hstm20220630

hstm20220630_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 June 30, 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 July 25, 2022, there were 30,569,790 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) – June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Income (Unaudited) – Three and Six Months ended June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months ended June 30, 2022 and 2021	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three and Six Months ended June 30, 2022 and 2021	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months ended June 30, 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	19
Item 4.	Controls and Procedures	19
Part II.	Other Information	20
Item 1A.	Risk Factors	20
Item 6.	Exhibits	21
	SIGNATURE	22

	*June 30,*			*December 31,*
	*2022*			*2021*
ASSETS
Current assets:
Cash and cash equivalents	$	37,216		$	46,905
Marketable securities		2,000			5,041
Accounts receivable, net of allowance for doubtful accounts of $699 and $853 at June 30, 2022 and December 31, 2021, respectively		28,744			30,308
Accounts receivable - unbilled		6,157			4,612
Prepaid royalties, net of amortization		9,677			9,155
Other prepaid expenses and other current assets		11,539			10,824
Total current assets		95,333			106,845

Property and equipment, net of accumulated depreciation of $20,183 and $17,999 at June 30, 2022 and December 31, 2021, respectively		16,477			17,950
Capitalized software development, net of accumulated amortization of $95,206 and $86,097 at June 30, 2022 and December 31, 2021, respectively		34,509			32,412
Operating lease right of use assets, net		23,964			25,168
Goodwill		187,919			182,501
Customer-related intangibles, net of accumulated amortization of $50,036 and $45,615 at June 30, 2022 and December 31, 2021, respectively		66,333			68,803
Other intangible assets, net of accumulated amortization of $19,574 and $16,752 at June 30, 2022 and December 31, 2021, respectively		20,436			20,402
Deferred tax assets		601			601
Deferred commissions		25,174			24,012
Non-marketable equity investments		5,994			7,043
Other assets		964			1,016
Total assets	$	477,704		$	486,753

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	18,353		$	21,497
Accrued royalties		4,695			5,037
Deferred revenue		81,866			73,816
Total current liabilities		104,914			100,350

Deferred tax liabilities		18,677			18,146
Deferred revenue, noncurrent		1,151			1,583
Operating lease liability, noncurrent		24,771			26,178
Other long term liabilities		1,459			1,477
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 30,570 and 31,327 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		253,036			270,791
Retained earnings		74,098			68,122
Accumulated other comprehensive (loss) income		(402	)		106
Total shareholders’ equity		326,732			339,019
Total liabilities and shareholders’ equity	$	477,704		$	486,753

	*Three Months Ended*					*Six Months Ended*
	*June 30, 2022*		*June 30, 2021*			*June 30, 2022*		*June 30, 2021*
Revenues, net	$	65,638	$	64,816		$	131,005	$	128,284
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		22,234		22,657			44,232		45,518
Product development		10,583		10,336			20,995		19,861
Sales and marketing		10,869		9,462			21,287		18,481
Other general and administrative expenses		9,579		9,781			18,760		19,391
Depreciation and amortization		9,420		9,149			18,742		18,302
Total operating costs and expenses		62,685		61,385			124,016		121,553

Operating income		2,953		3,431			6,989		6,731

Other income (loss), net		679		(65	)		402		(152	)

Income before income tax provision		3,632		3,366			7,391		6,579
Income tax provision		549		925			1,415		1,847
Net income	$	3,083	$	2,441		$	5,976	$	4,732

Net income per share:
Basic	$	0.10	$	0.08		$	0.19	$	0.15
Diluted	$	0.10	$	0.08		$	0.19	$	0.15

Weighted average shares of common stock outstanding:
Basic		30,491		31,553			30,723		31,528
Diluted		30,512		31,616			30,744		31,571

	*Six Months Ended June 30, 2022*
	*Common Stock*						*Retained*		*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*			*Amount*			*Earnings*		*Income (Loss)*			*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	)		—		—			(497	)
Repurchase of common stock		(892	)		(19,889	)		—		—			(19,889	)
Balance at March 31, 2022		30,518		$	251,179		$	71,015	$	378		$	322,572
Net income		—			—			3,083		—			3,083
Comprehensive loss		—			—			—		(780	)		(780	)
Issuance of common stock in acquisition		209			4,084								4,084
Stock-based compensation		—			917			—		—			917
Common stock issued under stock plans, net of shares withheld for employee taxes		2			(1	)		—		—			(1	)
Repurchase of common stock		(159	)		(3,143	)		—		—			(3,143	)
Balance at June 30, 2022		30,570		$	253,036		$	74,098	$	(402	)	$	326,732

	*Six Months Ended June 30, 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
Net income		—		—			2,441		—		2,441
Comprehensive income		—		—			—		351		351
Stock-based compensation		—		782			—		—		782
Common stock issued under stock plans, net of shares withheld for employee taxes		1		—			—		—		—
Balance at June 30, 2021		31,554	$	272,783		$	67,010	$	586	$	340,379

	*Six Months Ended June 30,*
	*2022*			*2021*
OPERATING ACTIVITIES:
Net income	$	5,976		$	4,732
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		18,742			18,302
Stock-based compensation		1,691			1,398
Amortization of deferred commissions		5,029			4,509
Provision for credit losses		444			3
Deferred income taxes		1,089			1,751
Gain on sale of fixed assets		(25	)		—
Loss on non-marketable equity investments		500			133
Non-cash paid time off expense		—			(1,011	)
Change in fair value of non-marketable equity investments		(943	)		—
Other		37			60
Changes in operating assets and liabilities:
Accounts and unbilled receivables		(2	)		12,247
Prepaid royalties		(521	)		(1,032	)
Other prepaid expenses and other current assets		(651	)		590
Deferred commissions		(6,192	)		(6,612	)
Other assets		52			(168	)
Accounts payable and accrued expenses		(2,644	)		(6,041	)
Accrued royalties		(342	)		(2,798	)
Deferred revenue		5,741			(1,739	)
Net cash provided by operating activities		27,981			24,324

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(4,009	)		(731	)
Proceeds from maturities of marketable securities		5,025			9,731
Purchases of marketable securities		(2,024	)		(5,205	)
Payments to acquire non-marketable equity investments		—			(1,750	)
Payments associated with capitalized software development		(11,817	)		(10,277	)
Proceeds from sale of fixed assets		26			—
Purchases of property and equipment		(1,181	)		(2,407	)
Net cash used in investing activities		(13,980	)		(10,639	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(498	)		(399	)
Repurchases of common stock		(23,137	)		—
Payment of cash dividends		—			(12	)
Net cash used in financing activities		(23,635	)		(411	)

Effect of exchange rate changes on cash and cash equivalents		(55	)		(48	)
Net (decrease) increase in cash and cash equivalents		(9,689	)		13,226
Cash and cash equivalents at beginning of period		46,905			36,566
Cash and cash equivalents at end of period	$	37,216		$	49,792

	*Three Months Ended June 30, 2022*						*Six Months Ended June 30, 2022*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*		*Consolidated*
Subscription services	$	50,971	$	11,500	$	62,471	$	101,524	$	23,022	$	124,546
Professional services		1,503		1,664		3,167		2,989		3,470		6,459
Total revenues, net	$	52,474	$	13,164	$	65,638	$	104,513	$	26,492	$	131,005

	*Three Months Ended June 30, 2021*						*Six Months Ended June 30, 2021*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*		*Consolidated*
Subscription services	$	50,740	$	10,905	$	61,645	$	100,511	$	21,502	$	122,013
Professional services		1,418		1,753		3,171		2,894		3,377		6,271
Total revenues, net	$	52,158	$	12,658	$	64,816	$	103,405	$	24,879	$	128,284

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2022*		*2021*		*2022*		*2021*
Cost of revenues (excluding depreciation and amortization)	$	45	$	33	$	82	$	53
Product development		151		116		276		218
Sales and marketing		101		76		184		141
Other general and administrative		620		557		1,149		986
Total stock-based compensation expense	$	917	$	782	$	1,691	$	1,398

	*June 30, 2022*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
Corporate debt securities	$	2,005	$	—	$	(5	)	$	2,000
Total	$	2,005	$	—	$	(5	)	$	2,000

Segment assets *	*June 30, 2022*		*December 31, 2021*
Workforce Solutions	$	266,200	$	258,864
Provider Solutions		133,399		137,008
Unallocated		78,105		90,881
Total assets	$	477,704	$	486,753

	*Three Months Ended June 30,*						*Six Months Ended June 30,*
Revenues, net:	*2022*			*2021*			*2022*			*2021*
Workforce Solutions	$	52,474		$	52,158		$	104,513		$	103,405
Provider Solutions		13,164			12,658			26,492			24,879
Total revenues, net	$	65,638		$	64,816		$	131,005		$	128,284
Operating income:
Workforce Solutions	$	8,767		$	9,222		$	18,153		$	18,249
Provider Solutions		1,702			2,166			4,013			4,221
Unallocated		(7,516	)		(7,957	)		(15,177	)		(15,739	)
Total operating income	$	2,953		$	3,431		$	6,989		$	6,731

	Three Months Ended June 30,
Revenues by Business Segment:	2022			2021			Percentage Change
Workforce Solutions	$	52,474		$	52,158			1	%
Provider Solutions		13,164			12,658			4	%
Total revenues, net	$	65,638		$	64,816			1	%

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

	Six Months Ended June 30,
Revenues by Business Segment:	2022			2021			Percentage Change
Workforce Solutions	$	104,513		$	103,405			1	%
Provider Solutions		26,492			24,879			6	%
Total revenues, net	$	131,005		$	128,284			2	%

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

SEC Form 10-Q filed by HealthStream Inc.