hstm20230331

hstm20230331_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, 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 April 24, 2023, there were 30,682,518 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, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Income (Unaudited) – Three Months ended March 31, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three Months ended March 31, 2023 and 2022	3
	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three Months ended March 31, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months ended March 31, 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	18
Item 4.	Controls and Procedures	18
Part II.	Other Information	19
Item 1A.	Risk Factors	19
Item 6.	Exhibits	20
	SIGNATURE	21

	*March 31,*			*December 31,*
	*2023*			*2022*
ASSETS
Current assets:
Cash and cash equivalents	$	48,836		$	46,023
Marketable securities		9,818			7,885
Accounts receivable, net of allowance for doubtful accounts of $616 and $544 at March 31, 2023 and December 31, 2022, respectively		41,556			36,730
Accounts receivable - unbilled		5,732			5,980
Prepaid royalties, net of amortization		10,959			9,071
Other prepaid expenses and other current assets		8,207			8,688
Total current assets		125,108			114,377

Property and equipment, net of accumulated depreciation of $21,326 and $20,280 at March 31, 2023 and December 31, 2022, respectively		14,689			15,483
Capitalized software development, net of accumulated amortization of $110,182 and $105,025 at March 31, 2023 and December 31, 2022, respectively		38,460			37,118
Operating lease right of use assets, net		22,136			22,759
Goodwill		191,102			192,398
Customer-related intangibles, net of accumulated amortization of $50,679 and $48,552 at March 31, 2023 and December 31, 2022, respectively		61,080			61,269
Other intangible assets, net of accumulated amortization of $14,346 and $12,818 at March 31, 2023 and December 31, 2022, respectively		18,026			20,284
Deferred tax assets		383			383
Deferred commissions		27,122			28,344
Non-marketable equity investments		4,391			4,518
Other assets		662			808
Total assets	$	503,159		$	497,741

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	20,122		$	32,301
Accrued royalties		6,533			5,443
Deferred revenue		94,349			79,469
Total current liabilities		121,004			117,213

Deferred tax liabilities		18,787			17,996
Deferred revenue, noncurrent		2,562			2,937
Operating lease liability, noncurrent		22,572			23,321
Other long-term liabilities		2,195			2,210
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 30,682 and 30,579 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		254,986			254,832
Retained earnings		82,069			80,213
Accumulated other comprehensive loss		(1,016	)		(981	)
Total shareholders’ equity		336,039			334,064
Total liabilities and shareholders’ equity	$	503,159		$	497,741

	*Three Months Ended*
	*March 31, 2023*		*March 31, 2022*
Revenues, net	$	68,946	$	65,367
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		23,856		21,998
Product development		11,680		10,412
Sales and marketing		11,728		10,417
Other general and administrative expenses		8,865		9,183
Depreciation and amortization		9,926		9,322
Total operating costs and expenses		66,055		61,332

Operating income		2,891		4,035

Other income (loss), net		250		(276	)

Income before income tax provision		3,141		3,759
Income tax provision		518		866
Net income	$	2,623	$	2,893

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

Weighted average shares of common stock outstanding:
Basic		30,591		30,955
Diluted		30,659		30,976
Dividends declared per share	$	0.025	$	—

	*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
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, 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	)		—		—		(497	)
Repurchase of common stock		(892	)		(19,889	)		—		—		(19,889	)
Balance at March 31, 2022		30,518		$	251,179		$	71,015	$	378	$	322,572

	*Three Months Ended March 31,*
	*2023*			*2022*
OPERATING ACTIVITIES:
Net income	$	2,623		$	2,893
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,926			9,322
Stock-based compensation		945			774
Amortization of deferred commissions		2,712			2,484
Provision for credit losses		209			6
Deferred income taxes		800			684
Loss on non-marketable equity investments		127			276
Other		(85	)		26
Changes in operating assets and liabilities:
Accounts and unbilled receivables		(4,787	)		(5,874	)
Prepaid royalties		(1,889	)		(2,033	)
Other prepaid expenses and other current assets		482			952
Deferred commissions		(1,490	)		(2,614	)
Other assets		147			79
Accounts payable and accrued expenses		(4,773	)		(3,653	)
Accrued royalties		1,090			1,877
Deferred revenue		14,504			15,456
Net cash provided by operating activities		20,541			20,655

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(6,621	)		(22	)
Proceeds from maturities of marketable securities		1,000			5,025
Purchases of marketable securities		(2,850	)		(2,024	)
Payments associated with capitalized software development		(7,566	)		(6,305	)
Purchases of property and equipment		(879	)		(636	)
Net cash used in investing activities		(16,916	)		(3,962	)

FINANCING ACTIVITIES:
Taxes paid related to net settlement of equity awards		(791	)		(497	)
Repurchases of common stock		—			(19,726	)
Net cash used in financing activities		(791	)		(20,223	)

Effect of exchange rate changes on cash and cash equivalents		(21	)		(5	)
Net increase (decrease) in cash and cash equivalents		2,813			(3,535	)
Cash and cash equivalents at beginning of period		46,023			46,905
Cash and cash equivalents at end of period	$	48,836		$	43,370

	*March 31, 2023*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
U.S. treasury securities	$	9,818	$	2	$	(2	)	$	9,818
Total	$	9,818	$	2	$	(2	)	$	9,818

	*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 March 31,
	2023			2022			Percentage Change
Subscription services	$	66,015		$	62,075			6	%
Professional services		2,931			3,292			-11	%
Total revenues, net	$	68,946		$	65,367			5	%

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

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)		—	$	—		—	$	1,880,642
Month #2 (February 1 - February 28)		—		—		—		1,880,642
Month #3 (March 1 - March 31)		—		—		—		—
Total		—	$	—		—	$	—

10.1	HealthStream, Inc. 2023 Cash Incentive Bonus Plan
10.2	Letter Agreement, dated as of February 20, 2023, between HealthStream, Inc. and Michael Sousa
10.3	Form of HealthStream, Inc. Restricted Share Unit Agreement (Time Based) 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 March 31, 2023, has been formatted in Inline XBRL
	Management contract of compensatory plan or arrangement

	HEALTHSTREAM, INC.

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

SEC Form 10-Q filed by HealthStream Inc.