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Item 1. Financial Statements

2024-04-25 compared with 2023-10-26 · 194 added, 325 removed, 175 unchanged (75% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

Cash and cash equivalents

$ 44,123  

$ 46,023  

$ 52,407 $ 40,333

Marketable securities

27,691  

Accounts receivable, net of allowance for doubtful accounts of $ 710 and $ 544 at September 30, 2023 and December 31, 2022, respectively

30,195  

36,730  

31,265 30,800

Accounts receivable, net of allowance for doubtful accounts of $ 901 and $ 781 at March 31, 2024 and December 31, 2023, respectively

39,635 34,346

Accounts receivable - unbilled

Prepaid royalties, net of amortization

10,755  

10,960 10,202

Prepaid software maintenance and subscriptions

Other prepaid expenses and other current assets

Total current assets

126,879  

114,377  

Property and equipment, net of accumulated depreciation of $ 23,441 and $ 20,280 at September 30, 2023 and December 31, 2022, respectively

13,536  

15,483  

Capitalized software development, net of accumulated amortization of $ 121,235 and $ 105,025 at September 30, 2023 and December 31, 2022, respectively

39,711  

37,118  

147,389 130,210

Property and equipment, net of accumulated depreciation of $ 20,459 and $ 19,503 at March 31, 2024 and December 31, 2023, respectively

12,537 13,005

Capitalized software development, net of accumulated amortization of $ 132,960 and $ 127,009 at March 31, 2024 and December 31, 2023, respectively

41,118 40,643

Operating lease right of use assets, net

20,806  

22,759  

191,039  

192,398  

Customer-related intangibles, net of accumulated amortization of $ 54,919 and $ 48,552 at September 30, 2023 and December 31, 2022, respectively

56,715  

61,269  

Other intangible assets, net of accumulated amortization of $ 17,138 and $ 12,818 at September 30, 2023 and December 31, 2022, respectively

14,861  

20,284  

Deferred tax assets

19,483 20,114

191,072 191,379

Customer-related intangibles, net of accumulated amortization of $ 59,128 and $ 57,095 at March 31, 2024 and December 31, 2023, respectively

52,511 54,742

Other intangible assets, net of accumulated amortization of $ 15,750 and $ 16,603 at March 31, 2024 and December 31, 2023, respectively

11,939 13,289

Deferred commissions

29,460  

28,344  

30,671 31,700

Non-marketable equity investments

$ 498,050  

$ 497,741  

LIABILITIES AND SHAREHOLDERS’

$ 511,605 $ 499,942

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$ 3,519  

$ 7,290  

$ 5,313 $ 7,465

Accrued expenses

20,980  

25,011  

16,776 22,717

Accrued royalties

Deferred revenue

83,221  

79,469  

98,268 83,623

Total current liabilities

114,582  

117,213  

126,070 118,361

Deferred tax liabilities

15,324  

17,996  

16,868 16,132

Deferred revenue, noncurrent

Operating lease liability, noncurrent

21,016  

23,321  

19,484 20,247

Other long-term liabilities

Shareholders’

Shareholders’ equity:

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

30,590 and 30,579 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

254,950  

254,832  

30,398 and 30,298 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

249,280 249,075

Retained earnings

88,535  

80,213  

96,746 92,368

Accumulated other comprehensive loss

( 1,239 )  

Total shareholders’

342,246  

334,064  

Total liabilities and shareholders’

$ 498,050  

$ 497,741  

( 1,172 ) ( 691 )

Total shareholders’ equity

344,854 340,752

Total liabilities and shareholders’ equity

$ 511,605 $ 499,942

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Revenues, net

$ 72,760 $ 68,946

Operating costs and expenses:

Cost of revenues (excluding depreciation and amortization)

24,617 23,856

Product development

12,032 11,680

Sales and marketing

11,773 11,728

Other general and administrative expenses

1 unchanged sentence

Total operating costs and expenses

67,070 66,055

Operating income

2 unchanged sentences

Income tax provision

$ 5,227 $ 2,623

Net income per share:

$ 0.17 $ 0.09

Weighted average shares of common stock outstanding:

30,313 30,591

30,418 30,659

Dividends declared per share

$ 0.028 $ 0.025

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

$ 5,227 $ 2,623

Other comprehensive loss, net of taxes:

Foreign currency translation adjustments

Unrealized gain (loss) on marketable securities

( 476 ) ( 33 )

Unrealized loss on marketable securities

Total other comprehensive loss

( 481 ) ( 35 )

Comprehensive income

$ 4,746 $ 2,588

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except per share data)

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Accumulated Other Comprehensive

Total Shareholders’

Balance at December 31, 2023

30,579  

$ 254,832  

$ 80,213  

$ ( 981 )  

$ 334,064  

Comprehensive loss

( 35 )  

30,298 $ 249,075 $ 92,368 $ ( 691 ) $ 340,752

— — 5,227 — 5,227

Other comprehensive loss

— — — ( 481 ) ( 481 )

Dividends declared on common stock ($0.028 per share)

( 767 )  

— — ( 849 ) — ( 849 )

Stock-based compensation

— 1,060 — — 1,060

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

( 791 )  

100 ( 855 ) — — ( 855 )

Balance at March 31, 2024

30,682  

$ 254,986  

$ 82,069  

$ ( 1,016 )  

$ 336,039  

Comprehensive income

Dividends declared on common stock ($ 0.025 per share)

( 767 )  

Stock-based compensation

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

Balance at June 30, 2023

30,686  

$ 256,073  

$ 85,435  

$ ( 889 )  

$ 340,619  

Comprehensive loss

( 350 )  

Dividends declared on common stock ($ 0.025 per share)

( 767 )  

Stock-based compensation

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

( 20 )  

Repurchase of common stock

( 99 )  

( 2,141 )  

Balance at September 30, 2023

30,590  

$ 254,950  

$ 88,535  

$ ( 1,239 )  

$ 342,246  

Nine Months Ended September 30, 2022

30,398 $ 249,280 $ 96,746 $ ( 1,172 ) $ 344,854

Three Months Ended March 31, 2023

Accumulated Other Comprehensive

Total Shareholders’

Income (Loss)

Total Shareholders’

Balance at December 31, 2022

31,327  

$ 270,791  

$ 68,122  

$ 339,019  

Comprehensive income

30,579 $ 254,832 $ 80,213 $ ( 981 ) $ 334,064

— — 2,623 — 2,623

Other comprehensive loss

— — — ( 35 ) ( 35 )

Dividends declared on common stock ($0.025 per share)

— — ( 767 ) — ( 767 )

Stock-based compensation

— 945 — — 945

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

( 497 )  

Repurchase of common stock

( 892 )  

( 19,889 )  

103 ( 791 ) — — ( 791 )

Balance at March 31, 2023

30,518  

$ 251,179  

$ 71,015  

$ 322,572  

Comprehensive loss

( 780 )  

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

( 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  

30,682 $ 254,986 $ 82,069 $ ( 1,016 ) $ 336,039

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES:

$ 5,227 $ 2,623

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

4 unchanged sentences

Deferred income taxes

Gain on sale of fixed assets

Loss on non-marketable equity investments

Change in fair value of non-marketable equity investments

Loss on equity method investments

( 346 ) ( 85 )

Changes in operating assets and liabilities:

Accounts and unbilled receivables

( 5,782 ) ( 4,787 )

Prepaid royalties

( 758 ) ( 1,889 )

Other prepaid expenses and other current assets

Deferred commissions

( 1,928 ) ( 1,490 )

Accounts payable and accrued expenses

( 7,416 ) ( 4,773 )

Accrued royalties

Deferred revenue

14,552 14,504

Net cash provided by operating activities

20,938 20,541

INVESTING ACTIVITIES:

2 unchanged sentences

Purchases of marketable securities

Payments associated with capitalized software development

Proceeds from sale of fixed assets

( 14,124 ) ( 2,850 )

Proceeds from sale of non-marketable equity investments

Payments associated with capitalized software development

( 7,019 ) ( 7,566 )

Purchases of property and equipment

( 742 ) ( 879 )

Net cash used in investing activities

( 7,120 ) ( 16,916 )

FINANCING ACTIVITIES:

Taxes paid related to net settlement of equity awards

Repurchases of common stock

( 855 ) ( 791 )

Payment of cash dividends

Net cash used in financing activities

( 1,704 ) ( 791 )

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

( 40 ) ( 21 )

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

40,333 46,023

Cash and cash equivalents at end of period

$ 52,407 $ 48,836

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

OVERVIEW AND BASIS OF PRESENTATION

Company Overview

HealthStream primarily provides 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.

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.

The Company is focused on helping individuals and organizations in healthcare meet their ongoing learning, clinical development, credentialing, and scheduling needs.

The Company also provides its solutions to nursing schools and nursing students.

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

Increasingly, SaaS-based applications in the Company's diverse ecosystem of solutions utilize the Company's proprietary hStream technology platform to enhance the value proposition for customers by creating interoperability with and among other applications.

As used in this Quarterly Report on Form 10 -Q (“Form 10 -Q”), “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.

Accordingly, condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements.

1 unchanged sentence

All intercompany transactions have been eliminated in consolidation.

Operating results for the 

three and nine months ended September 30, 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 

2022  was derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements.

For further information, refer to the Consolidated Financial Statements and Notes thereto for the year ended December 

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

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 reached an inflection point in its efforts to operate according to its single platform strategy, One HealthStream.

January 1, 2023, the Company’s business has been 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, since January 1, 2023, the Company has had a single reportable segment, such that the Company is presenting historical financial information on a single segment basis in this Quarterly Report on Form 10 -Q for the three and nine months ended September 30, 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.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

The Condensed Consolidated Balance Sheet at December 31, 2023 was derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements.

For further information, refer to the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2023 (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 26, 2024).

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Recently Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures .

The new guidance requires disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker and other segment items on an interim and annual basis.

Entities with a single reportable segment will also be required to apply the disclosure requirements in Accounting Standards Update ("ASU") 2023 - 07 on an interim and annual basis.

ASU 2023 - 07 will be effective for the Company for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of adopting ASU 2023 - 07.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures , which requires public entities to provide disclosure of disaggregated information in the entity’s tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023 - 09.

HEALTHSTREAM, INC.

2 unchanged sentences

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those goods or services. Revenue is recognized based on the following five step model:

Revenue is recognized based on the following five step model:

Identification of the contract with a customer

5 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Subscription services

$ 67,473  

$ 64,067  

$ 199,993  

$ 188,613  

$ 70,205 $ 66,015

Professional services

Total revenues, net

$ 70,339  

$ 67,285  

$ 208,482  

$ 198,290  

For the 

three months ended September 30, 2023 and 2022 , the Company recognized a charge of 

$ 0.3  million and a reduction of 

$ 44,000  in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively.

For the 

nine months ended September 30, 2023 and 2022 , the Company recognized 

$ 0.7  million and 

$ 0.4  million 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, 2023 and 2022 , we recognized revenues of approximately $ 42.2  million and $ 39.9  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the nine months ended September 30, 2023 and 2022, we recognized revenues of approximately $ 76.0  million and $ 67.9  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of September 30, 2023 , approximately $ 511  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

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

$ 72,760 $ 68,946

three months ended March 31, 2024 and 2023 , the Company recognized

$ 0.2 million in impairment losses on receivables and contract assets arising from the Company's contracts with customers.

During the three months ended March 31, 2024 and 2023 , the Company recognized revenues of $ 40.0 million and $ 39.1 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of March 31, 2024 , approximately $ 514 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

The Company expects to recognize revenue related to approximately 44 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

Sales Commissions

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 $ 3.0  million and $ 2.8  million for the three  months ended September 30, 2023 and 2022 , and $ 8.5 million and $ 7.8 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

Sales commissions earned by the Company's sales employees are considered incremental and recoverable costs of obtaining a contract with a customer.

The Company recorded amortization of deferred commissions of $ 3.0 million and $ 2.7 million for the three months ended March 31, 2024 and 2023 , respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

HEALTHSTREAM, INC.

2 unchanged sentences

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, 2023 and 2022 , the Company recorded a provision for income taxes of approximately $ 1.6  million and $ 1.3 million, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded a provision for income taxes of $ 2.5 million and $ 2.7  million, respectively.

The Company’s effective tax rate was 19 % and 22 % for the nine months ended September 30, 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.

During the three months ended March 31, 2024 and 2023 , the Company recorded a provision for income taxes of approximately $ 1.3 million and $ 0.5 million, respectively.

The Company’s effective tax rate was 20 % and 16 % for the three months ended March 31, 2024 and 2023 , respectively.

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.

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, 2023 , the Company recorded discrete tax benefits of $ 0.1  million, which consisted primarily of tax benefits associated with changes in state apportionment rules in Tennessee upon the enactment of the Tennessee Works Tax Act, in the amount of $ 0.6  million and stock-based awards in the amount of $ 0.1 million, partially offset by $ 0.3  million of discrete tax expense related to reserves for uncertain tax positions and $ 0.3 million of discrete tax expense associated with the Company merging VerityStream, Inc.

("VerityStream") into HealthStream.

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 ("CloudCME") 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. 

SHAREHOLDERS ’

During the three months ended March 31, 2024 , the Company recorded discrete tax benefits of $ 17,000 , which consisted primarily of a $ 129,000 tax benefit associated with stock-based awards, partially offset by $ 112,000 of discrete tax expense related to reserves for uncertain tax positions.

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.

SHAREHOLDERS ’ EQUITY

Dividends on Common Stock

On February 20, 2023, the Company's Board of Directors ("Board") approved a dividend policy, marking the first quarterly cash dividend policy adopted by the Company ("Dividend Policy").

During the nine months ended September 30, 2023, the Board declared the following quarterly dividends under the Dividend Policy:

Dividend Payment Date Dividend Declaration Date  

Dividend Per Share  

Record Date  

Cash Outlay  

April 28, 2023 February 20, 2023  

$ 0.025  

April 17, 2023  

$ 767,000  

June 23, 2023 April 24, 2023  

June 12, 2023  

767,000  

September 29, 2023 July 24, 2023  

September 18, 2023  

767,000  

Total dividends  

$ 0.075  

$ 2,301,000  

Additionally, o n October 23, 2023, the Board approved the Company’s fourth quarterly cash dividend of $ 0.025 per share, payable on December 22, 2023 to holders of record on December 11, 2023 . 

During the three months ended March 31, 2024, the Company's Board of Directors (“Board”) declared the following quarterly dividend under its dividend policy:

Dividend Payment Date Dividend Declaration Date Dividend Per Share Record Date Cash Outlay

March 22, 2024 February 19, 2024 $ 0.028 March 11, 2024 $ 849,000

Additionally, o n April 22, 2024, the Board declared a quarterly cash dividend of $ 0.028 per share, payable on May 17, 2024 to holders of record on May 6, 2024 .

Stock-Based Compensation

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

2022 Omnibus Incentive Plan.

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, 2023 , the Company issued 128,942  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 23.61  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, 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 grant. 

During the 

nine months ended September 30, 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 

first quarter of 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 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.

The Company has stock awards outstanding under its 2016 Omnibus Incentive Plan and 2022 Omnibus Incentive Plan.

During the three months ended March 31, 2024 , the Company issued 45,640 RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 26.79 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, 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 grant.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the nine months ended 

September 30, 2022, 

the Company granted 

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 

20 %, and 

25 % based on performance in 

2025,  and 

2026,  respectively.

The performance criteria for the 

second -year tranche, or 

18,210  of these performance-based RSUs, is based on 

2023  adjusted EBITDA.

The measurement date for these 18,210 performance-based RSUs was established during the first quarter of 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 

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.

During the 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 of the Board (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 second -year tranche, or 27,600 of these performance-based RSUs, is based on 2024 adjusted EBITDA.

The measurement date for these 27,600 performance-based RSUs was established during the three months ended March 31, 2024 with a weighted average grant date fair value of $ 26.79 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 89,700 performance-based RSUs has not yet been determined and will be established on an annual basis in 2025, 2026, and 2027, as applicable;

therefore, the measurement date for these remaining 89,700 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 third -year tranche, or 18,211 of these performance-based RSUs, is based on 2024 adjusted EBITDA and was established during the three months ended March 31, 2024 with a grant date fair value of $ 26.79 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 40,967 performance-based RSUs has not yet been determined and will be established on an annual basis in 2025 and 2026, as applicable;

therefore, the measurement date for these remaining 40,967 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

$ 1,038  

$ 3,076  

$ 2,609  

$ 1,060 $ 945

Share Repurchase Plan

On September 13, 2023, the Company announced that the Board authorized a share repurchase program to repurchase up to $ 10.0 million of the Company's outstanding shares of common stock.

The share repurchase program is scheduled to terminate on the earlier of March 31, 2024, or when the maximum dollar amount has been expended.

During the three months ended September 30, 2023, the Company repurchased 99,090  shares at an aggregate fair value of $ 2.1  million, reflecting an average price per share of $ 21.60  (excluding the cost of broker commissions).

The Company's Condensed Consolidated Balance Sheet as of September 30, 2023 included $ 0.5 million of the share repurchases in accrued expenses with the remaining $ 1.6 million paid in cash during the three months ended September 30, 2023.

On September 13, 2023, the Company announced that the Board authorized a share repurchase program to repurchase up to $ 10.0 million of the Company's outstanding shares of common stock.

The share repurchase program expired according to its terms on March 31, 2024.

Under this program, the Company repurchased a total of 404,188 shares at an aggregate fair value of $ 8.9 million, reflecting an average price per share of $ 22.07 (excluding the cost of broker commissions).

No repurchases occurred under this program during the three months ended March 31, 2024 .

HEALTHSTREAM, INC.

5 unchanged sentences

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

The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately 340,000  and 205,000  for the three  months ended September 30, 2023 and 2022 , respectively, and 

278,000 and 

217,000 for the nine months ended September 30, 2023 and 2022, 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 176,000 and 268,000 for the three months ended March 31, 2024 and 2023 , respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

$ 5,227 $ 2,623

Weighted-average shares outstanding

30,313 30,591

Effect of dilutive shares

Weighted-average diluted shares

30,418 30,659

Net income per share:

$ 0.17 $ 0.09

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, 2023

March 31, 2024

Adjusted Cost

2 unchanged sentences

treasury securities

$ 31,261 $ 6 $ ( 2 ) $ 31,265

December 31, 2023

3 unchanged sentences

treasury securities

$ 30,791 $ 10 $ ( 1 ) $ 30,800

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 September 30, 2023 , the Company did not recognize any allowance for credit impairments on its available for sale debt securities.

As of March 31, 2024 , the Company did not recognize any allowance for credit impairments on its available for sale 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.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

During the nine months ended September 30, 2023, the Company made adjustments to customer relationships, developed technology, non-compete, and trade name intangibles based on updated information obtained since the preliminary estimates were made.

As a result, the Company recorded a measurement period adjustment which increased customer relationships and non-compete intangible assets by $ 2.0 million and $ 0.1 million, respectively, while the developed technology and trade name intangible assets were decreased by $ 0.8 million and $ 20,000 , respectively, resulting in a decrease to goodwill of $ 1.3 million for the net change in the fair value of identifiable intangible assets.

Revolving Credit Facility

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

As described in Note 9 to these Condensed Consolidated Financial Statements, the Revolving Credit Facility was amended by a new revolving credit facility entered into by the Company on October 6, 2023, which replaced the Revolving Credit Facility.

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

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

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

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

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

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

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

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

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

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

On October 6, 2023, the Company entered into an Amended and Restated Revolving Credit Agreement ("Revolving Credit Facility"), amending the Revolving Credit Facility dated as of November 24, 2014, as amended, with certain lenders party thereto from time to time, and Truist, as Administrative Agent for the lenders.

Under the Revolving Credit Facility, the Company may borrow up to $ 50.0 million, which includes a $ 5.0 million swingline sub-facility and a $ 5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $ 25.0 million, subject to securing additional commitments from existing lenders or new lending institutions.

The Revolving Credit Facility has a maturity date of October 6, 2026.

The Company's obligations under the Revolving Credit Facility are unsecured.

In addition, if the Company forms or acquires any domestic subsidiaries, the loans and other obligations under the Revolving Credit Facility will be guaranteed by such domestic subsidiaries.

At the Company’s election, the borrowings under the Revolving Credit Facility, other than the swingline loans, bear interest at either ( 1 ) a base rate defined as the highest of (a) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, or (b) the Federal Funds Rate, as in effect from time to time, plus one -half of one percent ( 0.50 %) per annum (any changes in such rates to be effective as of the date of any change in such rate), plus in each case an applicable margin that varies with the company’s funded debt leverage ratio;

or ( 2 ) a term secured overnight financing rate (“SOFR”) defined as the greater of (a)(i) the forward-looking term rate based on SOFR determined as of the reference time for such interest period with a term equivalent to such interest period plus (ii) a term SOFR adjustment equal to 0.10 % per annum and (b) zero, plus, in each case, an applicable margin that varies with the Company’s consolidated total leverage ratio.

The Company’s borrowings under the swingline loans bear interest at the base rate plus the applicable margin.

The initial applicable margin for base rate loans is 0.50 % and the initial applicable margin SOFR loans is 1.50 %.

The applicable margins will be adjusted quarterly, in each case two ( 2 ) business days after the Administrative Agent's receipt of the Company's quarterly financial statements.

The Company is also required to pay a commitment fee accruing on the unused revolving commitment, which fee initially is 20 basis points per annum and a letter of credit fee, accruing at a rate per annum equal to the applicable margin for SOFR loans then in effect on the daily average amount of such lender’s letter of credit exposure.

Principal is payable in full at maturity on October 6, 2026, and there are no scheduled principal payments prior to maturity.

Interest on base rate loans and swingline loans is payable quarterly in arrears, and interest on SOFR loans is payable at the end of each interest period, and in the case of interest periods longer than three months, on each day which occurs every three months after the initial date of such interest period.

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

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

a funded debt leverage ratio (consolidated debt/consolidated EBITDA) of not greater than 3.0 to 1.0;

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

As of September 30, 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 and nine months ended September 30, 2023 .

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SUBSEQUENT EVENT

On October 6, 2023, the Company entered into an Amended and Restated Revolving Credit Agreement ("New Revolving Credit Facility"), amending the Revolving Credit Facility dated as of November 24, 2014, as amended, with certain lenders party thereto from time to time, and Truist, as Administrative Agent for the lenders. Under the New Revolving Credit Facility, the Company may borrow up to $ 50.0 million, which includes a $ 5.0 million swingline sub-facility and a $ 5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $ 25.0 million, subject to securing additional commitments from existing lenders or new lending institutions.

The New Revolving Credit Facility has a maturity date of October 6, 2026.

The Company's obligations under the New Revolving Credit Facility are unsecured.

In addition, if the Company forms or acquires any domestic subsidiaries, the loans and other obligations under the New Revolving Credit Facility will be guaranteed by such domestic subsidiaries.

At the Company’s election, the borrowings under the New Revolving Credit Facility, other than the swingline loans, bear interest at either ( 1 ) 

a base rate defined as the highest of (a) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, or (b) the Federal Funds Rate, as in effect from time to time, plus one -half of one percent ( 0.50 %) per annum (any changes in such rates to be effective as of the date of any change in such rate), plus in each case an applicable margin that varies with the company’s funded debt leverage ratio;

The Company’s borrowings under the swingline loans bear interest at the base rate plus the applicable margin. 

The initial applicable margin for base rate loans is 0.50 % and the initial applicable margin SOFR loans is 1.50 %.

The applicable margins will be adjusted quarterly, in each case two ( 2 ) business days after the Administrative Agent's receipt of the Company's quarterly financial statements. 

The Company is also required to pay a commitment fee accruing on the unused revolving commitment, which fee initially is 20 basis points per annum and a letter of credit fee, accruing at a rate per annum equal to the applicable margin for SOFR loans then in effect on the daily average amount of such lender’s letter of credit exposure.

Principal is payable in full at maturity on October 6, 2026, and there are no scheduled principal payments prior to maturity. Interest on base rate loans and swingline loans is payable quarterly in arrears, and interest on SOFR loans is payable at the end of each interest period, and in the case of interest periods longer than three months, on each day which occurs every three months after the initial date of such interest period.

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

a funded debt leverage ratio of not greater than 3.0 to 1.0;

an interest coverage ratio of not less than 3.0 to 1.0.

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

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

As of March 31, 2024 , 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, 2024 .

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