hstm20230630

hstm20230630_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, 2023

☐	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 24, 2023, there were 30,686,568 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, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Income (Unaudited) – Three and Six Months ended June 30, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Six Months ended June 30, 2023 and 2022	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three and Six Months ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months ended June 30, 2023 and 2022	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	20
Item 4.	Controls and Procedures	21
Part II.	Other Information	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21
	SIGNATURE	22

	*June 30,*			*December 31,*
	*2023*			*2022*
ASSETS
Current assets:
Cash and cash equivalents	$	25,805		$	46,023
Marketable securities		30,158			7,885
Accounts receivable, net of allowance for doubtful accounts of $625 and $544 at June 30, 2023 and December 31, 2022, respectively		35,010			36,730
Accounts receivable - unbilled		5,869			5,980
Prepaid royalties, net of amortization		9,881			9,071
Other prepaid expenses and other current assets		11,290			8,688
Total current assets		118,013			114,377

Property and equipment, net of accumulated depreciation of $22,364 and $20,280 at June 30, 2023 and December 31, 2022, respectively		14,461			15,483
Capitalized software development, net of accumulated amortization of $115,618 and $105,025 at June 30, 2023 and December 31, 2022, respectively		38,950			37,118
Operating lease right of use assets, net		21,477			22,759
Goodwill		191,346			192,398
Customer-related intangibles, net of accumulated amortization of $52,807 and $48,552 at June 30, 2023 and December 31, 2022, respectively		58,925			61,269
Other intangible assets, net of accumulated amortization of $15,936 and $12,818 at June 30, 2023 and December 31, 2022, respectively		16,439			20,284
Deferred tax assets		383			383
Deferred commissions		28,709			28,344
Non-marketable equity investments		4,277			4,518
Other assets		494			808
Total assets	$	493,474		$	497,741

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	22,147		$	32,301
Accrued royalties		5,236			5,443
Deferred revenue		81,768			79,469
Total current liabilities		109,151			117,213

Deferred tax liabilities		17,480			17,996
Deferred revenue, noncurrent		2,256			2,937
Operating lease liability, noncurrent		21,801			23,321
Other long-term liabilities		2,167			2,210
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 30,686 and 30,579 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		256,073			254,832
Retained earnings		85,435			80,213
Accumulated other comprehensive loss		(889	)		(981	)
Total shareholders’ equity		340,619			334,064
Total liabilities and shareholders’ equity	$	493,474		$	497,741

	*Three Months Ended*				*Six Months Ended*
	*June 30, 2023*		*June 30, 2022*		*June 30, 2023*		*June 30, 2022*
Revenues, net	$	69,198	$	65,638	$	138,144	$	131,005
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		23,567		22,234		47,424		44,232
Product development		11,031		10,583		22,711		20,995
Sales and marketing		11,307		10,869		23,035		21,287
Other general and administrative expenses		9,063		9,579		17,927		18,760
Depreciation and amortization		10,222		9,420		20,148		18,742
Total operating costs and expenses		65,190		62,685		131,245		124,016

Operating income		4,008		2,953		6,899		6,989

Other income, net		492		679		742		402

Income before income tax provision		4,500		3,632		7,641		7,391
Income tax provision		367		549		885		1,415
Net income	$	4,133	$	3,083	$	6,756	$	5,976

Net income per share:
Basic	$	0.13	$	0.10	$	0.22	$	0.19
Diluted	$	0.13	$	0.10	$	0.22	$	0.19

Weighted average shares of common stock outstanding:
Basic		30,684		30,491		30,638		30,723
Diluted		30,775		30,512		30,717		30,744
Dividends declared per share	$	0.025	$	—	$	0.050	$	—

	*Six Months Ended June 30, 2023*
	*Common Stock*					*Retained*			*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*		*Amount*			*Earnings*			*Loss*			*Equity*
Balance at December 31, 2022		30,579	$	254,832		$	80,213		$	(981	)	$	334,064
Net income		—		—			2,623			—			2,623
Comprehensive loss		—		—			—			(35	)		(35	)
Dividends declared on common stock ($0.025 per share)		—					(767	)					(767	)
Stock-based compensation		—		945			—			—			945
Common stock issued under stock plans, net of shares withheld for employee taxes		103		(791	)		—			—			(791	)
Balance at March 31, 2023		30,682	$	254,986		$	82,069		$	(1,016	)	$	336,039
Net income		—		—			4,133			—			4,133
Comprehensive income		—		—			—			127			127
Dividends declared on common stock ($0.025 per share)		—		—			(767	)		—			(767	)
Stock-based compensation		—		1,093			—			—			1,093
Common stock issued under stock plans, net of shares withheld for employee taxes		4		(6	)		—			—			(6	)
Balance at June 30, 2023		30,686	$	256,073		$	85,435		$	(889	)	$	340,619

	*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,*
	*2023*			*2022*
OPERATING ACTIVITIES:
Net income	$	6,756		$	5,976
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,148			18,742
Stock-based compensation		2,038			1,691
Amortization of deferred commissions		5,464			5,029
Provision for credit losses		371			444
Deferred income taxes		(490	)		1,089
Gain on sale of fixed assets		—			(25	)
Loss on non-marketable equity investments		241			500
Change in fair value of non-marketable equity investments		—			(943	)
Other		(342	)		37
Changes in operating assets and liabilities:
Accounts and unbilled receivables		1,460			(2	)
Prepaid royalties		(810	)		(521	)
Other prepaid expenses and other current assets		(2,408	)		(651	)
Deferred commissions		(5,830	)		(6,192	)
Other assets		315			52
Accounts payable and accrued expenses		(2,835	)		(2,644	)
Accrued royalties		(207	)		(342	)
Deferred revenue		1,618			5,741
Net cash provided by operating activities		25,489			27,981

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(6,621	)		(4,009	)
Proceeds from maturities of marketable securities		10,000			5,025
Purchases of marketable securities		(31,983	)		(2,024	)
Payments associated with capitalized software development		(13,309	)		(11,817	)
Proceeds from sale of fixed assets		—			26
Purchases of property and equipment		(1,382	)		(1,181	)
Net cash used in investing activities		(43,295	)		(13,980	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(797	)		(498	)
Repurchases of common stock		—			(23,137	)
Payment of cash dividends		(1,534	)		—
Net cash used in financing activities		(2,331	)		(23,635	)

Effect of exchange rate changes on cash and cash equivalents		(81	)		(55	)
Net decrease in cash and cash equivalents		(20,218	)		(9,689	)
Cash and cash equivalents at beginning of period		46,023			46,905
Cash and cash equivalents at end of period	$	25,805		$	37,216

	*Three Months Ended June 30,*				*Six Months Ended June 30,*
	*2023*		*2022*		*2023*		*2022*
Subscription services	$	66,506	$	62,471	$	132,521	$	124,546
Professional services		2,692		3,167		5,623		6,459
Total revenues, net	$	69,198	$	65,638	$	138,144	$	131,005

Dividend Payment Date	Dividend Declaration Date	Dividend Per Share		Record Date	Cash Outlay
April 28, 2023	February 20, 2023	$	0.025	April 17, 2023	$	767,000
June 23, 2023	April 24, 2023		0.025	June 12, 2023		767,000
Total dividends		$	0.050		$	1,534,000

	*June 30, 2023*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
U.S. treasury securities	$	30,207	$	2	$	(51	)	$	30,158
Total	$	30,207	$	2	$	(51	)	$	30,158

	*December 31, 2022*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*		*Fair Value*
Level 2:
U.S. treasury securities	$	7,882	$	3	$	—	$	7,885
Total	$	7,882	$	3	$	—	$	7,885

	Three Months Ended June 30,
	2023			2022			Percentage Change
Subscription services	$	66,506		$	62,471			6	%
Professional services		2,692			3,167			-15	%
Total revenues, net	$	69,198		$	65,638			5	%

% of Revenues
Subscription services		96	%		95	%
Professional services		4	%		5	%

	Six Months Ended June 30,
	2023			2022			Percentage Change
Subscription services	$	132,521		$	124,546			6	%
Professional services		5,623			6,459			-13	%
Total revenues, net	$	138,144		$	131,005			5	%

% of Revenues
Subscription services		96	%		95	%
Professional services		4	%		5	%

10.1	Form of HealthStream, Inc. Restricted Share Unit Agreement (Non-Employee Director) under 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 June 30, 2023, has been formatted in Inline XBRL
	Management contract of compensatory plan or arrangement

	HEALTHSTREAM, INC.

July 27, 2023	By:	/s/ Scott A. Roberts
		Scott A. Roberts
		Chief Financial Officer

SEC Form 10-Q filed by HealthStream Inc.