hstm20210930

hstm20210930_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 September 30, 2021

☐	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 October 25, 2021, there were 31,562,193 shares of the registrant’s common stock outstanding.

Table of Contents

Index to Form 10‑Q

HEALTHSTREAM, INC.

		Page Number
Part I.	Financial Information	1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets (Unaudited) – September 30, 2021 and December 31, 2020	1
	Condensed Consolidated Statements of Income (Unaudited) – Three and Nine Months ended September 30, 2021 and 2020	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months ended September 30, 2021 and 2020	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three and Nine Months ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three and Nine Months ended September 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
Part II.	Other Information	26
Item 1A.	Risk Factors	26
Item 6.	Exhibits	26
	SIGNATURE	27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)

	*September 30,*		*December 31,*
	*2021*		*2020*
ASSETS
Current assets:
Cash and cash equivalents	$	55,459	$	36,566
Marketable securities		5,095		9,928
Accounts receivable, net of allowance for doubtful accounts of $408 and $549 at September 30, 2021 and December 31, 2020, respectively		26,991		40,726
Accounts receivable - unbilled		3,754		5,374
Prepaid royalties, net of amortization		9,733		9,571
Other prepaid expenses and other current assets		11,224		12,560
Total current assets		112,256		114,725

Property and equipment, net of accumulated depreciation of $24,131 and $19,237 at September 30, 2021 and December 31, 2020, respectively		18,333		22,218
Capitalized software development, net of accumulated amortization of $81,734 and $70,516 at September 30, 2021 and December 31, 2020, respectively		31,250		26,631
Operating lease right of use assets, net		25,869		28,081
Goodwill		181,114		178,440
Customer-related intangibles, net of accumulated amortization of $43,362 and $36,723 at September 30, 2021 and December 31, 2020, respectively		70,782		76,927
Other intangible assets, net of accumulated amortization of $15,431 and $10,748 at September 30, 2021 and December 31, 2020, respectively		19,563		23,788
Deferred tax assets		974		974
Deferred commissions		22,860		19,907
Non-marketable equity investments		8,338		6,845
Other assets		3,375		1,777
Total assets	$	494,714	$	500,313

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	22,170	$	29,457
Accrued royalties		5,203		8,809
Deferred revenue		74,577		81,176
Total current liabilities		101,950		119,442

Deferred tax liabilities		18,205		14,523
Deferred revenue, noncurrent		1,915		1,603
Operating lease liability, noncurrent		26,852		28,479
Other long term liabilities		3,594		2,204
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 31,562 and 31,493 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		273,573		271,784
Retained earnings		68,510		62,277
Accumulated other comprehensive income		115		1
Total shareholders’ equity		342,198		334,062
Total liabilities and shareholders’ equity	$	494,714	$	500,313

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)

	*Three Months Ended*					*Nine Months Ended*
	*September 30, 2021*			*September 30, 2020*		*September 30, 2021*			*September 30, 2020*
Revenues, net	$	64,091		$	60,883	$	192,374		$	183,008
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		22,585			23,302		68,053			66,596
Product development		10,344			8,192		30,205			23,491
Sales and marketing		10,232			8,863		28,713			26,286
Other general and administrative expenses		10,004			9,986		29,445			29,949
Depreciation and amortization		9,141			7,406		27,443			22,005
Total operating costs and expenses		62,306			57,749		183,859			168,327

Operating income		1,785			3,134		8,515			14,681

Other (loss) income, net		(99	)		100		(250	)		2,006

Income before income tax provision		1,686			3,234		8,265			16,687
Income tax provision		186			600		2,033			3,519
Net income	$	1,500		$	2,634	$	6,232		$	13,168

Net income per share:
Basic	$	0.05		$	0.08	$	0.20		$	0.41
Diluted	$	0.05		$	0.08	$	0.20		$	0.41

Weighted average shares of common stock outstanding:
Basic		31,558			31,955		31,538			32,095
Diluted		31,684			31,981		31,609			32,121

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

	*Three Months Ended*						*Nine Months Ended*
	*September 30, 2021*			*September 30, 2020*			*September 30, 2021*		*September 30, 2020*
Net income	$	1,500		$	2,634		$	6,232	$	13,168

Other comprehensive income, net of taxes:
Foreign currency translation adjustments		(470	)		23			107		(4	)
Unrealized (loss) gain on marketable securities		(1	)		(18	)		7		6
Total other comprehensive (loss) income		(471	)		5			114		2
Comprehensive income	$	1,029		$	2,639		$	6,346	$	13,170

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

	*Nine Months Ended September 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
Net income		—		—			1,500		—			1,500
Comprehensive loss		—		—			—		(471	)		(471	)
Stock based compensation		—		862			—		—			862
Common stock issued under stock plans, net of shares withheld for employee taxes		8		(72	)		—		—			(72	)
Balance at September 30, 2021		31,562	$	273,573		$	68,510	$	115		$	342,198

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

	*Nine Months Ended September 30, 2020*
	*Common Stock*						*Retained*		*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*			*Amount*			*Earnings*		*Income (Loss)*			*Equity*
Balance at December 31, 2019		32,379		$	290,021		$	48,143	$	4		$	338,168
Net income		—			—			7,092		—			7,092
Comprehensive loss		—			—			—		(145	)		(145	)
Stock based compensation		—			550			—		—			550
Common stock issued under stock plans, net of shares withheld for employee taxes		62			(373	)		—		—			(373	)
Repurchase of common stock		(438	)		(9,876	)		—		—			(9,876	)
Balance at March 31, 2020		32,003		$	280,322		$	55,235	$	(141	)	$	335,416
Net income		—			—			3,442		—			3,442
Comprehensive income		—			—			—		142			142
Stock based compensation		—			557			—		—			557
Repurchase of common stock		(6	)		(133	)		—		—			(133	)
Balance at June 30, 2020		31,997		$	280,746		$	58,677	$	1		$	339,424
Net income		—			—			2,634		—			2,634
Dividend forfeitures		—			—			43		—			43
Comprehensive income		—			—			—		5			5
Stock based compensation		—			557			—		—			557
Common stock issued under stock plans, net of shares withheld for employee taxes		8			(55	)		—		—			(55	)
Repurchase of common stock		(319	)		(6,343	)		—		—			(6,343	)
Balance at September 30, 2020		31,686		$	274,905		$	61,354	$	6		$	336,265

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	*Nine Months Ended September 30,*
	*2021*			*2020*
OPERATING ACTIVITIES:
Net income	$	6,232		$	13,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27,443			22,005
Stock based compensation		2,260			1,665
Amortization of deferred commissions		6,900			6,555
Provision for doubtful accounts		99			160
Deferred income taxes		2,066			2,330
Loss on non-marketable equity investments		258			8
Non-cash paid time off expense		(1,011	)		—
Non-cash royalty expense		—			(3,440	)
Change in fair value of non-marketable equity investments		—			(1,181	)
Other		132			321
Changes in operating assets and liabilities:
Accounts and unbilled receivables		13,907			(9	)
Prepaid royalties		(162	)		1,394
Other prepaid expenses and other current assets		1,335			972
Deferred commissions		(9,854	)		(6,693	)
Other assets		(278	)		308
Accounts payable and accrued expenses		(3,062	)		(450	)
Accrued royalties		(3,606	)		(3,218	)
Deferred revenue		(6,223	)		(3,142	)
Net cash provided by operating activities		36,436			30,753

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(731	)		(21,449	)
Proceeds from maturities of marketable securities		9,931			59,522
Purchases of marketable securities		(5,223	)		(61,178	)
Payments to acquire non-marketable equity investments		—			(1,257	)
Payments to acquire equity method investments		(1,750	)		—
Payments associated with capitalized software development		(16,577	)		(12,366	)
Purchases of property and equipment		(2,602	)		(1,734	)
Net cash used in investing activities		(16,952	)		(38,462	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(471	)		(429	)
Repurchases of common stock		—			(16,352	)
Payment of cash dividends		(19	)		(40	)
Net cash used in financing activities		(490	)		(16,821	)

Effect of exchange rate changes on cash and cash equivalents		(101	)		(1	)
Net increase (decrease) in cash and cash equivalents		18,893			(24,531	)
Cash and cash equivalents at beginning of period		36,566			131,538
Cash and cash equivalents at end of period	$	55,459		$	107,007

SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash additions to non-marketable equity investments	$	—		$	1,300

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X. Accordingly, condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements. For further information, refer to the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020 (included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 25, 2021).

2. REVENUE RECOGNITION AND SALES COMMISSIONS

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those goods or services.

Revenue is recognized based on the following five step model:

•

Identification of the contract with a customer

•

Identification of the performance obligations in the contract

•

Determination of the transaction price

•

Allocation of the transaction price to the performance obligations in the contract

•

Recognition of revenue when, or as, the Company satisfies a performance obligation

The following table represents revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.

	*Three Months Ended September 30, 2021*						*Nine Months Ended September 30, 2021*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*		*Consolidated*
Subscription services	$	49,729	$	10,973	$	60,702	$	150,239	$	32,475	$	182,714
Professional services		1,426		1,963		3,389		4,320		5,340		9,660
Total revenues, net	$	51,155	$	12,936	$	64,091	$	154,559	$	37,815	$	192,374

	*Three Months Ended September 30, 2020*						*Nine Months Ended September 30, 2020*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*	*Consolidated*
Subscription services	$	48,246	$	9,999	$	58,245	$	144,945	$

SEC Form 10-Q filed by HealthStream, Inc.