What changed in this filing

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Item 1. Financial Statements

2022-04-28 compared with 2021-10-28 · 100 added, 538 removed, 288 unchanged (69% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

3 unchanged sentences

Marketable securities

Accounts receivable, net of allowance for doubtful accounts of $ 408 and $ 549 at September 30, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 541 and $ 853 at March 31, 2022 and December 31, 2021, respectively

35,739  

2 unchanged sentences

Prepaid royalties, net of amortization

Other prepaid expenses and other current assets

11,188  

Other prepaid expenses and other current assets

10,824  

2 unchanged sentences

106,845  

Property and equipment, net of accumulated depreciation of $ 24,131 and $ 19,237 at September 30, 2021 and December 31, 2020, respectively

Property and equipment, net of accumulated depreciation of $ 19,270 and $ 17,999 at March 31, 2022 and December 31, 2021, respectively

17,070  

17,950  

Capitalized software development, net of accumulated amortization of $81,734 and $ 70,516 at September 30, 2021 and December 31, 2020, respectively

Capitalized software development, net of accumulated amortization of $ 90,537 and $ 86,097 at March 31, 2022 and December 31, 2021, respectively

34,131  

5 unchanged sentences

182,501  

Customer-related intangibles, net of accumulated amortization of $ 43,362 and $ 36,723 at September 30, 2021 and December 31, 2020, respectively

Customer-related intangibles, net of accumulated amortization of $ 47,847 and $ 45,615 at March 31, 2022 and December 31, 2021, respectively

66,661  

68,803  

Other intangible assets, net of accumulated amortization of $ 15,431 and $ 10,748 at September 30, 2021 and December 31, 2020, respectively

Other intangible assets, net of accumulated amortization of $ 18,140 and $ 16,752 at March 31, 2022 and December 31, 2021, respectively

19,016  

30 unchanged sentences

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

30,518 and 31,327 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

251,179  

15 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

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 )  

Other loss, net

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

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

$ 1,500  

$ 2,634  

$ 6,232  

$ 13,168  

March 31, 2022

March 31, 2021

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

( 470 )  

Unrealized (loss) gain on marketable securities

( 18 )  

Total other comprehensive (loss) income

( 471 )  

Total other comprehensive income

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)

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Accumulated Other Comprehensive

9 unchanged sentences

( 497 )  

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

Balance at June 30, 2021

31,554  

$ 272,783  

$ 67,010  

$ 340,379  

Comprehensive loss

Repurchase of common stock

( 892 )  

Stock based compensation

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

( 19,889 )  

Balance at September 30, 2021

Balance at March 31, 2022

30,518  

2 unchanged sentences

$ 322,572  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Accumulated Other Comprehensive

Total Shareholders’

Income (Loss)

Balance at December 31, 2020

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

( 373 )  

Repurchase of common stock

( 438 )  

( 9,876 )  

Balance at March 31, 2020

32,003  

$ 280,322  

$ 55,235  

$ ( 141 )  

$ 335,416  

Comprehensive income

Stock-based compensation

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  

Balance at March 31, 2021

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

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

Amortization of deferred commissions

Provision for doubtful accounts

Provision for credit losses

Deferred income taxes

1 unchanged sentence

Non-cash paid time off expense

( 1,011 )  

Non-cash royalty expense

Change in fair value of non-marketable equity investments

Changes in operating assets and liabilities:

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  

Net (decrease) increase in cash and cash equivalents

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.

7 unchanged sentences

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.

three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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.

2021  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).

2021  (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 28, 2022).

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Recently Adopted

October 2021, 

the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 

2021 - 08 ,  

Business Combinations (Topic  

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

 The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification ("ASC") 606 ,  

Revenue from Contracts with Customers , as if it had originated the contracts.

This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value.

The standard will be effective for the 

first  interim period within annual reporting periods beginning after 

December 15, 2022 

and early adoption is permitted.

The Company early adopted this ASU on 

January 1, 2022, and the adoption impact of the new standard will depend on the magnitude of future acquisitions.

The standard will 

not  impact contract assets or liabilities from business combinations that occurred prior to the adoption date.

REVENUE RECOGNITION AND SALES COMMISSIONS

9 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Business Segments

Workforce Solutions

Provider Solutions

Workforce Solutions

Provider Solutions

Three Months Ended March 31, 2022

Subscription services

2 unchanged sentences

$ 62,075  

$ 150,239  

$ 32,475  

$ 182,714  

Professional services

3 unchanged sentences

$ 65,367  

$ 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

Three Months Ended March 31, 2021

Subscription services

2 unchanged sentences

$ 60,367  

$ 144,945  

$ 29,937  

$ 174,882  

Professional services

3 unchanged sentences

$ 63,468  

$ 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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31, 2022 and 2021 , the Company recognized $ 6,000  and $ 0.1  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 

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.

March 31, 2022 and 2021 , we recognized revenues of approximately $ 34.6  million and $ 33.6  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of March 31, 2022 , approximately $ 444  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

44 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment and associated payroll taxes, are capitalized in the period a customer contract is entered into and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit, whereas subsequent sales commission payments which require a substantive performance condition of the employee are expensed ratably through the payment date.

Capitalized contract costs are included in deferred commissions in the accompanying Condensed Consolidated Balance Sheets.

Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment and associated payroll taxes, are capitalized in the period a customer contract is entered into and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit. Capitalized contract costs are included in deferred commissions in the accompanying Condensed Consolidated Balance Sheets.

The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions are not commensurate with initial commissions.

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 $ 2.3  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.

The Company recorded amortization of deferred commissions of approximately $ 2.5  million and $ 2.1  million for the three  months ended March 31, 2022 and 2021 , 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 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 both the three  months ended March 31, 2022 and 2021 , the Company recorded a provision for income taxes of approximately $ 0.9  million.

The Company’s effective tax rate was 23 % and 29 % for the three months ended March 31, 2022 and 2021 , 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 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.

The Company recognizes excess tax benefits and tax deficiencies associated with stock-based awards as a component of its provision for income taxes.

During the three months ended March 31, 2022 , the Company recorded discrete tax expense of $ 0.1  million, which consisted primarily of tax deficiencies associated with stock-based awards.

During the three months ended March 31, 2021 , the Company recorded discrete tax expense a $ 0.1  million related primarily to a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period. 

SHAREHOLDERS ’

1 unchanged sentence

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 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.

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”) and stock options.

During the three months ended March 31, 2022 , the Company approved the grant of 

135,352  RSUs subject to service-based time vesting, of which 35,161 of these RSUs were conditioned upon and subject to shareholder approval of our 2022 Omnibus Incentive Plan to be submitted to the Company's shareholders for approval at the annual meeting of the Company's shareholders to be held on May 26, 2022.

Of these, the 100,191 RSUs that were not conditioned on shareholder approval of our 2022 Omnibus Incentive Plan were granted with a weighted average grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

Applicable accounting standards require that the 35,161 RSUs conditioned upon approval of our 2022 Omnibus Incentive Plan not be valued unless and until the condition is met (that is, at such time that the 2022 Omnibus Incentive Plan is approved by shareholders at the annual meeting of the Company’s shareholders on May 26, 2022).

During the three months ended March 31, 2021 , the Company issued 121,551  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 three months ended June 30, 2018, the Company granted 

70,000 performance-based RSUs, the vesting of which occurs over a five -year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis in increments of 10 %, 15 %, 20 %, 25 %, and 30 % based on performance in 2018, 2019, 2020, 2021, and 2022, respectively.

The performance criteria for the final 

21,000 of these performance-based RSUs is based on 2022 performance.

The measurement date for these 21,000 performance-based RSUs was established during the three months ended March 31, 2022 with a grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established. 

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the three months ended March 

31, 2022, the Company approved the grant of 91,042  performance-based RSUs, the vesting of which occurs over a five -year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis in increments of 15 %, 20 %, 20 %, 20 %, and 25 % based on performance in 2022, 2023, 2024, 2025, and 2026, respectively, of which 17,224 performance-based RSUs were conditioned upon and subject to shareholder approval of our 2022 Omnibus Incentive Plan to be submitted to the Company’s shareholders for approval at the annual meeting of the Company’s shareholders on May 26, 2022.

Of the total amount of performance-based RSUs approved by the Company, the performance criteria for 

13,654  of these performance-based RSUs is based on 2022 performance.

The measurement date for the 

11,070 of these performance-based RSUs that are not conditioned on approval of the 2022 Omnibus Incentive Plan at the annual meeting of shareholders on May 26, 2022 was established during the three months ended March 31, 2022 with a grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established.

Applicable accounting standards require that the 17,224 performance-based RSUs conditioned upon approval of our 2022 Omnibus Incentive Plan (including 2,584 of these performance-based RSUs for which performance criteria will be based on 2022 performance) not be valued unless and until the condition is met (that is, at such time that the 2022 Omnibus Incentive Plan is approved by shareholders at the annual meeting of the Company’s shareholders on May 26, 2022).

The performance criteria for the remaining 77,388  performance-based RSUs with performance not based on 2022 performance has not yet been determined and will be established on an annual basis in 2023, 2024, 2025, and 2026, as applicable;

therefore, the measurement date for these remaining 77,388  performance-based RSUs cannot be determined until the performance criteria have been established.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenues (excluding depreciation and amortization)

3 unchanged sentences

Total stock based compensation expense

$ 2,260  

$ 1,665  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Share Repurchase Plan

On November 30, 2021, the Company's Board of Directors authorized a share repurchase program to repurchase up to $ 20.0 million of the Company's outstanding shares of common stock.

This share repurchase program concluded on March 8, 2022, when the maximum dollar amount authorized under the program was expended.

Under this program, the Company repurchased a total of 853,023 shares through open market purchases at an aggregate value of $ 20.0 million, reflecting an average price per share of $ 23.45 (excluding the cost of broker commissions).

During the three months ended March 31, 2022, the Company repurchased 649,739 shares pursuant to this share repurchase program at an aggregate fair value of $ 14.9 million, based on an average price per share of $ 22.92  (excluding the cost of broker commissions).

On March 14, 2022, the Company's Board of Directors approved an expansion of the Company's share repurchase program by authorizing the repurchase of up to an additional $ 10.0 million of the Company's outstanding shares of common stock.

The share repurchase expansion program will terminate on the earlier of March 13, 2023, or when the maximum dollar amount has been expended.

During the three months ended March 31, 2022, the Company repurchased 242,647  shares pursuant to this share repurchase program at an aggregate fair value of $ 5.0  million, based on an average price per share of $ 20.52  (excluding the cost of broker commissions).

EARNINGS PER SHARE

3 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 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 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 218,000  and 148,000  for the three  months ended March 31, 2022 and 2021 , respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

$ 1,500  

$ 2,634  

$ 6,232  

$ 13,168  

Three Months Ended March 31,

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  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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):

September 30, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Cash and Cash Equivalents

Current Marketable Securities

$ 55,459  

March 31, 2022

Corporate debt securities

4 unchanged sentences

$ ( 8 )  

December 31, 2020

Cash and Cash Equivalents

Current Marketable Securities

$ 2,008  

$ 31,558  

Time deposits

10,021  

December 31, 2021

Corporate debt securities

4 unchanged sentences

$ ( 2 )  

$ 5,041  

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

As of March 31, 2022 , 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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BUSINESS COMBINATIONS

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.

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.

The financial results of NurseGrid have been included in the Workforce Solutions segment from March 9, 2020.

A summary of the purchase price is as follows (in thousands):

Cash paid at closing

$ 25,485  

Post-closing adjustment, net of cash received

Cash acquired

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):

Accounts and unbilled receivable, net

Prepaid and other current assets

Operating lease right-of-use assets

Deferred tax assets

21,085  

Intangible assets

Accounts payable and accrued liabilities

Deferred revenue

Operating lease liabilities

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.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

The fair value estimate for trade name intangible asset included significant assumptions in the prospective financial information, such as projected revenues, royalty rate, and the discount rate.

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, future market opportunities to engage and support the NurseGrid Mobile user community, and expected synergies from integrating NurseGrid with other combined functional areas within the Company.

The goodwill balance is not deductible for U.S.

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 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

Developed technology

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 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

$ 0.05  

$ 0.08  

$ 0.20  

$ 0.39  

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.

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 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

Prepaid assets

Operating lease right-of-use assets

Property and equipment

Indemnification assets

19,307  

Intangible asset

12,660  

Accounts payable and accrued liabilities

Deferred revenue

Deferred tax liability

Operating lease liabilities

Indemnification liability

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.

The primary intangible assets acquired were customer relationships and developed technology.

The fair value estimate for customer relationships intangible asset included significant assumptions in the prospective financial information, such as revenue growth, customer attrition, EBITDA margin, and the discount rate.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

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 ShiftWizard products, and expected synergies from integrating ShiftWizard with other products or other combined functional areas within the Company.

The goodwill balance is not deductible for U.S.

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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 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 ™

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

Operating lease right-of-use assets

Property and equipment

Deferred tax assets

Indemnification asset

36,748  

Intangible assets

32,440  

Accounts payable and accrued liabilities

Deferred revenue

Operating lease liabilities

Deferred tax liability

Uncertain tax position liability

Net assets acquired

$ 66,448  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 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.

The measurement period adjustment had no effect on current or prior period earnings.

The primary intangible assets acquired were customer relationships and developed technology.

The fair value estimate for customer relationships intangible asset included significant assumptions regarding prospective financial information with respect to the acquisition, including with respect to revenue growth, customer attrition, EBITDA margin, and the discount rate.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

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.

entity is deductible for U.S.

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 $ 17.5  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

$ 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 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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 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

4 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

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 *

September 30, 2021

March 31, 2022

December 31, 2021

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.

5 unchanged sentences

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.

10 unchanged sentences

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

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 .  

As of March 31, 2022 , the Company was in compliance with all covenants.

There were no balances outstanding on the Revolving Credit Facility as of or during the three months ended March 31, 2022 .

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