What changed in this filing

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Item 1. Financial Statements

2023-04-27 compared with 2022-10-27 · 108 added, 360 removed, 283 unchanged (62% 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 $ 661 and $ 853 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 616 and $ 544 at March 31, 2023 and December 31, 2022, respectively

41,556  

2 unchanged sentences

Prepaid royalties, net of amortization

Other prepaid expenses and other current assets

10,959  

10,824  

Other prepaid expenses and other current assets

Total current assets

1 unchanged sentence

114,377  

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

Property and equipment, net of accumulated depreciation of $ 21,326 and $ 20,280 at March 31, 2023 and December 31, 2022, respectively

14,689  

15,483  

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

Capitalized software development, net of accumulated amortization of $ 110,182 and $ 105,025 at March 31, 2023 and December 31, 2022, respectively

38,460  

5 unchanged sentences

192,398  

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

Customer-related intangibles, net of accumulated amortization of $ 50,679 and $ 48,552 at March 31, 2023 and December 31, 2022, respectively

61,080  

61,269  

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

Other intangible assets, net of accumulated amortization of $ 14,346 and $ 12,818 at March 31, 2023 and December 31, 2022, respectively

18,026  

30 unchanged sentences

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

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

30,682 and 30,579 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

254,986  

3 unchanged sentences

80,213  

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

( 1,016 )  

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Revenues, net

$ 67,285  

$ 64,091  

$ 198,290  

$ 192,374  

Operating costs and expenses:

Cost of revenues (excluding depreciation and amortization)

23,374  

22,585  

67,606  

68,053  

Product development

11,476  

10,344  

32,470  

30,205  

Sales and marketing

11,365  

10,232  

32,652  

28,713  

Other general and administrative expenses

10,004  

27,856  

29,445  

Depreciation and amortization

28,334  

27,443  

Total operating costs and expenses

64,903  

62,306  

188,918  

183,859  

Operating income

Other income (loss), net

( 99 )  

Income before income tax provision

12,317  

Income tax provision

$ 3,666  

$ 1,500  

$ 9,642  

$ 6,232  

Net income per share:

$ 0.12  

$ 0.05  

$ 0.31  

$ 0.20  

$ 0.12  

$ 0.05  

$ 0.31  

$ 0.20  

Weighted average shares of common stock outstanding:

30,570  

31,558  

30,672  

31,538  

30,662  

31,684  

30,717  

31,609  

Dividends declared per share

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

$ 3,666  

$ 1,500  

$ 9,642  

$ 6,232  

March 31, 2023

March 31, 2022

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

( 1,017 )  

( 470 )  

( 1,521 )  

Unrealized gain (loss) on marketable securities

Unrealized 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.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

Nine Months Ended September 30, 2022

(In thousands, except per share data)

Three Months Ended March 31, 2023

Accumulated Other Comprehensive

Total Shareholders’

Income (Loss)

Balance at December 31, 2022

3 unchanged sentences

$ ( 981 )  

Comprehensive income

Stock-based compensation

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

$ 334,064  

Repurchase of common stock

( 892 )  

( 19,889 )  

Balance at March 31, 2022

30,518  

$ 251,179  

$ 71,015  

$ 322,572  

Comprehensive loss

( 35 )  

Issuance of common stock in acquisition

Stock-based compensation

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

Repurchase of common stock

( 159 )  

( 3,143 )  

Balance at June 30, 2022

30,570  

$ 253,036  

$ 74,098  

$ ( 402 )  

$ 326,732  

Comprehensive loss

Dividends declared on common stock ($ 0.025 per share)

( 767 )  

2 unchanged sentences

( 791 )  

Balance at September 30, 2022

Balance at March 31, 2023

30,682  

3 unchanged sentences

$ 336,039  

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  

6 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

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

2 unchanged sentences

Deferred income taxes

Gain on sale of fixed assets

( 25 )  

Loss on non-marketable equity investments

Non-cash paid time off expense

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

( 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

( 46 )  

Net increase in cash and cash equivalents

18,893  

Net increase (decrease) in cash and cash equivalents

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.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

OVERVIEW AND  

BASIS OF PRESENTATION

Company Overview

HealthStream provides primarily Software-as-a-Service (SaaS) based applications for healthcare organizations—all designed to improve business and clinical outcomes by supporting the people who deliver patient care.

We are focused on helping healthcare organizations meet their ongoing clinical development, talent management, training, education, assessment, competency management, safety and compliance, scheduling, and provider credentialing, privileging, and enrollment needs.

The Company is organized and operated according to our One HealthStream approach, with our hStream technology platform at the center of that approach.

Increasingly, SaaS based applications in our diverse ecosystem of solutions utilize our proprietary hStream technology platform to enhance their value proposition by creating interoperability with and among other applications.

As used in this Report, “HealthStream,”

“Company,”

“we,”

“us,”

and “our”

mean HealthStream, Inc.

and its subsidiaries unless the context indicates otherwise.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X.

3 unchanged sentences

Operating results for the 

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.

three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The Condensed Consolidated Balance Sheet at December 

2 unchanged sentences

2022  (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 28, 2023).

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 previous requirement to measure contract assets and contract liabilities acquired in a business combination at fair value.

The standard is 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 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.

Consolidated Segment Information

Our business is managed and organized around a single platform strategy, also referred to as our One HealthStream approach. At the center of this single platform strategy is our hStream technology platform. By facilitating interoperability among our applications, as well as third party applications, we believe that our hStream technology platform is allowing stand-alone applications to leverage each other to more efficiently and effectively empower our customers to manage their business and improve their outcomes.

As indicated in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022, filed on February 28, 2023, the Company has reached an inflection point in its efforts to operate according to its single platform strategy, also known as our One HealthStream approach.

As of January 1, 2023, the Company’s business is now organized and managed around a consolidated, enterprise approach, including with regard to technology, operations, accounting, internal reporting (including the nature of information reviewed by our key decision maker), organization structure, compensation, performance assessment, and resource allocation.

As the result of these developments, the Company determined that Workforce Solutions and Provider Solutions were no longer separate operating segments or separate reportable segments as of January 1, 2023, such that the Company would no longer present two reportable segments for periods beginning on and after this date. As such, beginning January 1, 2023, the Company has a single reportable segment, such that the Company is presenting historical financial information on a single segment basis beginning with this Quarterly Report on Form 10 -Q for the three months ended March 31, 2023.

For purposes of reporting historical 2022 results in this Quarterly Report on Form 10 -Q, we are reporting comparable performance on a consolidated basis unless otherwise indicated.

REVENUE RECOGNITION AND SALES COMMISSIONS

7 unchanged sentences

Recognition of revenue when, or as, the Company satisfies a performance obligation

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table represents revenues disaggregated by revenue source (in thousands).

Sales taxes are excluded from revenues.

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Business Segments

Workforce Solutions

Provider Solutions

Workforce Solutions

Provider Solutions

Subscription services

$ 52,347  

$ 11,720  

$ 64,067  

$ 153,871  

$ 34,742  

$ 188,613  

Professional services

Total revenues, net

$ 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

Workforce Solutions

Provider Solutions

Workforce Solutions

Provider Solutions

Three Months Ended March 31,

Subscription services

1 unchanged sentence

$ 62,075  

$ 60,702  

$ 150,239  

$ 32,475  

$ 182,714  

Professional services

2 unchanged sentences

$ 65,367  

$ 64,091  

$ 154,559  

$ 37,815  

$ 192,374  

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

For the three months ended March 31, 2023 and 2022 , the Company recognized $ 0.2  million and $ 6,000 , respectively, in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.

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, 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 

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.

March 31, 2023 and 2022 , we recognized revenues of approximately $ 39.1  million and $ 34.6  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of March 31, 2023 , approximately $ 504  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

1 unchanged sentence

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. 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 $ 2.8  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.

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. The Company recorded amortization of deferred commissions of approximately $ 2.7  million and $ 2.5  million for the three  months ended March 31, 2023 and 2022 , 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, 2022 and 2021 , the Company recorded a provision for income taxes of approximately $ 1.3  million and $ 0.2 million, respectively.

During the 

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.

During the three  months ended March 31, 2023 and 2022 , the Company recorded a provision for income taxes of approximately $ 0.5  million and $ 0.9 million, respectively. The Company’s effective tax rate was 16 % and 23 % for the three months ended March 31, 2023 and 2022 , 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 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. 

During the three months ended March 31, 2023 , the Company recorded discrete tax benefits of $ 53,000 , which consisted primarily of a $ 133,000  tax benefit associated with stock-based awards.

This tax benefit was partially offset by $ 80,000 of discrete tax expense related to reserves for uncertain tax positions.

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. 

SHAREHOLDERS ’

Dividends on Common Stock

On February 20, 2023, the Company's Board of Directors ("Board") approved a dividend policy under which the Board declared the initial quarterly dividend in the amount of $ 0.025  per share, which will be payable on April 28, 2023 to the holders of record of all of the issued and outstanding shares of common stock as of the close of business on April 17, 2023 .

This marks the first quarterly cash dividend policy adopted by the Company.

On April 24, 2023, the Board approved the Company's 

second quarterly cash dividend of $ 0.025 per share, payable on June 23, 2023 to holders of record on June 12, 2023 .

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock-Based Compensation

1 unchanged sentence

2022 Omnibus Incentive Plan.

The 2022 Omnibus Incentive Plan was approved at the annual meeting of shareholders held on May 26, 2022.

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 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 

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.

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 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 three months ended March 31, 2023 , the Company issued 45,907  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date of the grant. 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 the 2022  Omnibus Incentive Plan submitted to the Company's shareholders for approval at the annual meeting of the Company's shareholders held on 

May 26, 2022 .

 Of these, the 

100,191  RSUs that were 

not  conditioned on shareholder approval of the 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 required that the 

35,161  RSUs conditioned upon approval of the 2022  Omnibus Incentive Plan 

not  be valued until the condition was met (that is, at such time that the 

2022  Omnibus Incentive Plan was approved by shareholders at the annual meeting of the Company’s shareholders on 

May 26, 2022) .

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.

three months ended March 31, 2023 , the Company granted 138,000  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 15 %, 20 %, 20 %, 20 %, and 25 % based on performance in 2023, 2024, 2025, 2026, and 2027, respectively.

The performance criteria for the first -year tranche, or 20,700  of these performance-based RSUs, is based on 2023  adjusted EBITDA.

The measurement date for these 20,700  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;

three months ended March 31, 2023 with a weighted average grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established. The performance criteria for the remaining 117,300 performance-based RSUs has not yet been determined and will be established on an annual basis in 2024, 2025, 2026, and 2027, as applicable;

therefore, the measurement date for these remaining 117,300 performance-based RSUs cannot be determined until the performance criteria have been established. 

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.

The performance criteria and measurement date for the second -year tranche, or 18,210  of these performance-based RSUs, is based on 2023  adjusted EBITDA and was established during the three months ended March 31, 2023  with a grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established.

The performance criteria for the remaining 59,178  performance-based RSUs has not yet been determined and will be established on an annual basis in 2024, 2025, and 2026, as applicable;

therefore, the measurement date for these remaining 59,178  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

$ 2,609  

$ 2,260  

Share Repurchase Plan

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 nine  months ended September 

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 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.

On March 14, 2022, the Company's Board approved an expansion of the Company's share repurchase program initially authorized by the Board on November 1, 2021 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 expired on 

March 13, 2023.

Under this program, the Company repurchased a total of 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 March 31, 2023.

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

217,000 and 

95,000 for the 

nine months ended September 30, 2022 and 2021 , 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 268,000  and 218,000  for the three  months ended March 31, 2023 and 2022 , respectively.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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,

$ 3,666  

$ 1,500  

Three Months Ended March 31,

$ 2,623  

3 unchanged sentences

30,955  

30,672  

31,538  

Effect of dilutive shares

2 unchanged sentences

30,976  

30,717  

31,609  

Net income per share:

3 unchanged sentences

$ 0.09  

$ 0.12  

$ 0.05  

$ 0.31  

$ 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, 2022

March 31, 2023

Adjusted Cost

1 unchanged sentence

Unrealized Losses

Corporate debt securities

government debt securities

treasury securities

$ 9,818  

1 unchanged sentence

$ 9,818  

$ ( 2 )  

$ 9,818  

December 31, 2022

2 unchanged sentences

Unrealized Losses

Corporate debt securities

$ 5,043  

$ ( 2 )  

treasury securities

$ 7,882  

2 unchanged sentences

$ 7,885  

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

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

As of March 31, 2023 , 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.

BUSINESS COMBINATION

2022 ,  the Company acquired the remaining ownership interest (representing approximately 82% of the outstanding equity interests) of CloudCME, LLC ("CloudCME"), a Nashville-based healthcare technology company offering a SaaS-based application for managing all aspects of continuing education (CME/CE) within a healthcare organization, for approximately $ 4.0  million in cash and $ 4.1 million in shares of HealthStream's common stock issued through a private placement at closing.

The Company previously held a minority interest in CloudCME of approximately 18%.

Of the purchase price paid at closing, $ 0.3 million is being held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company.

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.

Net assets acquired were $ 9.6 million.

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.

BUSINESS SEGMENTS

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

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

BUSINESS COMBINATIONS

December 31, 2022 ,  the Company acquired substantially all of the assets of Electronic Education Documentation System, LLC (d/b/a eeds) ("eeds"), an Asheville, North Carolina-based healthcare technology company offering a SaaS-based continuing education (CME/CE) management system for healthcare organizations, for approximately $ 6.6  million in cash, reflecting customary purchase price adjustments made to the purchase price paid of $ 7.0  million.

After the filing of the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022 

on February 28, 2023, the Company received an updated valuation report for the acquisition from a third -party valuation firm.

Based on the results of that valuation report, the Company has estimated the fair value of the customer relationships, developed technology, non-compete, and trade name intangible assets to be $ 2.6  million, $ 1.9 million, $ 0.2 million, and $ 0.1 million, respectively.

As a result, the fair value of the customer relationships and non-compete intangible assets were increased by $ 2.0 million and $ 0.1 million during the three months ended March 31, 2023, respectively, while the developed technology and trade name intangible assets were decreased by $ 0.8 million and $ 20,000 during the three months ended March 31, 2023, respectively, due to this new information, with a corresponding decrease to goodwill of $ 1.3 million for the net change in the fair value of identifiable intangible assets.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

Three Months Ended 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 *

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.

Cash and cash equivalents, marketable securities, non-marketable equity investments, and certain ROU assets are not allocated to individual segments and are included within Unallocated.

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

Revolving Credit Facility

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

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 .

As of March 31, 2023 , 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, 2023 .

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