was previously known as Strategic
Health Solutions within the Internet Business Group. We look forward to
further solidifying our dominant search position with respect to
provider selection. As we noted in our December 21, 2009 press release,
we have been making a significant investment with respect to our sales
team and product development in particular to ensure that we are well
prepared to drive strong growth not only for 2010, but for years to
come. While this may lead to somewhat lower margins for the first half
of the year, we remain confident in our guidance of 19-22% operating
margins for the full year 2010.”
Guidance
The Company is affirming its full year guidance for ratings and advisory
revenue growth of 20% over 2009 with an operating margin of between 19%
to 22%.
SOURCE Health Grades, Inc.