hstm20240331

hstm20240331_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, 2024

☐	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 22, 2024, there were 30,397,886 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, 2024 and December 31, 2023	1
	Condensed Consolidated Statements of Income (Unaudited) – Three Months ended March 31, 2024 and 2023	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three Months ended March 31, 2024 and 2023	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three Months ended March 31, 2024 and 2023	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months ended March 31, 2024 and 2023	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	19
Part II.	Other Information	19
Item 1A.	Risk Factors	19
Item 6.	Exhibits	20
	SIGNATURE	21

	*March 31,*			*December 31,*
	*2024*			*2023*
ASSETS
Current assets:
Cash and cash equivalents	$	52,407		$	40,333
Marketable securities		31,265			30,800
Accounts receivable, net of allowance for doubtful accounts of $901 and $781 at March 31, 2024 and December 31, 2023, respectively		39,635			34,346
Accounts receivable - unbilled		4,419			4,100
Prepaid royalties, net of amortization		10,960			10,202
Prepaid software maintenance and subscriptions		6,609			7,397
Other prepaid expenses and other current assets		2,094			3,032
Total current assets		147,389			130,210

Property and equipment, net of accumulated depreciation of $20,459 and $19,503 at March 31, 2024 and December 31, 2023, respectively		12,537			13,005
Capitalized software development, net of accumulated amortization of $132,960 and $127,009 at March 31, 2024 and December 31, 2023, respectively		41,118			40,643
Operating lease right of use assets, net		19,483			20,114
Goodwill		191,072			191,379
Customer-related intangibles, net of accumulated amortization of $59,128 and $57,095 at March 31, 2024 and December 31, 2023, respectively		52,511			54,742
Other intangible assets, net of accumulated amortization of $15,750 and $16,603 at March 31, 2024 and December 31, 2023, respectively		11,939			13,289
Deferred commissions		30,671			31,700
Non-marketable equity investments		4,103			4,134
Other assets		782			726
Total assets	$	511,605		$	499,942

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,313		$	7,465
Accrued expenses		16,776			22,717
Accrued royalties		5,713			4,556
Deferred revenue		98,268			83,623
Total current liabilities		126,070			118,361

Deferred tax liabilities		16,868			16,132
Deferred revenue, noncurrent		2,076			2,169
Operating lease liability, noncurrent		19,484			20,247
Other long-term liabilities		2,253			2,281

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 30,398 and 30,298 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively		249,280			249,075
Retained earnings		96,746			92,368
Accumulated other comprehensive loss		(1,172	)		(691	)
Total shareholders’ equity		344,854			340,752
Total liabilities and shareholders’ equity	$	511,605		$	499,942

	*Three Months Ended*
	*March 31, 2024*		*March 31, 2023*
Revenues, net	$	72,760	$	68,946
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		24,617		23,856
Product development		12,032		11,680
Sales and marketing		11,773		11,728
Other general and administrative expenses		8,312		8,865
Depreciation and amortization		10,336		9,926
Total operating costs and expenses		67,070		66,055

Operating income		5,690		2,891

Other income, net		853		250

Income before income tax provision		6,543		3,141
Income tax provision		1,316		518
Net income	$	5,227	$	2,623

Net income per share:
Basic	$	0.17	$	0.09
Diluted	$	0.17	$	0.09

Weighted average shares of common stock outstanding:
Basic		30,313		30,591
Diluted		30,418		30,659
Dividends declared per share	$	0.028	$	0.025

	*Three Months Ended March 31, 2024*
	*Common Stock*					*Retained*			*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*		*Amount*			*Earnings*			*Loss*			*Equity*
Balance at December 31, 2023		30,298	$	249,075		$	92,368		$	(691	)	$	340,752
Net income		—		—			5,227			—			5,227
Other comprehensive loss		—		—			—			(481	)		(481	)
Dividends declared on common stock ($0.028 per share)		—		—			(849	)		—			(849	)
Stock-based compensation		—		1,060			—			—			1,060
Common stock issued under stock plans, net of shares withheld for employee taxes		100		(855	)		—			—			(855	)
Balance at March 31, 2024		30,398	$	249,280		$	96,746		$	(1,172	)	$	344,854

	*Three Months Ended March 31, 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
Other 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

	*Three Months Ended March 31,*
	*2024*			*2023*
OPERATING ACTIVITIES:
Net income	$	5,227		$	2,623
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,336			9,926
Stock-based compensation		1,060			945
Amortization of deferred commissions		2,957			2,712
Provision for credit losses		174			209
Deferred income taxes		771			800
Loss on equity method investments		31			127
Other		(346	)		(85	)
Changes in operating assets and liabilities:
Accounts and unbilled receivables		(5,782	)		(4,787	)
Prepaid royalties		(758	)		(1,889	)
Other prepaid expenses and other current assets		959			482
Deferred commissions		(1,928	)		(1,490	)
Other assets		(56	)		147
Accounts payable and accrued expenses		(7,416	)		(4,773	)
Accrued royalties		1,157			1,090
Deferred revenue		14,552			14,504
Net cash provided by operating activities		20,938			20,541

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		—			(6,621	)
Proceeds from maturities of marketable securities		14,000			1,000
Purchases of marketable securities		(14,124	)		(2,850	)
Proceeds from sale of non-marketable equity investments		765			—
Payments associated with capitalized software development		(7,019	)		(7,566	)
Purchases of property and equipment		(742	)		(879	)
Net cash used in investing activities		(7,120	)		(16,916	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(855	)		(791	)
Payment of cash dividends		(849	)		—
Net cash used in financing activities		(1,704	)		(791	)

Effect of exchange rate changes on cash and cash equivalents		(40	)		(21	)
Net increase in cash and cash equivalents		12,074			2,813
Cash and cash equivalents at beginning of period		40,333			46,023
Cash and cash equivalents at end of period	$	52,407		$	48,836

Dividend Payment Date	Dividend Declaration Date		Dividend Per Share			Record Date		Cash Outlay
March 22, 2024	February 19, 2024		$	0.028		March 11, 2024		$	849,000

	*March 31, 2024*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
U.S. treasury securities	$	31,261	$	6	$	(2	)	$	31,265
Total	$	31,261	$	6	$	(2	)	$	31,265

	*December 31, 2023*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
U.S. treasury securities	$	30,791	$	10	$	(1	)	$	30,800
Total	$	30,791	$	10	$	(1	)	$	30,800

	Three Months Ended March 31,
	2024			2023			Percentage Change
Subscription services	$	70,205		$	66,015			6	%
Professional services		2,555			2,931			-13	%
Total revenues, net	$	72,760		$	68,946			6	%

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

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 - January 31)		—	$	—		—	$	1,079,336
Month #2 (February 1 - February 29)		—		—		—		1,079,336
Month #3 (March 1 - March 31)		—		—		—		—
Total		—	$	—		—	$	—

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
99	HealthStream, Inc. Amended and Restated Compensation Recoupment Policy (referenced as Exhibit 97 in exhibit index of Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 26, 2024, where hyperlink was inadvertently omitted)
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, 2024, has been formatted in Inline XBRL

	HEALTHSTREAM, INC.

April 25, 2024	By:	/s/ Scott A. Roberts
		Scott A. Roberts
		Chief Financial Officer

SEC Form 10-Q filed by HealthStream Inc.