What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 149 added, 86 removed, 130 unchanged (64% of the section changed)

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HealthStream provides primarily SaaS based applications for healthcare organizations—all designed to improve business and clinical outcomes by supporting the people who deliver patient care.

We are in the process of more completely unifying the Company under a single platform strategy that will serve as the foundation for the entire enterprise. By enabling our applications through a common technology platform known as hStream, we believe that stand-alone applications, which already provide a powerful value proposition, will begin to leverage each other to more efficiently and effectively empower our customers to manage their businesses and improve their outcomes. As we continue to achieve this goal of orienting multiple applications in relation to a single technology platform, distinctions between our current reporting segments of Workforce Solutions and Provider Solutions may become less applicable, or even obsolete, in terms of how we operate and report on the Company's business.

We are in the process of more completely unifying the Company under a single platform strategy that will serve as the foundation for the entire enterprise. By enabling our applications through a common technology platform known as hStream, we believe that stand-alone applications, which already provide a powerful value proposition, will begin to leverage each other to more efficiently and effectively empower our customers to manage their organizations and improve their outcomes. As we continue to achieve this goal of orienting multiple applications in relation to a single technology platform, distinctions between our current reporting segments of Workforce Solutions and Provider Solutions may become less applicable, or even obsolete, in terms of how we operate and report on the Company's business.

At the current time, what we characterize and report on as Workforce Solutions products are used by healthcare organizations to meet a broad range of their clinical development, learning and performance, certification, scheduling, safety and compliance, and competency assessment needs.

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HealthStream’s primary customers include healthcare organizations and other participants in the healthcare industry.

Significant financial metrics for the first quarter of 2022 are set forth in the bullets below.

Revenues of $65.4 million in the first quarter of 2022, an increase of 3% from $63.5 million in the first quarter of 2021.

Operating income of $4.0 million in the first quarter of 2022, up 22% from $3.3 million in the first quarter of 2021.

Net income of $2.9 million in the first quarter of 2022, up 26% from $2.3 million in the first quarter of 2021.

Earnings per share (“EPS”) of $0.09 per share (diluted) in the first quarter of 2022 compared to $0.07 per share (diluted) in the first quarter of 2021.

Adjusted EBITDA 1  of $14.0 million in the first quarter of 2022, up 3% from $13.6 million in the first quarter of 2021.

Significant financial metrics for the second quarter of 2022 are set forth in the bullets below.

Revenues of $65.6 million in the second quarter of 2022, up 1% from $64.8 million in the second quarter of 2021.

Operating income of $3.0 million in the second quarter of 2022, down 14% from $3.4 million in the second quarter of 2021.

Net income of $3.1 million in the second quarter of 2022, up 26% from $2.4 million in the second quarter of 2021.

Earnings per share (“EPS”) of $0.10 per share (diluted) in the second quarter of 2022 compared to $0.08 per share (diluted) in the second quarter of 2021.

Adjusted EBITDA 1  of $13.1 million in the second quarter of 2022, down 10% from $14.5 million in the second quarter of 2021.

Adjusted EBITDA is a non-GAAP financial measure.

A reconciliation of adjusted EBITDA to net income and disclosure regarding why we believe adjusted EBITDA provides useful information to investors is included later in this report.

Impact of and Response to COVID-19 Pandemic

While the COVID-19 pandemic persists and remains a cause of uncertainty and potential volatility, conditions related to the pandemic have generally improved in the United States in recent months, with the number of daily hospitalizations in the United States reaching a pandemic-era low during this period according to the Centers for Disease Control and Prevention.

In general, this means that the healthcare organizations we serve are no longer under the immediate threat of having their operations overrun by an overwhelming influx of COVID patients.

COVID-19 Pandemic and Other Recent Developments

While the COVID-19 pandemic persists and remains a cause of uncertainty and potential volatility, public health conditions related to the pandemic have generally stabilized at the current time in the United States, and the impact of the pandemic on general economic conditions in the United States appears to have decreased.

As the inflow of COVID patients with respect to healthcare organizations has become more manageable, certain areas of our business, such as our compliance and learning solutions, have begun to return to and, in some cases, even eclipse pre-pandemic norms.

However, other parts of our business have continued to be negatively impacted by the lingering as well as the after-effects of the pandemic.

One of the more pronounced after-effects for our healthcare customers involves staffing challenges such as burnout and labor shortages.

The pressures associated with these challenges continue to result in delayed sales for certain of our products, particularly those that are more elective in nature.

Ultimately, we believe that our product offerings are well-positioned to help our healthcare customers successfully manage issues associated with onboarding, training, developing, engaging, and retaining employees—nurses in particular—and we remain dedicated to helping our customers overcome both the direct and indirect challenges associated with the pandemic.

However, other parts of our business have continued to be negatively impacted by the ongoing impacts of the pandemic as well as current economic conditions.

One of the more pronounced after-effects for our healthcare customers involves staffing challenges, including labor shortages and increased labor and staffing costs.

In some instances, we believe that the pressures associated with these challenges continue to result in delayed sales for certain of our products, particularly those that are more elective in nature.

However, we have recently begun to observe an increase in sales engagement with customers through both in-person and virtual meetings when compared to the height of the pandemic.

Ultimately, we believe that our product offerings are well-positioned to help our healthcare customers successfully manage issues associated with onboarding, training, developing, engaging, and retaining employees—nurses in particular—and we remain dedicated to helping our customers overcome the challenges associated with the pandemic and ongoing economic conditions.

During the height of the pandemic, including in 2021, we experienced delayed and reduced bookings and renewals due to the pandemic.

Given that we sell multiple year subscriptions to our solutions, the revenue impact of lost or delayed sales in a given period generally does not manifest until future periods, just as the revenue we recognize in a given period is generally the result of sales from a prior period.

We believe that the delay in bookings from the height of the pandemic negatively impacted our revenue growth in the first quarter of 2022, and will continue to negatively impact our revenue, at least through the second quarter of 2022 and potentially throughout the remainder of the year.

However, we also experienced increased bookings in the first quarter of 2022, which we believe will begin to benefit revenue that we will recognize in the latter half of 2022. 

We continue to closely monitor developments related to the pandemic that may have an adverse impact on our operational and financial performance and we remain prepared to the best of our ability to adjust to such developments as they may arise.

We also continue to take actions focused on the safety and well-being of our employees, assisting our customers in this time of need, and mitigating operational and financial impacts to our business.

We recognize that some of the uncertainties and impact that are currently being experienced in the United States on a macro-level and in healthcare more specifically may be both directly and indirectly related to the pandemic. For example, the U.S.

economy has recently experienced various disruptions, including inflationary pressures, significant disruptions to global supply networks, and challenging labor market conditions.

In this regard, we have recently experienced, and believe that some of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with current inflationary pressures.

We believe that the delay in bookings from the height of the pandemic negatively impacted our revenue growth in the first half of 2022, and, to a lesser extent, will continue to negatively impact our revenue at least through the third quarter of 2022 and potentially throughout the remainder of the year.

However, we also experienced increased bookings in the first half of 2022, which we believe will begin to benefit revenue that we will recognize in the latter half of 2022. 

In addition, the U.S.

economy has been experiencing various challenges, including recessionary concerns, ongoing inflation, significant disruptions to global supply networks, and challenging labor market conditions.

In this regard, we have recently experienced, and believe that many of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with current inflationary pressures.

These conditions impacting the U.S.

economy and our customers in the healthcare industry may adversely impact our business and results of operations.

However, as discussed above, we also believe that our product offerings are well positioned to help customers mitigate some of the negative impacts otherwise associated with these challenges as we continue to fulfill our vision of improving healthcare by developing the people who provide care.

However, as discussed above, we also believe that our product offerings are well positioned to help customers mitigate some of the negative impacts otherwise associated with current labor challenges as we continue to fulfill our vision of improving healthcare by developing the people who provide care.

Key Business Metrics

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Revenues, net, reflect income generated by the sales of goods and services related to our operations and, prior to the adoption of ASU 2021-08 on January 1, 2022, reflects deferred revenue write-downs associated with fair value accounting for acquired businesses.

Revenues, net, were $65.4 million for the three months ended March 31, 2022, compared to $63.5 million for the three months ended March 31, 2021.

Revenues, net, were $65.6 million and $131.0 million for the three and six months ended June 30, 2022, respectively, compared to $64.8 million and $128.3 million for the three and six months ended June 30, 2021, respectively.

Management utilizes revenue in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of the growth and success of our products.

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Operating income represents the amount of profit realized from our operations and is calculated as the difference between revenues, net and operating costs and expenses.

Operating income was $4.0 million for the three months ended March 31, 2022, compared to $3.3 million for the three months ended March 31, 2021.

Management utilizes operating income in connection with managing our business and believes that our operating income provides useful information to investors as a key indicator of profitability.

Operating income was $3.0 million and $7.0 million for the three and six months ended June 30, 2022, respectively, compared to $3.4 million and $6.7 million for the three and six months ended June 30, 2021, respectively.

Management utilizes operating income in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of profitability.

Adjusted EBITDA .

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Additionally, short-term cash incentive bonuses and certain performance-based equity award grants are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Adjusted EBITDA was $14.0 million for the three months ended March 31, 2022, compared to $13.6 million for the three months ended March 31, 2021.

Adjusted EBITDA was $13.1 million and $27.1 million for the three and six months ended June 30, 2022, respectively, compared to $14.5 million and $28.1 million for the three and six months ended June 30, 2021, respectively.

hStream Subscriptions .

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Management utilizes hStream subscriptions in connection with managing our business and believes that this metric provides useful information to investors as a measure of our progress in growing the value of our customer base.

At March 31, 2022, we had approximately 5.13 million contracted subscriptions to hStream, compared to 4.34 million as of March 31, 2021.

At June 30, 2022, we had approximately 5.30 million contracted subscriptions to hStream, compared to 4.52 million as of June 30, 2021.

Critical Accounting Policies and Estimates

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There have been no changes in our critical accounting policies and estimates from those reported in our 2021 Form 10-K.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Revenues, net.

Revenues increased approximately $1.9 million, or 3%, to $65.4 million for the three months ended March 31, 2022 from $63.5 million for the three months ended March 31, 2021.

Revenues increased approximately $0.8 million, or 1%, to $65.6 million for the three months ended June 30, 2022 from $64.8 million for the three months ended June 30, 2021.

A comparison of revenues by business segment is as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Revenues by Business Segment:

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Provider Solutions

Revenues for Workforce Solutions increased $0.8 million, or 2%, to $52.0 million for the three months ended March 31, 2022, from $51.2 million for the three months ended March 31, 2021.

The Workforce Solutions segment achieved this 2% growth while overcoming a $1.7 million decline from the legacy resuscitation business. Revenues from other solutions more than offset the decline in legacy resuscitation revenues. 

Revenues for Provider Solutions increased $1.1 million, or 9%, to $13.3 million for the three months ended March 31, 2022, from $12.2 million for the three months ended March 31, 2021.

Revenues for Workforce Solutions increased $0.3 million, or 1%, to $52.5 million for the three months ended June 30, 2022, from $52.2 million for the three months ended June 30, 2021.

The Workforce Solutions segment experienced growth in several product categories, including contributions from recent acquisitions, partially offset by declines from the legacy resuscitation business of $0.9 million, as well as lower installed software license sales from the legacy portion of our Scheduling application suite.

Revenues for Provider Solutions increased $0.5 million, or 4%, to $13.2 million for the three months ended June 30, 2022, from $12.7 million for the three months ended June 30, 2021.

Revenue growth was primarily attributable to new subscription revenues.

Cost of Revenues (excluding Depreciation and Amortization).

Cost of revenues decreased $0.7 million, or 3%, to $22.0 million for the three months ended March 31, 2022, from $22.7 million for the three months ended March 31, 2021.

Cost of revenues as a percentage of revenues was 34% and 36% for the three months ended March 31, 2022 and 2021, respectively.

Cost of revenues for Workforce Solutions decreased $1.0 million to $17.6 million for the three months ended March 31, 2022, compared to the prior year period and approximated 34% and 36% of revenues for Workforce Solutions for the three months ended March 31, 2022 and 2021, respectively.

The decrease is primarily attributable to a lower royalties payable by us related to legacy resuscitation products, consistent with the reduction in these revenues. Cost of revenues for Provider Solutions increased $0.3 million to $4.4 million for the three months ended March 31, 2022, compared to the prior year period and approximated 33% of Provider Solutions revenues for both the three months ended March 31, 2022 and 2021.

The increase in amount is primarily associated with an increase in personnel costs during the three months ended March 31, 2022.

Cost of revenues decreased $0.5 million, or 2%, to $22.2 million for the three months ended June 30, 2022, from $22.7 million for the three months ended June 30, 2021.

Cost of revenues as a percentage of revenues was 34% and 35% for the three months ended June 30, 2022 and 2021, respectively.

Cost of revenues for Workforce Solutions decreased $1.0 million to $17.7 million for the three months ended June 30, 2022, compared to the prior year period and approximated 34% and 36% of revenues for Workforce Solutions for the three months ended June 30, 2022 and 2021, respectively.

The decrease is primarily attributable to a lower royalties payable by us related to legacy resuscitation products, consistent with the reduction in these revenues. Cost of revenues for Provider Solutions increased $0.5 million to $4.5 million for the three months ended June 30, 2022, compared to the prior year period and approximated 34% and 31% of Provider Solutions revenues for the three months ended June 30, 2022 and 2021, respectively.

The increase in amount is primarily associated with an increase in personnel, hosting, and software costs during the three months ended June 30, 2022.

Product Development.

Product development expenses increased $0.9 million, or 9%, to $10.4 million for the three months ended March 31, 2022, from $9.5 million for the three months ended March 31, 2021.

Product development expenses as a percentage of revenues were 16% and 15% for the three months ended March 31, 2022 and 2021, respectively.

Product development expenses for Workforce Solutions increased $0.6 million to $8.8 million for the three months ended March 31, 2022, compared to the prior year period and approximated 17% and 16% of revenues for Workforce Solutions for the three months ended March 31, 2022 and 2021, respectively.

The increase is primarily associated with an increase in personnel costs and contract labor, which was partially offset by an increase in labor capitalized for internally developed software.

Additionally, the first quarter of 2021 included a non-recurring, non-cash benefit related to the reduction of paid time off ("PTO") expense as a result of modifications to the Company's PTO policy.

Product development expenses for Provider Solutions increased $0.3 million to $1.6 million for the three months ended March 31, 2022, compared to the prior year period and approximated 12% and 11% of revenues for Provider Solutions for the three months ended March 31, 2022 and 2021, respectively.

Product development expenses increased $0.3 million, or 2%, to $10.6 million for the three months ended June 30, 2022, from $10.3 million for the three months ended June 30, 2021.

Product development expenses as a percentage of revenues were 16% for both the three months ended June 30, 2022 and 2021.

Product development expenses for Workforce Solutions decreased $8,000 to $8.8 million for the three months ended June 30, 2022, compared to the prior year period and approximated 17% of revenues for Workforce Solutions for both the three months ended June 30, 2022 and 2021.

Personnel expenses and contract labor costs increased over the prior year, but were partially offset by an increase in labor capitalized for internally developed software.

Product development expenses for Provider Solutions increased $0.3 million to $1.8 million for the three months ended June 30, 2022, compared to the prior year period and approximated 13% and 12% of revenues for Provider Solutions for the three months ended June 30, 2022 and 2021, respectively.

The increase in product development expenses is primarily due to an increase in personnel costs compared to the prior year period.

Sales and Marketing.

Sales and marketing expenses, including personnel costs, increased $1.4 million, or 16%, to $10.4 million for the three months ended March 31, 2022, from $9.0 million for the three months ended March 31, 2021.

Sales and marketing expenses were 16% and 14% of revenues for the three months ended March 31, 2022 and 2021, respectively.

Sales and marketing expenses for Workforce Solutions increased $1.2 million to $8.4 million for the three months ended March 31, 2022, compared to the prior year period and approximated 16% and 14% of revenues for Workforce Solutions for the three months ended March 31, 2022 and 2021, respectively.

The increase is primarily due to additional personnel expenses, increased sales commissions, and higher marketing expenses.

Sales and marketing expenses for Provider Solutions increased $0.2 million to $1.8 million for the three months ended March 31, 2022, compared to the prior year period and approximated 13% of revenues for Provider Solutions for both the three months ended March 31, 2022 and 2021.

The increase is due to an increase in personnel expenses and general marketing expenses.

The unallocated corporate portion of sales and marketing expenses decreased $46,000 to $0.2 million for the three months ended March 31, 2022, compared to the prior year period.

Sales and marketing expenses, including personnel costs, increased $1.4 million, or 15%, to $10.9 million for the three months ended June 30, 2022, from $9.5 million for the three months ended June 30, 2021.

Sales and marketing expenses were 17% and 15% of revenues for the three months ended June 30, 2022 and 2021, respectively.

Sales and marketing expenses for Workforce Solutions increased $1.3 million to $8.8 million for the three months ended June 30, 2022, compared to the prior year period and approximated 17% and 14% of revenues for Workforce Solutions for the three months ended June 30, 2022 and 2021, respectively.

The increase is primarily due to increases in personnel expenses, contract labor, marketing expenses, travel expense, and sales commissions.

Sales and marketing expenses for Provider Solutions increased $0.2 million to $1.8 million for the three months ended June 30, 2022, compared to the prior year period and approximated 14% and 13% of revenues for Provider Solutions for the three months ended June 30, 2022 and 2021, respectively.

The increase is primarily due to an increase in personnel expenses, increased software costs, the return of travel expense, and increased sales commissions.

The unallocated corporate portion of sales and marketing expenses decreased $0.1 million to $0.3 million for the three months ended June 30, 2022, compared to the prior year period, primarily due to a reduction in personnel costs and marketing expenses.

Other General and Administrative Expenses.

Other general and administrative expenses decreased $0.5 million, or 6%, to $9.2 million for the three months ended March 31, 2022, from $9.7 million for the three months ended March 31, 2021.

Other general and administrative expenses were 14% and 15% of revenues for the three months ended March 31, 2022 and 2021, respectively.

Other general and administrative expenses for Workforce Solutions decreased $1.0 million to $2.1 million for the three months ended March 31, 2022, compared to the prior year period and approximated 4% and 6% of Workforce Solutions revenues for the three months ended March 31, 2022 and 2021, respectively.

The decrease is primarily due to lower transition service costs associated with prior acquisitions and reductions in facilities costs associated with closing certain leased satellite offices.

Other general and administrative expenses for Provider Solutions increased $45,000 to $0.9 million for the three months ended March 31, 2022, compared to the prior year period and approximated 7% of Provider Solutions revenues for both the three months ended March 31, 2022 and 2021.

The unallocated corporate portion of other general and administrative expenses increased $0.4 million to $6.2 million for the three months ended March 31, 2022, compared to the prior year period primarily due to increased personnel costs and employee recruitment expenses.

Other general and administrative expenses decreased $0.2 million, or 2%, to $9.6 million for the three months ended June 30, 2022, from $9.8 million for the three months ended June 30, 2021.

Other general and administrative expenses were 15% of revenues for both the three months ended June 30, 2022 and 2021.

Other general and administrative expenses for Workforce Solutions decreased $0.5 million to $2.5 million for the three months ended June 30, 2022, compared to the prior year period and approximated 5% and 6% of Workforce Solutions revenues for the three months ended June 30, 2022 and 2021, respectively.

The decrease is primarily due to reductions in facilities costs associated with closing certain leased satellite offices and a decrease in contract labor.

Other general and administrative expenses for Provider Solutions increased $0.1 million to $1.0 million for the three months ended June 30, 2022, compared to the prior year period and approximated 7% of Provider Solutions revenues for both the three months ended June 30, 2022 and 2021.

The unallocated corporate portion of other general and administrative expenses increased $0.2 million to $6.1 million for the three months ended June 30, 2022, compared to the prior year period primarily due to increases in software expense and employee recruitment expenses.

Depreciation and Amortization.

Depreciation and amortization expense increased $0.1 million, or 2%, to $9.3 million for the three months ended March 31, 2022, from $9.2 million for the three months ended March 31, 2021.

Depreciation and amortization expense increased $0.3 million, or 3%, to $9.4 million for the three months ended June 30, 2022, from $9.1 million for the three months ended June 30, 2021.

This increase is primarily a result of an increase in amortization associated with capitalized software.

Other Loss, Net .

Other loss, net was $0.3 million for the three months ended March 31, 2022, compared to $0.1 million for the three months ended March 31, 2021.

The decrease is primarily a result of a greater loss from equity method investments for the three months ended March 31, 2022, compared to the prior year period.

Other Income (Loss), Net .

Other income (loss), net was income of $0.7 million for the three months ended June 30, 2022, compared to a loss of $65,000 for the three months ended June 30, 2021.

The increase is primarily a result of the $0.9 million gain recorded due to the change in fair value of our previously held minority interest in CloudCME that was remeasured upon acquiring the remaining ownership interest of CloudCME during the three months ended June 30, 2022.

Income Tax Provision.

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

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

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

Net income was approximately $2.9 million and $2.3 million for the three months ended March 31, 2022 and 2021, respectively.

Earnings per share (EPS) was $0.09 per share (diluted) and $0.07 per share (diluted) for the three months ended March 31, 2022 and 2021, respectively.

Adjusted EBITDA was $14.0 million for the three months ended March 31, 2022, compared to $13.6 million for the three months ended March 31, 2021.

The Company recorded a provision for income taxes of $0.5 million for the three months ended June 30, 2022, compared to $0.9 million the three months ended June 30, 2021.

The Company’s effective tax rate was 15% for the three months ended June 30, 2022, compared to 27% for the three months ended June 30, 2021.

During the three months ended June 30, 2022, the Company recorded discrete tax benefits of $0.2 million, which consisted primarily of a $0.2 million tax benefit associated with a nontaxable gain of $0.9 million recognized from the change in fair value of our previously held minority interest in CloudCME, LLC.

Net income was $3.1 million and $2.4 million for the three months ended June 30, 2022 and 2021, respectively.

Earnings per share (EPS) was $0.10 per share (diluted) and $0.08 per share (diluted) for the three months ended June 30, 2022 and 2021, respectively.

Adjusted EBITDA was $13.1 million for the three months ended June 30, 2022, compared to $14.5 million for the three months ended June 30, 2021.

See “Reconciliation of Non-GAAP Financial Measures”

below for our reconciliation of adjusted EBITDA to the most directly comparable measures under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Revenues, net.

Revenues increased approximately $2.7 million, or 2%, to $131.0 million for the six months ended June 30, 2022 from $128.3 million for the six months ended June 30, 2021.

A comparison of revenues by business segment is as follows (in thousands):

Six Months Ended June 30,

Revenues by Business Segment:

Percentage Change

Workforce Solutions

Provider Solutions

Total revenues, net

% of Revenues

Workforce Solutions

Provider Solutions

Revenues for Workforce Solutions increased $1.1 million, or 1%, over the first six months of 2021.

Contributions from recent acquisitions and growth in other workforce solutions more than offset the expected decline in revenues from legacy resuscitation products of $2.6 million.

Revenues for Provider Solutions increased $1.6 million, or 6%, over the first six months of 2021.

Revenue growth was primarily attributable to new subscription revenues.

Cost of Revenues (excluding Depreciation and Amortization).

Cost of revenues decreased $1.3 million, or 3%, to $44.2 million for the six months ended June 30, 2022, from $45.5 million for the six months ended June 30, 2021.

Cost of revenues as a percentage of revenues was 34% and 35% for the six months ended June 30, 2022 and 2021, respectively.

Cost of revenues for Workforce Solutions decreased $2.2 million to $35.3 million and approximated 34% and 36% of revenues for Workforce Solutions for the six months ended June 30, 2022 and 2021, respectively.

The decrease in amount is primarily attributable to a lower royalties payable by us related to legacy resuscitation products, consistent with the reduction in these revenues.

Cost of revenues for Provider Solutions increased $0.9 million to $8.9 million and approximated 34% and 32% of Provider Solutions revenues for the six months ended June 30, 2022 and 2021, respectively.

The increase in amount is primarily associated with an increase in personnel costs, hosting, and software expense during the six months ended June 30, 2022.

Product Development.

Product development expenses increased $1.1 million, or 6%, to $21.0 million for the six months ended June 30, 2022 from $19.9 million for the six months ended June 30, 2021.

Product development expenses as a percentage of revenues were 16% and 15% of revenues for the six months ended June 30, 2022 and 2021, respectively. 

Product development expenses for Workforce Solutions increased $0.6 million to $17.7 million and approximated 17% and 16% of revenues for Workforce Solutions for the six months ended June 30, 2022 and 2021, respectively.

The increase is primarily associated with an increase in personnel costs, partially related to recent acquisitions, and contract labor, which was partially offset by an increase in labor capitalized for internally developed software. Additionally, the six months ended June 30, 2021 included a non-recurring, non-cash benefit related to the reduction of paid time off ("PTO") expense as a result of modifications to the Company's PTO policy.

Product development expenses for Provider Solutions increased $0.5 million to $3.3 million and approximated 13% and 11% of revenues for Provider Solutions for the six months ended June 30, 2022 and 2021, respectively.

The increase is primarily due to an increase in personnel costs.

Sales and Marketing.

Sales and marketing expenses, including personnel costs, increased $2.8 million, or 15%, to $21.3 million for the six months ended June 30, 2022 from $18.5 million for the six months ended June 30, 2021.

Sales and marketing expenses were 16% and 14% of revenues for the six months ended June 30, 2022 and 2021, respectively. 

Sales and marketing expenses for Workforce Solutions increased $2.6 million to $17.2 million and approximated 16% and 14% of revenues for Workforce Solutions for the six months ended June 30, 2022 and 2021, respectively.

The increase is primarily associated with increases in personnel costs, sales commissions, travel, and marketing expenses.

Sales and marketing expenses for Provider Solutions increased $0.4 million to $3.6 million and approximated 13% of revenues for Provider Solutions for both the six months ended June 30, 2022 and 2021.

The increase in amount is a result of increased personnel costs, software costs, travel, and sales commissions.

The unallocated portion of sales and marketing expenses decreased $0.2 million to $0.5 million compared to the prior year period primarily due to a decrease in personnel costs and marketing expenses.

Other General and Administrative Expenses.

Other general and administrative expenses decreased $0.6 million, or 3%, to $18.8 million for the six months ended June 30, 2022 from $19.4 million for the six months ended June 30, 2021.

Other general and administrative expenses as a percentage of revenues were 14% and 15% of revenues for the six months ended June 30, 2022 and 2021, respectively. 

Other general and administrative expenses for Workforce Solutions decreased $1.5 million to $4.6 million and approximated 4% and 6% of revenues for Workforce Solutions for the six months ended June 30, 2022 and 2021, respectively.

The decrease is primarily due to reductions in facilities costs associated with closing certain leased satellite offices, lower transition service costs associated with prior acquisitions, including with regard to the end of our transition services agreement with Change Healthcare, which related to our acquisition of the Scheduling and Capacity Management business, and a decrease in contract labor.

Other general and administrative expenses for Provider Solutions increased $0.3 million to $1.9 million and approximated 7% of revenues for Provider Solutions for both the six months ended June 30, 2022 and 2021.

The increase in amount is primarily due to increased personnel costs.

The unallocated corporate portion of other general and administrative expenses increased $0.6 million to $12.3 million compared to the first six months of 2021 primarily due to increased employee recruitment expenses as well as software expenses over the prior year period.

Depreciation and Amortization.

Depreciation and amortization expense increased $0.4 million, or 2%, to $18.7 million for the six months ended June 30, 2022, from $18.3 million for the six months ended June 30, 2021.

This increase is primarily a result of an increase in amortization associated with capitalized software.

Other Income (Loss), Net .

Other income (loss), net was income of $0.4 million for the six months ended June 30, 2022, compared to a loss of $0.2 million for the six months ended June 30, 2021.

Income Tax Provision.

The Company recorded a provision for income taxes of $1.4 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively.

The Company’s effective tax rate was 19% for the six months ended June 30, 2022, compared to 28% for the six months ended June 30, 2021.

The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. During the six months ended June 30, 2022, the Company recorded discrete tax benefits of $0.1 million, which consisted primarily of a $0.2 million tax benefit associated with a nontaxable gain of $0.9 million recognized from the change in fair value of our previously held minority interest in CloudCME, LLC.

This tax benefit was partially offset by $0.1 million of excess tax deficiencies associated with stock-based awards. During the six months ended June 30, 2021, the Company recorded discrete tax expense a $0.2 million primarily related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period. 

Net income was approximately $6.0 million and $4.7 million for the six months ended June 30, 2022 and 2021, respectively.

Earnings per share (EPS) was $0.19 per share (diluted) and $0.15 per share (diluted) for the six months ended June 30, 2022 and 2021, respectively.

Adjusted EBITDA decreased $1.0 million to $27.1 million for the six months ended June 30, 2022, compared to $28.1 million for the six months ended June 30, 2021.

This decrease resulted from the factors mentioned above.

See “Reconciliation of Non-GAAP Financial Measures”

below for our reconciliation of Adjusted EBITDA to the most directly comparable measure under US GAAP.

Reconciliation of Non-GAAP Financial Measures

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A reconciliation of adjusted EBITDA to the most directly comparable GAAP measure is set forth below (in thousands).

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

GAAP net income

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Depreciation and amortization

Change in fair value of non-marketable equity investments

Non-cash paid time off expense

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Liquidity and Capital Resources

Net cash provided by operating activities increased by $1.6 million to $20.7 million during the three months ended March 31, 2022, from $19.1 million during the three months ended March 31, 2021.

Such increase was primarily due to lower royalties paid by us compared to the prior year period and was partially offset by lower cash receipts and increased labor costs.

Our DSO was 45 days for the first quarter of 2022 compared to 52 days for the first quarter of 2021.

Net cash provided by operating activities increased by $3.7 million to $28.0 million during the six months ended June 30, 2022, from $24.3 million during the six months ended June 30, 2021.

This increase was primarily due to lower royalties paid by us compared to the prior year period and was partially offset by lower cash receipts and increased labor costs.

Our days sales outstanding ("DSO") was 45 days for the second quarter of 2022 compared to 43 days for the second quarter of 2021.

The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter.

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The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, and general corporate expenses.

Net cash used in investing activities was $4.0 million for the three months ended March 31, 2022, compared to $9.7 million for the three months ended March 31, 2021.

During the three months ended March 31, 2022, the Company spent $22,000 related to a post-closing adjustment for a prior acquisition, invested in marketable securities of $2.0 million, made payments for capitalized software development of $6.3 million, and purchased property and equipment of $0.6 million.

These uses of cash were partially offset by $5.0 million in maturities of marketable securities. During the three months ended March 31, 2021, the Company spent $2.0 million to acquire ComplyALIGN and on a net cash basis received $1.3 million of proceeds upon settling post-closing adjustments related to ANSOS and ShiftWizard acquisitions for a net cash outflow of $0.7 million for business combinations, invested in marketable securities of $5.2 million, made payments for capitalized software development of $5.3 million, purchased property and equipment of $2.0 million, and invested $1.0 million in non-marketable equity investments.

Net cash used in investing activities was $14.0 million for the six months ended June 30, 2022, compared to $10.6 million for the six months ended June 30, 2021.

During the six months ended June 30, 2022, the Company spent $3.9 million to acquire the remaining ownership interest in CloudCME on a net cash basis and spent $62,000 related to post-closing adjustments for prior acquisitions for a net cash outflow of $4.0 million for business combinations, invested in marketable securities of $2.0 million, made payments for capitalized software development of $11.8 million, and purchased property and equipment of $1.2 million.

These uses of cash were partially offset by $5.0 million in maturities of marketable securities. During the six months ended June 30, 2021, the Company spent $2.0 million to acquire ComplyALIGN and on a net cash basis received $1.3 million of proceeds upon settling post-closing adjustments related to ANSOS and ShiftWizard acquisitions for a net cash outflow of $0.7 million for business combinations, invested in marketable securities of $5.2 million, made payments for capitalized software development of $10.3 million, purchased property and equipment of $2.4 million, and invested $1.8 million in non-marketable equity investments.

These uses of cash were partially offset by $9.7 million in maturities of marketable securities. 

Net cash used in financing activities was approximately $20.2 million for the three months ended March 31, 2022, compared to $0.4 million for the three months ended March 31, 2021.

The uses of cash for the three months ended March 31, 2022 included $19.7 million for repurchases of common stock and $0.5 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

The uses of cash for the three months ended March 31, 2021 primarily included $0.4 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

Our balance sheet reflects negative working capital of $7.3 million at March 31, 2022, compared to positive working capital of $6.5 million at December 31, 2021.

The decrease in working capital is primarily a result of a reduction in cash to fund the repurchases of common stock and an increase in deferred revenue.

The Company’s primary source of liquidity as of March 31, 2022 was $43.4 million of cash and cash equivalents and $2.0 million of marketable securities.

The Company also has a $65.0 million revolving credit facility, all of which was available for additional borrowing at March 31, 2022.

Net cash used in financing activities was approximately $23.6 million for the six months ended June 30, 2022, compared to $0.4 million for the six months ended June 30, 2021.

The uses of cash for the six months ended June 30, 2022 included $23.1 million for repurchases of common stock and $0.5 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

The uses of cash for the six months ended June 30, 2021 primarily included $0.4 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

Our balance sheet reflects negative working capital of $9.6 million at June 30, 2022, compared to positive working capital of $6.5 million at December 31, 2021.

The decrease in working capital is primarily a result of a reduction in cash to fund the acquisition of CloudCME, repurchases of common stock and an increase in deferred revenue.

The Company’s primary source of liquidity as of June 30, 2022 was $37.2 million of cash and cash equivalents and $2.0 million of marketable securities.

The Company also has a $65.0 million revolving credit facility, all of which was available for additional borrowing at June 30, 2022.

The revolving credit facility expires on October 28, 2023, unless earlier renewed or amended.

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Under this program, the Company repurchased a total of 853,023 shares in 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).

During the six months ended June 30, 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 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).

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

During the six months ended June 30, 2022, the Company repurchased 402,050 shares pursuant to this share repurchase program at an aggregate fair value of $8.1 million, based on an average price per share of $20.19 (excluding the cost of broker commissions).

We believe that our existing cash and cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development, and capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

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Therefore, the maximum borrowings against our revolving credit facility would be dependent on the covenant calculations at the time of borrowing.

As of March 31, 2022, we were in compliance with all covenants.

As of June 30, 2022, we were in compliance with all covenants.

There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot assure you that if we need additional financing that it will be available on terms favorable to us, or at all.

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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 2. Management’s Discussion and Analysis