What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 485 added, 123 removed, 341 unchanged (64% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

Cash and cash equivalents

$ 55,459  

$ 36,566  

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 383 and

$ 549 at June 30, 2021 and December 31, 2020, respectively

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

1 unchanged sentence

Other prepaid expenses and other current assets

11,224  

12,560  

Total current assets

Property and equipment, net of accumulated depreciation of $ 22,587 and

$ 19,237 at June 30, 2021 and December 31, 2020, respectively

Capitalized software development, net of accumulated amortization of $ 77,778 and

$ 70,516 at June 30, 2021 and December 31, 2020, respectively

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

Customer-related intangibles, net of accumulated amortization of $ 41,155 and

$ 36,723 at June 30, 2021 and December 31, 2020, respectively

Other intangible assets, net of accumulated amortization of $ 14,005 and

$ 10,748 at June 30, 2021 and December 31, 2020, respectively

25,869  

28,081  

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

Deferred commissions

22,860  

19,907  

Non-marketable equity investments

LIABILITIES AND SHAREHOLDERS’ EQUITY

$ 494,714  

$ 500,313  

LIABILITIES AND SHAREHOLDERS’

Current liabilities:

Accounts payable and accrued expenses

$ 22,170  

$ 29,457  

Accrued royalties

Deferred revenue

74,577  

81,176  

Total current liabilities

101,950  

119,442  

Deferred tax liabilities

18,205  

14,523  

Deferred revenue, noncurrent

Operating lease liability, noncurrent

26,852  

28,479  

Other long term liabilities

Commitments and contingencies

Shareholders’ equity:

Shareholders’

Common stock, no par value, 75,000 shares authorized;

31,554 and 31,493 shares

issued and outstanding at June 30, 2021 and December 31, 2020, respectively

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

Total shareholders’ equity

Total liabilities and shareholders’ equity

Total shareholders’

342,198  

334,062  

Total liabilities and shareholders’

$ 494,714  

$ 500,313  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Six 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  

30,205  

23,491  

Sales and marketing

10,232  

28,713  

26,286  

Other general and administrative expenses

10,004  

29,445  

29,949  

Depreciation and amortization

27,443  

22,005  

Total operating costs and expenses

62,306  

57,749  

183,859  

168,327  

Operating income

14,681  

Other (loss) income, net

( 99 )  

( 250 )  

Income before income tax provision

16,687  

Income tax provision

$ 1,500  

$ 2,634  

$ 6,232  

$ 13,168  

Net income per share:

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.41  

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.41  

Weighted average shares of common stock outstanding:

31,558  

31,955  

31,538  

32,095  

31,684  

31,981  

31,609  

32,121  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

$ 1,500  

$ 2,634  

$ 6,232  

$ 13,168  

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

Unrealized gain on marketable securities

Total other comprehensive income (loss)

( 470 )  

Unrealized (loss) gain on marketable securities

( 18 )  

Total other comprehensive (loss) income

( 471 )  

Comprehensive income

$ 1,029  

$ 2,639  

$ 6,346  

$ 13,170  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Accumulated Other Comprehensive

Total Shareholders’

Balance at December 31, 2020

31,493  

$ 271,784  

$ 62,277  

$ 334,062  

Comprehensive income

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Common stock issued under stock plans, net of shares withheld for employee taxes

( 399 )  

Balance at March 31, 2021

31,553  

$ 272,001  

$ 64,569  

$ 336,805  

Comprehensive income

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Common stock issued under stock plans, net of shares withheld for employee taxes

Balance at June 30, 2021

31,554  

$ 272,783  

$ 67,010  

$ 340,379  

Comprehensive loss

( 471 )  

Stock based compensation

Common stock issued under stock plans, net of shares withheld for employee taxes

( 72 )  

Balance at September 30, 2021

31,562  

$ 273,573  

$ 68,510  

$ 342,198  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Accumulated Other Comprehensive

Total Shareholders’

Income (Loss)

Balance at December 31, 2019

32,379  

$ 290,021  

$ 48,143  

$ 338,168  

Comprehensive loss

( 145 )  

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Common stock issued under stock plans, net of shares withheld for employee taxes

( 373 )  

Repurchase of common stock

( 438 )  

( 9,876 )  

Balance at March 31, 2020

32,003  

$ 280,322  

$ 55,235  

$ ( 141 )  

$ 335,416  

Comprehensive income

1 unchanged sentence

Repurchase of common stock

( 133 )  

Balance at June 30, 2020

31,997  

$ 280,746  

$ 58,677  

$ 339,424  

Dividend forfeitures

Comprehensive income

Stock based compensation

Common stock issued under stock plans, net of shares withheld for employee taxes

( 55 )  

Repurchase of common stock

( 319 )  

( 6,343 )  

Balance at September 30, 2020

31,686  

$ 274,905  

$ 61,354  

$ 336,265  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

$ 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

4 unchanged sentences

Non-cash paid time off expense

( 1,011 )  

Non-cash royalty expense

2 unchanged sentences

Accounts and unbilled receivables

13,907  

Prepaid royalties

( 162 )  

Other prepaid expenses and other current assets

Deferred commissions

( 9,854 )  

( 278 )  

Accounts payable and accrued expenses

( 3,062 )  

Accrued royalties

( 3,606 )  

Deferred revenue

( 6,223 )  

Net cash provided by operating activities

36,436  

30,753  

INVESTING ACTIVITIES:

Business combinations, net of cash acquired

( 731 )  

Proceeds from maturities of marketable securities

59,522  

Purchases of marketable securities

( 5,223 )  

Payments to acquire non-marketable equity investments

Payments to acquire equity method investments

( 1,750 )  

Payments associated with capitalized software development

( 16,577 )  

Purchases of property and equipment

( 2,602 )  

Net cash used in investing activities

( 16,952 )  

FINANCING ACTIVITIES:

Taxes paid related to net settlement of equity awards

( 471 )  

Repurchases of common stock

Payment of cash dividends

( 19 )  

Net cash used in financing activities

( 490 )  

Effect of exchange rate changes on cash and cash equivalents

( 101 )  

Net increase (decrease) in cash and cash equivalents

18,893  

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.

2 unchanged sentences

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.

1 unchanged sentence

All intercompany transactions have been eliminated in consolidation.

Operating results for the three and six months ended June 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).

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 

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 

2020 (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 25, 2021).

REVENUE RECOGNITION AND SALES COMMISSIONS

9 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Business Segments

Workforce Solutions

Provider Solutions

Workforce Solutions

Provider Solutions

Subscription services

$ 49,729  

$ 10,973  

$ 60,702  

$ 150,239  

$ 32,475  

$ 182,714  

Professional services

Total revenues, net

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

$ 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

Workforce Solutions

Provider Solutions

Subscription services

$ 48,246  

$ 9,999  

$ 58,245  

$ 144,945  

$ 29,937  

$ 174,882  

Professional services

Total revenues, net

For the six months ended June 30, 2021 and 2020, the Company recognized $ 3,000 and $ 0.4 million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

$ 49,197  

$ 11,686  

$ 60,883  

$ 147,909  

$ 35,099  

$ 183,008  

For the nine months ended September 30, 2021 and 2020 , the Company recognized $ 0.1  million and $ 0.2  million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

Deferred revenue represents contract liabilities that are recorded when cash payments are received or are due in advance of our satisfaction of performance obligations.

During the three months ended June 30, 2021 and 2020, we recognized revenues of approximately $ 40.5 million and $ 35.2 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the six months ended June 30, 2021 and 2020, we recognized $ 52.2 million and $ 49.9 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of June 30, 2021, approximately $ 448 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 46 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

During the three  months ended 

September 30, 2021 and 2020 , we recognized revenues of approximately $ 39.4  million and $ 34.4  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the nine months ended September 30, 2021 and 2020 , we recognized $ 59.3  million and $ 60.5 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of September 30, 2021 , approximately $ 446  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

46 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

HEALTHSTREAM, INC.

6 unchanged sentences

Non-commensurate commissions are amortized over the greater of the contract term or technological obsolescence period of approximately three years.

The Company recorded amortization of deferred commissions of approximately $ 2.4 million and $ 2.1 million for the three months ended June 30, 2021 and 2020, and $ 4.5 million and $ 4.3 million for the six months ended June 30, 2021 and 2020, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

The Company recorded amortization of deferred commissions of approximately $ 2.4  million and $ 2.3  million for the three  months ended September 30, 2021 and 2020 , and $ 6.9  million and $ 6.6  million for the nine months ended September 30, 2021 and 2020 , respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income.

The Company computes its interim period provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period.

During the three months ended June 30, 2021 and 2020 , the Company recorded a provision for income taxes of approximately $ 0.9 million and $ 1.1 million, respectively.

During the six months ended June 30, 2021 and 2020, the Company recorded a provision for income taxes of $ 1.8 million and $ 2.9 million, respectively.

The Company’s effective tax rate for the six months ended June 30, 2021 and 2020 was 28 % and 22 %, respectively.

The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, and the effect of various permanent tax differences.

During the six months ended June 30, 2021, the Company recorded discrete tax expense of $ 0.2 million related to various items, including recording a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period.

During the six months ended June 30, 2020, the Company recorded a $ 1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $ 0.3 million.

SHAREHOLDERS’ EQUITY

During the three  months ended September 30, 2021 and 2020 , the Company recorded a provision for income taxes of approximately $ 0.2  million and $ 0.6  million, respectively.

During the nine months ended September 30, 2021 and 2020 , the Company recorded a provision for income taxes of $ 2.0  million and $ 3.5  million, respectively.

The Company’s effective tax rate for the nine months ended September 30, 2021 and 2020 was 25 % and 21 %, respectively.

During the nine months ended September 30, 2021 , the Company recorded discrete tax expense of $ 0.2 million, which included purchase accounting adjustments, changes in state tax rates enacted during the period, and lower research and development tax credits recognized than previously estimated.

During the nine months ended September 30, 2020 , the Company recorded a $ 1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $ 0.3 million, and recognized tax benefits resulting from higher research and development tax credits than previously estimated.

SHAREHOLDERS ’

Stock Based Compensation

The Company has stock awards outstanding under its 2016 Omnibus Incentive Plan.

The Company accounts for its stock based compensation plan using the fair-value based method for costs related to share based payments, including restricted share units (“RSUs”).

During the six months ended June 30, 2021, the Company issued 122,686 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 23.16 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the six months ended June 30, 2020, the Company issued 111,510 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.96 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

The Company accounts for its stock based compensation plan using the fair-value based method for costs related to share based payments, including restricted share units (“RSUs”).

During the nine months ended September 30, 2021 , the Company issued 129,906  RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 23.44  per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the nine months ended September 30, 2020 , the Company issued 114,784  RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.94  per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

Total stock based compensation expense recognized in the Condensed Consolidated Statements of Income is as follows (in thousands):

Three Months Ended

Six Months Ended

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues (excluding depreciation and amortization)

3 unchanged sentences

Total stock based compensation expense

$ 2,260  

$ 1,665  

HEALTHSTREAM, INC.

5 unchanged sentences

The dilutive effect of common equivalent shares is included in diluted earnings per share by application of the treasury stock method.

The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately 111,000 and 108,000 for the three months ended June 30, 2021 and 2020 , respectively, and 130,000 and 107,000 for the six months ended June 30, 2021 and 2020, respectively.

The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately 26,000  and 115,000  for the three  months ended September 30, 2021 and 2020 , respectively, and 95,000  and 112,000  for the nine months ended September 30, 2021 and 2020 , respectively.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Three Months Ended

Six Months Ended

Three Months Ended September 30,

Nine Months Ended September 30,

$ 1,500  

$ 2,634  

$ 6,232  

$ 13,168  

Weighted-average shares outstanding

31,558  

31,955  

31,538  

32,095  

Effect of dilutive shares

Weighted-average diluted shares

31,684  

31,981  

31,609  

32,121  

Net income per share:

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.41  

$ 0.05  

$ 0.08  

$ 0.20  

MARKETABLE SECURITIES

The fair value of marketable securities, which were all classified as available for sale and which the Company does not intend to sell nor will the Company be required to sell prior to recovery of their amortized cost basis, included the following (in thousands):

June 30, 2021

September 30, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Cash and Cash Equivalents

Current Marketable Securities

$ 55,459  

Corporate debt securities

$ 60,555  

$ ( 1 )  

$ 60,554  

$ 55,459  

$ 5,095  

December 31, 2020

1 unchanged sentence

Current Marketable Securities

$ 31,558  

Time deposits

10,021  

Corporate debt securities

$ 46,502  

$ ( 8 )  

$ 46,494  

$ 36,566  

$ 9,928  

The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate the fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs.

As of June 30, 2021, the Company did no t recognize any allowance for credit impairments on its available for sale debt securities.

As of September 30, 2021 , the Company did not recognize any allowance for credit impairments on its available for sale debt securities.

All investments in marketable securities are classified as current assets on the Condensed Consolidated Balance Sheets because the underlying securities mature within one year from the balance sheet date.

3 unchanged sentences

On March 9, 2020, the Company acquired all of the outstanding stock of HcT2 Co.

dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise, for net cash consideration of approximately $ 21.5 million, after giving effect to the post-closing working capital adjustment.

dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise, for net cash consideration of approximately $ 21.5 million, after giving effect to the post-closing working capital adjustment.

The Company accounted for this transaction as a business combination achieved in stages which required the Company to remeasure its previously existing minority ownership interest, which was accounted for as a non-marketable equity investment measured using the fair value alternative, to fair value at the acquisition date based on the total enterprise value, adjusting for a control premium.

The fair value of the Company’s interest in NurseGrid was $ 3.6 million at closing, resulting in a gain of $ 1.2 million, recorded as a change in fair value of non-marketable equity investments in the Company’s Condensed Consolidated Statement of Income during the three months ended March 31, 2020.

Additionally, the Company’s previously recorded non-marketable equity investment in NurseGrid was de-recognized from the Company’s Condensed Consolidated Balance Sheet during the same period.

Acquisition-related transaction costs were $ 0.2 million.

2 unchanged sentences

Cash paid at closing

$ 25,485  

Post-closing adjustment, net of cash received

1 unchanged sentence

Net consideration paid

21,454  

Fair value of existing equity interest in NurseGrid

Net consideration paid

$ 25,077  

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

3 unchanged sentences

Deferred tax assets

21,085  

Intangible assets

3 unchanged sentences

Net assets acquired

$ 25,077  

The excess of purchase price over the fair values of net tangible and intangible assets is recorded as goodwill.

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The primary intangible assets acquired were developed technology and trade name.

5 unchanged sentences

income tax purposes.

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 157,000 to an estimated fair value of $ 78,000 .

The $ 79,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services .

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 157,000  to an estimated fair value of $ 78,000 .

The $ 79,000  write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.  

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Useful life (in years)

Customer relationships

1 unchanged sentence

Total intangible assets

$ 1,845  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

Six Months Ended

The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 ( in thousands, except per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenues

$ 64,091  

$ 60,900  

$ 192,379  

$ 183,133  

$ 1,500  

$ 2,648  

$ 6,236  

$ 12,632  

Net income per share - basic

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.39  

Net income per share - diluted

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to NurseGrid’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances .

The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.39  

On October 12, 2020, the Company acquired all of the outstanding stock of ShiftWizard, Inc., a Raleigh, North Carolina-based healthcare technology company offering a SaaS-based solution that integrates key workforce management capabilities, including scheduling, productivity, and forecasting.

The consideration paid for ShiftWizard consisted of $ 30.5 million in cash after giving effect to the post-closing working capital adjustment.

Acquisition-related transaction costs were $ 0.3 million.

The consideration paid for ShiftWizard consisted of $ 30.5  million in cash after giving effect to the post-closing working capital adjustment. Acquisition-related transaction costs were $ 0.3  million.

The financial results of ShiftWizard have been included in the Workforce Solutions segment from October 12, 2020.

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

$ 1,091  

Accounts and unbilled receivable, net

3 unchanged sentences

Indemnification assets

19,307  

Intangible asset

12,660  

Accounts payable and accrued liabilities

4 unchanged sentences

Net assets acquired

$ 30,492  

The excess of purchase price over the fair values of net tangible and intangible assets is recorded as goodwill.

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

Included in the assets and liabilities is an indemnification asset and liability of $ 0.5 million associated with a Paycheck Protection Program loan pending forgiveness as of the acquisition date that was subsequently forgiven.

6 unchanged sentences

income tax purposes.

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 2.7 million to an estimated fair value of $ 1.6 million.

The $ 1.1 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 2.7  million to an estimated fair value of $ 1.6  million.

The $ 1.1  million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

HEALTHSTREAM, INC.

1 unchanged sentence

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Useful life (in years)

Customer relationships

$ 7,800  

Developed technology

Total intangible assets

$ 12,660  

The following unaudited pro forma financial information summarizes the results of operations of the Company and ShiftWizard as though the companies were combined as of January 1, 2019 ( in thousands, except per share data):

Three Months Ended

Six Months Ended

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenues

$ 64,210  

$ 61,930  

$ 192,910  

$ 186,049  

$ 1,615  

$ 2,169  

$ 6,690  

$ 11,985  

Net income per share - basic

$ 0.05  

$ 0.07  

$ 0.21  

$ 0.37  

Net income per share - diluted

$ 0.05  

$ 0.07  

$ 0.21  

$ 0.37  

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, and fair value adjustments of acquired deferred revenue balances.

ANSOS TM Staff Scheduling application

On December 2, 2020, the Company acquired all of the equity interests of Change Healthcare’s staff scheduling business, consisting of the ANSOS TM Staff Scheduling application and related products (ANSOS).

The consideration paid for ANSOS was $ 66.4 million in cash, after giving effect to the post-closing working capital adjustment.

Acquisition-related transaction costs were $ 1.2 million.

ANSOS ™

Staff Scheduling application

On December 2, 2020, the Company acquired all of the equity interests of Change Healthcare’s staff scheduling business, consisting of the ANSOS™

Staff Scheduling application and related products (ANSOS).

The consideration paid for ANSOS was $ 66.4  million in cash, after giving effect to the post-closing working capital adjustment. Acquisition-related transaction costs were $ 1.2  million.

The financial results of ANSOS have been included in the Workforce Solutions segment from December 2, 2020.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

$ 1,599  

Accounts and unbilled receivable, net

10,099  

Prepaid assets

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Indemnification asset

36,748  

Intangible assets

32,440  

Accounts payable and accrued liabilities

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Net assets acquired

$ 66,448  

HEALTHSTREAM, INC.

1 unchanged sentence

The excess of purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill.

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes and working capital accounts.

Included in the preliminary assets and liabilities acquired is an indemnification asset and an uncertain tax position liability determined based on management’s estimate of the most likely value related to income tax attributes.

During the six months ended June 30, 2021, the Company made adjustments to accounts receivable, deferred revenue, indemnification asset, uncertain tax position liability, and deferred tax assets based on updated information obtained since our preliminary estimates were made.

During the nine months ended September 30, 2021 , the Company made adjustments to accounts receivable, deferred revenue, indemnification asset, uncertain tax position liability, accounts payable and accrued liabilities, and deferred tax assets based on updated information obtained since our preliminary estimates were made.

As a result of these items, coupled with the impact of the post-closing working capital adjustment, the Company recorded a measurement period adjustment which increased goodwill by $ 1.5 million.

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Additionally, these assumptions are forward looking and could be affected by future economic and market conditions.

The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering ANSOS products, and expected synergies from integrating ANSOS with other products or other combined functional areas within the Company.

The portion of goodwill allocated to the U.S.

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income tax purposes (representing 95 %).

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 17.6 million to an estimated fair value of $ 14.3 million.

The $ 3.3 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 17.5  million to an estimated fair value of $ 14.2  million.

The $ 3.3  million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Useful life (in years)

Customer relationships

11 - 14 years

$ 21,100  

11 - 14  

Developed technology

Total intangible assets

$ 32,440  

The following unaudited pro forma financial information summarizes the results of operations of the Company and ANSOS as though the companies were combined as of January 1, 2019 ( in thousands, except per share data):

Three Months Ended

Six Months Ended

Three Months Ended September 30,

Nine Months Ended September 30,

Total revenues

$ 64,636  

$ 66,924  

$ 194,856  

$ 203,129  

$ 1,965  

$ 3,407  

$ 8,190  

$ 16,514  

Net income per share - basic

$ 0.06  

$ 0.11  

$ 0.26  

$ 0.51  

Net income per share - diluted

$ 0.06  

$ 0.11  

$ 0.26  

$ 0.51  

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, and fair value adjustments of acquired deferred revenue balances.

Other Business Combinations

On December 10, 2020, the Company acquired substantially all of the assets of myClinicalExchange, LLC, a Denver, Colorado-based information technologies company offering a SaaS-based solution that allows healthcare organizations to track, manage, and report the intern and clinical rotation educational requirements of medical, nursing, and allied healthcare students as well as host required documentation for medical residents.

The consideration paid for myClinicalExchange consisted of $ 4.4 million in cash.

Acquisition-related transaction costs were $ 0.1 million.

The acquisition is not considered material to the Company’s Financial Statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

The results of operations for myClinicalExchange are included in the Company’s Condensed Consolidated Financial Statements from the date of acquisition and are included in the Workforce Solutions segment .

On January 19, 2021, the Company acquired the issued and outstanding equity of ProcessDATA, Ltd.

(d/b/a ComplyALIGN and HospitalPORTAL) (“ComplyALIGN”), a Chicago, Illinois-based healthcare technology company offering a SaaS-based policy

The consideration paid for myClinicalExchange consisted of $ 4.4  million in cash. Acquisition-related transaction costs were $ 0.1  million.

The acquisition is not considered material to the Company’s Financial Statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

management system for healthcare organizations, for $ 2.0 million in cash.

The acquisition is not considered material to the Company’s financial statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

On January 19, 2021, the Company acquired the issued and outstanding equity of ProcessDATA, Ltd.

(d/b/a ComplyALIGN and HospitalPORTAL) (“ComplyALIGN”), a Chicago, Illinois-based healthcare technology company offering a SaaS-based policy management system for healthcare organizations, for $ 2.0  million in cash. The acquisition is not considered material to the Company’s financial statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

Acquisition-related transaction costs were $ 0.1 million.

The results of operations for ComplyALIGN are included in the Company’s Condensed C onsolidated F inancial S tatements from the date of acquisition and are included in the Workforce Solutions segment.

During the six months ended June 30, 2021, the carrying amount of goodwill increased by $ 3.1 million, consisting of a $ 1.5 million of measurement period adjustment related to ANSOS, $ 1.0 million of acquired goodwill related to ComplyALIGN, and $ 0.6 million for the effect of currency translation adjustments .

The results of operations for ComplyALIGN are included in the Company’s Condensed Consolidated Financial Statements from the date of acquisition and are included in the Workforce Solutions segment.

During the nine months ended September 30, 2021 , the carrying amount of goodwill increased by $ 2.7  million, consisting of a $ 1.5 million of measurement period adjustment related to ANSOS, $ 1.0 million of acquired goodwill related to ComplyALIGN, and $ 0.2  million for the effect of currency translation adjustments.

BUSINESS SEGMENTS

The Company provides services to healthcare organizations and other members within the healthcare industry.

The Company’s services are focused on the delivery of workforce training, certification, assessment, development, and scheduling products and services (Workforce Solutions) and provider credentialing, privileging, call center, and enrollment products and services (Provider Solutions).

The Company measures segment performance based on operating income before income taxes and prior to the allocation of certain corporate overhead expenses, interest income, interest expense, gains and losses from equity investments, and depreciation.

The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, information systems, administrative and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance.

The following is the Company’s business segment information (in thousands).

Three Months Ended

Six Months Ended

The following is the Company’s business segment information (in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

Revenues, net:

Workforce Solutions

$ 51,155  

$ 49,197  

$ 154,559  

$ 147,909  

Provider Solutions

12,936  

11,686  

37,815  

35,099  

Total revenues, net

$ 64,091  

$ 60,883  

$ 192,374  

$ 183,008  

Operating income:

Workforce Solutions

$ 7,732  

$ 9,758  

$ 25,981  

$ 33,575  

Provider Solutions

( 7,921 )  

( 7,537 )  

( 23,661 )  

Total operating income

$ 1,785  

$ 3,134  

$ 8,515  

$ 14,681  

Segment assets *

June 30, 2021

September 30, 2021

December 31, 2020

Workforce Solutions

$ 259,036  

$ 270,924  

Provider Solutions

134,793  

140,490  

100,885  

88,899  

$ 494,714  

$ 500,313  

Segment assets include accounts and unbilled receivables, prepaid royalties, prepaid and other current assets, other assets, capitalized software development, deferred commissions, certain property and equipment, goodwill, and intangible assets.

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A significant portion of property and equipment assets are included within Unallocated.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Revolving Credit Facility

On October 28, 2020, the Company entered into a Third Amendment to Revolving Credit Agreement (Revolving Credit Facility), amending the Revolving Credit Facility dated as of November 24, 2014 with Truist Bank, successor by merger to SunTrust Bank (Truist), extending the maturity date to October 28, 2023.

Under the Revolving Credit Facility, the Company may borrow up to $ 65.0 million, which includes a $ 5.0 million swing line sub-facility and a $ 5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $ 25.0 million, subject to securing additional commitments from existing lenders or new lending institutions.

At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either (1) a rate per annum equal to the highest of Truist’s prime rate or 0.5 % in excess of the Federal Funds Rate or 1.0 % in excess of one-month LIBOR (the Base Rate), plus an applicable margin, or (2) the one, two, three, or six-month per annum LIBOR for deposits in the applicable currency (the Eurocurrency Rate), as selected by the Company, plus an applicable margin.

The applicable margin for Eurocurrency Rate loans depends on the Company’s funded debt leverage ratio and varies from 1.50 % to 1.75 %.

The applicable margin for Base Rate loans depends on the Company’s funded debt leverage ratio and varies from 0.50 % to 0.75 %.

At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either ( 1 ) a rate per annum equal to the highest of Truist’s prime rate or 0.5 % in excess of the Federal Funds Rate or 1.0 % in excess of one -month LIBOR (the Base Rate), plus an applicable margin, or ( 2 ) the one, two, three, or six -month per annum LIBOR for deposits in the applicable currency (the Eurocurrency Rate), as selected by the Company, plus an applicable margin.

The applicable margin for Eurocurrency Rate loans depends on the Company’s funded debt leverage ratio and varies from 1.50 % to 1.75 %.

The applicable margin for Base Rate loans depends on the Company’s funded debt leverage ratio and varies from 0.50 % to 0.75 %.

Commitment fees and letter of credit fees are also payable under the Revolving Credit Facility.

Principal is payable in full at maturity on October 28, 2023, and there are no scheduled principal payments prior to maturity.

The Company is required to pay a commitment fee ranging between 20 and 30 basis points per annum of the average daily unused portion of the Revolving Credit Facility, depending on the Company’s funded debt leverage ratio.

The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.

The purpose of the Revolving Credit Facility is for general working capital needs, permitted acquisitions (as defined in the Revolving Credit Facility), and for stock repurchase and/or redemption transactions that the Company may authorize.

The Revolving Credit Facility contains certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, changes to the character of the Company’s business, acquisitions, asset dispositions, mergers and consolidations, sale or discount of receivables, creation or acquisitions of additional subsidiaries, and other matters customarily restricted in such agreements.

In addition, the Revolving Credit Facility requires the Company to meet certain financial tests, including, without limitation:

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an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0.

As of June 30, 2021, the Company was in compliance with all covenants.

There were no balances outstanding on the Revolving Credit Facility as of or during the three and six months ended June 30, 2021.

As of September 30, 2021 , the Company was in compliance with all covenants.

There were no balances outstanding on the Revolving Credit Facility as of or during the three and nine months ended September 30, 2021 .  

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements