What changed in this filing

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Item 1. Financial Statements

2022-10-27 compared with 2022-07-28 · 196 added, 67 removed, 447 unchanged (37% 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 $ 699 and $ 853 at June 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 661 and $ 853 at September 30, 2022 and December 31, 2021, respectively

26,427  

8 unchanged sentences

106,845  

Property and equipment, net of accumulated depreciation of $ 20,183 and $ 17,999 at June 30, 2022 and December 31, 2021, respectively

Property and equipment, net of accumulated depreciation of $ 21,262 and $ 17,999 at September 30, 2022 and December 31, 2021, respectively

15,658  

17,950  

Capitalized software development, net of accumulated amortization of $ 95,206  and $ 86,097 at June 30, 2022 and December 31, 2021, respectively

Capitalized software development, net of accumulated amortization of $ 100,024 and $ 86,097 at September 30, 2022 and December 31, 2021, respectively

35,537  

5 unchanged sentences

182,501  

Customer-related intangibles, net of accumulated amortization of $ 50,036 and $ 45,615 at June 30, 2022 and December 31, 2021, respectively

Customer-related intangibles, net of accumulated amortization of $ 52,204 and $ 45,615 at September 30, 2022 and December 31, 2021, respectively

62,571  

68,803  

Other intangible assets, net of accumulated amortization of $ 19,574 and $ 16,752 at June 30, 2022 and December 31, 2021, respectively

Other intangible assets, net of accumulated amortization of $ 21,054 and $ 16,752 at September 30, 2022 and December 31, 2021, respectively

18,950  

30 unchanged sentences

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

30,570 and 31,327 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

30,573 and 31,327 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

253,934  

16 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Revenues, net

18 unchanged sentences

32,652  

28,713  

Other general and administrative expenses

1 unchanged sentence

27,856  

29,445  

Depreciation and amortization

10 unchanged sentences

Income before income tax provision

12,317  

Income tax provision

26 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

$ 3,666  

$ 1,500  

$ 9,642  

$ 6,232  

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

( 1,017 )  

( 470 )  

( 1,521 )  

Unrealized gain (loss) on marketable securities

Total other comprehensive (loss) income

( 1,014 )  

( 471 )  

( 1,522 )  

Comprehensive income

$ 2,652  

$ 1,029  

$ 8,120  

$ 6,346  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Accumulated Other Comprehensive

32 unchanged sentences

$ 326,732  

Six Months Ended June 30, 2021

Comprehensive loss

( 1,014 )  

Stock-based compensation

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

( 20 )  

Balance at September 30, 2022

30,573  

$ 253,934  

$ 77,764  

$ ( 1,416 )  

$ 330,282  

Nine Months Ended September 30, 2021

Accumulated Other Comprehensive

16 unchanged sentences

Stock-based compensation

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

Balance at June 30, 2021

3 unchanged sentences

$ 340,379  

Comprehensive loss

( 471 )  

Stock-based compensation

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

( 72 )  

Balance at September 30, 2021

31,562  

$ 273,573  

$ 68,510  

$ 342,198  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

$ 9,642  

$ 6,232  

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

28,334  

27,443  

Stock-based compensation

3 unchanged sentences

Gain on sale of fixed assets

( 25 )  

Loss on non-marketable equity investments

1 unchanged sentence

Change in fair value of non-marketable equity investments

( 3,596 )  

Changes in operating assets and liabilities:

Accounts and unbilled receivables

13,907  

Prepaid royalties

( 106 )  

Other prepaid expenses and other current assets

Deferred commissions

( 10,192 )  

Accounts payable and accrued expenses

2 unchanged sentences

Net cash provided by operating activities

43,080  

36,436  

INVESTING ACTIVITIES:

Business combinations, net of cash acquired

( 4,009 )  

Proceeds from maturities of marketable securities

Purchases of marketable securities

Payments to acquire non-marketable equity investments

( 5,601 )  

Payments to acquire equity method investments

Payments associated with capitalized software development

( 17,392 )  

Proceeds from sale of fixed assets

Proceeds from sale of non-marketable equity investments

Purchases of property and equipment

( 1,570 )  

Net cash used in investing activities

( 18,027 )  

FINANCING ACTIVITIES:

Taxes paid related to net settlement of equity awards

( 518 )  

Repurchases of common stock

( 23,137 )  

Payment of cash dividends

Net cash used in financing activities

( 23,655 )  

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

( 46 )  

Net increase in cash and cash equivalents

18,893  

Cash and cash equivalents at beginning of period

46,905  

36,566  

Cash and cash equivalents at end of period

$ 48,257  

$ 55,459  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

7 unchanged sentences

Operating results for the 

three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

three and nine months ended September 30, 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 

12 unchanged sentences

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

The standard will be effective for the 

The standard is effective for the 

first  interim period within annual reporting periods beginning after 

2 unchanged sentences

The Company early adopted this ASU on 

January 1, 2022, and the impact of the new standard will depend on the magnitude of future acquisitions but has not had a material impact to date.

The standard will 

January 1, 2022, and the impact of the new standard is dependent on the magnitude of future acquisitions but has not had a material impact to date.

The standard does 

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

10 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Business Segments

4 unchanged sentences

Subscription services

$ 52,347  

$ 11,720  

$ 64,067  

$ 153,871  

$ 34,742  

$ 188,613  

Professional services

Total revenues, net

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

$ 54,063  

$ 13,222  

$ 67,285  

$ 158,576  

$ 39,714  

$ 198,290  

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Business Segments

4 unchanged sentences

Subscription services

$ 49,729  

$ 10,973  

$ 60,702  

$ 150,239  

$ 32,475  

$ 182,714  

Professional services

Total revenues, net

$ 51,155  

$ 12,936  

$ 64,091  

$ 154,559  

$ 37,815  

$ 192,374  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six months ended June 30, 2022 and 2021 , the Company recognized $ 0.4  million and $ 3,000  in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

For the three months ended September 30, 2022 and 2021, the Company recognized a reduction of $ 44,000 and a charge of $ 96,000 in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively.

For the nine months ended September 30, 2022 and 2021 , the Company recognized $ 0.4  million 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 

June 30, 2022 and 2021 , we recognized revenues of approximately $ 40.0  million and $ 40.5  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

September 30, 2022 and 2021 , we recognized revenues of approximately $ 39.9  million and $ 39.4  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the 

six months ended June 30, 2022 and 2021 , we recognized $ 56.0  million and $ 52.2 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of June 30, 2022 , approximately $ 455  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

nine months ended September 30, 2022 and 2021 , we recognized $ 67.9  million and $ 59.3 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of September 30, 2022 , approximately $ 473  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

5 unchanged sentences

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

The Company recorded amortization of deferred commissions of approximately $ 2.5  million and $ 2.4  million for the three  months ended June 30, 2022 and 2021 , and $ 5.0  million and $ 4.5  million for the 

six months ended June 30, 2022 and 2021 , 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 $ 2.8  million and $ 2.4  million for the three  months ended September 30, 2022 and 2021 , and $ 7.8  million and $ 6.9  million for the 

nine months ended September 30, 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 June 30, 2022 and 2021 , the Company recorded a provision for income taxes of approximately $ 0.5  million and $ 0.9 million, respectively.

During the three  months ended September 30, 2022 and 2021 , the Company recorded a provision for income taxes of approximately $ 1.3  million and $ 0.2 million, respectively.

During the 

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

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

nine months ended September 30, 2022 and 2021 , the Company recorded a provision for income taxes of $ 2.7 million and $ 2.0 million, respectively.

The Company’s effective tax rate was 22%  and 25%  for the nine months ended September 30, 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.

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 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 of $ 0.2  million related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period. 

During the nine months ended September 30, 2022 , the Company recorded discrete tax benefits of $ 16,000 , which consisted primarily of a $ 0.3  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 as well as a $ 0.1 million tax benefit for changes in estimated tax credits.

This tax benefit was partially offset by $ 0.3 million of tax expense related to uncertain tax positions and $ 0.1 million of excess tax deficiencies associated with stock-based awards. During the nine months ended September 30, 2021 , the Company recorded discrete tax expense of $ 0.2  million related to purchase accounting adjustments, the impact of a state tax rate changes enacted during the period, and changes in estimated tax credits. 

SHAREHOLDERS ’

4 unchanged sentences

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

During the six months ended June 30, 2022 , the Company issued 137,055  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 20.27 per share, measured based on the closing fair market value of the Company's stock on the date of the grant. During the six months ended June 30, 2021 , the Company issued 122,686  RSUs subject to service-based time vesting with a weighted average grant date fair value of $ 23.16  per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the nine months ended September 30, 2022 , the Company issued 140,473  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 20.31  per share, measured based on the closing fair market value of the Company's stock on the date of the grant. 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 2018 ,  the Company granted 

2 unchanged sentences

The performance criteria and measurement date for the final 

21,000  performance-based RSUs is based on 2022 adjusted EBITDA and was established during the six  months ended June 

30, 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. 

21,000  performance-based RSUs is based on 2022 adjusted EBITDA and was established during the nine months ended September 30, 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 six  months ended June 

30, 2022, the Company issued 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.

During the 

nine months ended September 30, 2022 , the Company issued 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.

The performance criteria for the first -year tranche, or 13,654  of these performance-based RSUs, is based on 2022 adjusted EBITDA.

The measurement date for these 13,654  performance-based RSUs was established during the six  months ended June 30, 2022 with a grant date fair value of $ 20.29  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established or, in the case of the portion of such performance-based RSUs which were granted contingent upon the approval of the 2022 Omnibus Incentive Plan by the Company's shareholders, the date the 2022 Omnibus Incentive Plan was approved by shareholders of the Company. The performance criteria for the remaining 77,388  performance-based RSUs has not yet been determined and will be established on an annual basis in 2023, 2024, 2025, and 2026, as applicable;

The measurement date for these 13,654  performance-based RSUs was established during the 

nine months ended September 30, 2022 with a weighted average grant date fair value of $ 20.29  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established or, in the case of the portion of such performance-based RSUs which were granted contingent upon the approval of the 2022 Omnibus Incentive Plan by the Company's shareholders, the date the 2022 Omnibus Incentive Plan was approved by shareholders of the Company. The performance criteria for the remaining 77,388  performance-based RSUs 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues (excluding depreciation and amortization)

11 unchanged sentences

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 six  months ended June 

During the nine  months ended September 

30, 2022 ,  the Company repurchased 

1 unchanged sentence

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

During the three months ended June 

30, 2022, the Company repurchased 159,403  shares pursuant to this share repurchase program at an aggregate fair value of $ 3.1  million, based on an average price per share of $ 19.70  (excluding the cost of broker commissions).

During the 

six months ended June 30, 2022 , the Company repurchased 402,050  shares at an aggregate fair value of $ 8.1  million, reflecting an average price per share of $ 20.19  (excluding the cost of broker commissions).

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

nine months ended September 30, 2022 , the Company repurchased 402,050  shares at an aggregate fair value of $ 8.1  million, reflecting an average price per share of $ 20.19  (excluding the cost of broker commissions).

No repurchases occurred during the three months ended September 30, 2022.

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 228,000  and 111,000  for the three  months ended June 30, 2022 and 2021 , respectively, and 

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 205,000  and 26,000  for the three  months ended September 30, 2022 and 2021 , respectively, and 

217,000 and 

95,000 for the 

six months ended June 30, 2022 and 2021 , respectively.

nine months ended September 30, 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

$ 3,666  

26 unchanged sentences

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

June 30, 2022

September 30, 2022

Adjusted Cost

2 unchanged sentences

Corporate debt securities

government debt securities

$ 3,589  

$ ( 2 )  

$ 3,587  

December 31, 2021

3 unchanged sentences

Corporate debt securities

$ 5,043  

$ ( 2 )  

$ 5,041  

$ 5,043  

$ ( 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 June 30, 2022 , the Company did not recognize any allowance for credit impairments on its available for sale debt securities.

As of September 30, 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.

8 unchanged sentences

Net assets acquired were $ 9.6 million.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of $ 5.1 million, goodwill of $ 5.6 million was established.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of $ 3.8  million, goodwill of $ 6.8  million was established.

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

7 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenues, net:

Workforce Solutions

$ 54,063  

$ 51,155  

$ 158,576  

$ 154,559  

Provider Solutions

13,222  

12,936  

39,714  

37,815  

Total revenues, net

$ 67,285  

$ 64,091  

$ 198,290  

$ 192,374  

Operating income:

Workforce Solutions

$ 8,609  

$ 7,732  

$ 26,761  

$ 25,981  

Provider Solutions

( 7,374 )  

( 7,921 )  

( 22,548 )  

Total operating income

$ 2,382  

$ 1,785  

$ 9,372  

$ 8,515  

Segment assets *

June 30, 2022

September 30, 2022

December 31, 2021

Workforce Solutions

$ 260,779  

$ 258,864  

Provider Solutions

131,720  

137,008  

88,698  

90,881  

$ 481,197  

$ 486,753  

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.

16 unchanged sentences

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

As of June 30, 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 and six months ended June 30, 2022 .

As of September 30, 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 and nine months ended September 30, 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