hstm20220331

hstm20220331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.: 000-27701

HealthStream, Inc.

(Exact name of registrant as specified in its charter)

Tennessee	62-1443555
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 11th Avenue North, Suite 1000,
Nashville, Tennessee	37203
(Address of principal executive offices)	(Zip Code)

(615) 301-3100

(Registrant's telephone number, including area code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (Par Value $0.00)	HSTM	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 25, 2022, there were 30,391,600 shares of the registrant’s common stock outstanding.

		Page Number
Part I.	Financial Information	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited) – March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Income (Unaudited) – Three Months ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three Months ended March 31, 2022 and 2021	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three Months ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months ended March 31, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
Item 4.	Controls and Procedures	17
Part II.	Other Information	18
Item 1A.	Risk Factors	18
Item 6.	Exhibits	19
	SIGNATURE	20

	*March 31,*		*December 31,*
	*2022*		*2021*
ASSETS
Current assets:
Cash and cash equivalents	$	43,370	$	46,905
Marketable securities		2,008		5,041
Accounts receivable, net of allowance for doubtful accounts of $541 and $853 at March 31, 2022 and December 31, 2021, respectively		35,739		30,308
Accounts receivable - unbilled		5,049		4,612
Prepaid royalties, net of amortization		11,188		9,155
Other prepaid expenses and other current assets		9,872		10,824
Total current assets		107,226		106,845

Property and equipment, net of accumulated depreciation of $19,270 and $17,999 at March 31, 2022 and December 31, 2021, respectively		17,070		17,950
Capitalized software development, net of accumulated amortization of $90,537 and $86,097 at March 31, 2022 and December 31, 2021, respectively		34,131		32,412
Operating lease right of use assets, net		24,589		25,168
Goodwill		182,785		182,501
Customer-related intangibles, net of accumulated amortization of $47,847 and $45,615 at March 31, 2022 and December 31, 2021, respectively		66,661		68,803
Other intangible assets, net of accumulated amortization of $18,140 and $16,752 at March 31, 2022 and December 31, 2021, respectively		19,016		20,402
Deferred tax assets		601		601
Deferred commissions		24,142		24,012
Non-marketable equity investments		6,767		7,043
Other assets		938		1,016
Total assets	$	483,926	$	486,753

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	17,770	$	21,497
Accrued royalties		6,914		5,037
Deferred revenue		89,878		73,816
Total current liabilities		114,562		100,350

Deferred tax liabilities		18,841		18,146
Deferred revenue, noncurrent		990		1,583
Operating lease liability, noncurrent		25,496		26,178
Other long term liabilities		1,465		1,477
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 30,518 and 31,327 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		251,179		270,791
Retained earnings		71,015		68,122
Accumulated other comprehensive income		378		106
Total shareholders’ equity		322,572		339,019
Total liabilities and shareholders’ equity	$	483,926	$	486,753

	*Three Months Ended*
	*March 31, 2022*			*March 31, 2021*
Revenues, net	$	65,367		$	63,468
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		21,998			22,748
Product development		10,412			9,525
Sales and marketing		10,417			9,019
Other general and administrative expenses		9,183			9,723
Depreciation and amortization		9,322			9,153
Total operating costs and expenses		61,332			60,168

Operating income		4,035			3,300

Other loss, net		(276	)		(87	)

Income before income tax provision		3,759			3,213
Income tax provision		866			922
Net income	$	2,893		$	2,291

Net income per share:
Basic	$	0.09		$	0.07
Diluted	$	0.09		$	0.07

Weighted average shares of common stock outstanding:
Basic		30,955			31,504
Diluted		30,976			31,526

	*Three Months Ended March 31, 2022*
	*Common Stock*						*Retained*		*Accumulated Other Comprehensive*		*Total Shareholders’*
	*Shares*			*Amount*			*Earnings*		*Income*		*Equity*
Balance at December 31, 2021		31,327		$	270,791		$	68,122	$	106	$	339,019
Net income		—			—			2,893		—		2,893
Comprehensive income		—			—			—		272		272
Stock-based compensation		—			774			—		—		774
Common stock issued under stock plans, net of shares withheld for employee taxes		83			(497	)		—		—		(498	)
Repurchase of common stock		(892	)		(19,889	)		—		—		(19,888	)
Balance at March 31, 2022		30,518		$	251,179		$	71,015	$	378	$	322,572

	*Three Months Ended March 31, 2021*
	*Common Stock*					*Retained*		*Accumulated Other Comprehensive*		*Total Shareholders’*
	*Shares*		*Amount*			*Earnings*		*Income*		*Equity*
Balance at December 31, 2020		31,493	$	271,784		$	62,277	$	1	$	334,062
Net income		—		—			2,291		—		2,291
Comprehensive income		—		—			—		234		234
Stock-based compensation		—		616			—		—		616
Common stock issued under stock plans, net of shares withheld for employee taxes		60		(399	)		—		—		(399	)
Balance at March 31, 2021		31,553	$	272,001		$	64,569	$	235	$	336,805

	*Three Months Ended March 31,*
	*2022*			*2021*
OPERATING ACTIVITIES:
Net income	$	2,893		$	2,291
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,322			9,153
Stock-based compensation		774			616
Amortization of deferred commissions		2,484			2,133
Provision for credit losses		6			142
Deferred income taxes		684			486
Loss on non-marketable equity investments		276			54
Non-cash paid time off expense		—			(1,011	)
Other		26			15
Changes in operating assets and liabilities:
Accounts and unbilled receivables		(5,874	)		7,379
Prepaid royalties		(2,033	)		(2,215	)
Other prepaid expenses and other current assets		952			2,521
Deferred commissions		(2,614	)		(3,602	)
Other assets		79			(76	)
Accounts payable and accrued expenses		(3,653	)		(5,339	)
Accrued royalties		1,877			(305	)
Deferred revenue		15,456			6,862
Net cash provided by operating activities		20,655			19,104

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(22	)		(731	)
Proceeds from maturities of marketable securities		5,025			4,500
Purchases of marketable securities		(2,024	)		(5,205	)
Payments to acquire non-marketable equity investments		—			(1,000	)
Payments associated with capitalized software development		(6,305	)		(5,326	)
Purchases of property and equipment		(636	)		(1,898	)
Net cash used in investing activities		(3,962	)		(9,660	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(497	)		(399	)
Repurchases of common stock		(19,726	)		—
Payment of cash dividends		—			(12	)
Net cash used in financing activities		(20,223	)		(411	)

Effect of exchange rate changes on cash and cash equivalents		(5	)		(251	)
Net (decrease) increase in cash and cash equivalents		(3,535	)		8,782
Cash and cash equivalents at beginning of period		46,905			36,566
Cash and cash equivalents at end of period	$	43,370		$	45,348

	Three Months Ended March 31, 2022
	Workforce Solutions		Provider Solutions		Consolidated
Subscription services	$	50,553	$	11,522	$	62,075
Professional services		1,486		1,806		3,292
Total revenues, net	$	52,039	$	13,328	$	65,367

	March 31, 2022
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	2,016	$	—	$	(8	)	$	2,008
Total	$	2,016	$	—	$	(8	)	$	2,008

	December 31, 2021
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	5,043	$	—	$	(2	)	$	5,041
Total	$	5,043	$	—	$	(2	)	$	5,041

	*Three Months Ended March 31,*
Revenues, net:	*2022*			*2021*
Workforce Solutions	$	52,039		$	51,247
Provider Solutions		13,328			12,221
Total revenues, net	$	65,367		$	63,468
Operating income:
Workforce Solutions	$	9,385		$	9,224
Provider Solutions		2,311			1,858
Unallocated		(7,661	)		(7,782	)
Total operating income	$	4,035		$	3,300

Segment assets *	*March 31, 2022*		*December 31, 2021*
Workforce Solutions	$	266,882	$	258,864
Provider Solutions		133,867		137,008
Unallocated		83,177		90,881
Total assets	$	483,926	$	486,753

	Three Months Ended March 31,
Revenues by Business Segment:	2022			2021			Percentage Change
Workforce Solutions	$	52,039		$	51,247			2	%
Provider Solutions		13,328			12,221			9	%
Total revenues, net	$	65,367		$	63,468			3	%

% of Revenues
Workforce Solutions		80	%		81	%
Provider Solutions		20	%		19	%

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)(1)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
Month #1 (January 1 - 31)		216,645	$	25.17		216,645	$	9,438,062
Month #2 (February 1 - February 28)		282,247		22.36		282,247		3,127,204
Month #3 (March 1 - March 31)		393,494		20.60		393,494		5,020,204
Total		892,386	$	22.27		892,386	$	5,020,204

10.1^	HealthStream, Inc. 2022 Cash Incentive Bonus Plan
10.2^	Form of HealthStream, Inc. Restricted Share Unit Agreement (Performance) under 2016 Omnibus Incentive Plan
10.3^	Form of HealthStream, Inc. Restricted Share Unit Agreement (Performance) contingent upon approval of 2022 Omnibus Incentive Plan
10.4^	Form of HealthStream, Inc. Restricted Share Unit Agreement (Time Based) contingent upon approval of 2022 Omnibus Incentive Plan
31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1 INS	Inline XBRL Instance Document – The instant document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.1 SCH	Inline XBRL Taxonomy Extension Schema
101.1 CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.1 DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.1 LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.1 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, has been formatted in Inline XBRL
^	Management contract of compensatory plan or arrangement

	HEALTHSTREAM, INC.

April 28, 2022	By:	/s/ Scott A. Roberts
		Scott A. Roberts
		Chief Financial Officer

SEC Form 10-Q filed by HealthStream Inc.