What changed in this filing

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Item 1. Financial Statements

2024-07-25 compared with 2024-04-25 · 93 added, 92 removed, 277 unchanged (40% of the section changed)

8 unchanged sentences

36,869 30,800

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

Accounts receivable, net of allowance for doubtful accounts of $ 978 and $ 781 at June 30, 2024 and December 31, 2023, respectively

31,801 34,346

1 unchanged sentence

Prepaid royalties, net of amortization

10,960 10,202

Prepaid software maintenance and subscriptions

2 unchanged sentences

139,112 130,210

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

Property and equipment, net of accumulated depreciation of $ 21,423 and $ 19,503 at June 30, 2024 and December 31, 2023, respectively

11,880 13,005

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

Capitalized software development, net of accumulated amortization of $ 139,063 and $ 127,009 at June 30, 2024 and December 31, 2023, respectively

41,540 40,643

2 unchanged sentences

190,968 191,379

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

Customer-related intangibles, net of accumulated amortization of $ 61,107 and $ 57,095 at June 30, 2024 and December 31, 2023, respectively

50,569 54,742

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

Other intangible assets, net of accumulated amortization of $ 17,084 and $ 16,603 at June 30, 2024 and December 31, 2023, respectively

10,603 13,289

22 unchanged sentences

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

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

30,408 and 30,298 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively

250,368 249,075

12 unchanged sentences

Three Months Ended

March 31, 2024

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 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

March 31, 2024

March 31, 2023

$ 5,227 $ 2,623

Other comprehensive loss, net of taxes:

Six Months Ended

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Other comprehensive (loss) income, net of taxes:

Foreign currency translation adjustments

( 476 ) ( 33 )

Unrealized loss on marketable securities

Total other comprehensive loss

( 481 ) ( 35 )

Total other comprehensive (loss) income

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)

Three Months Ended March 31, 2024

Six Months Ended June 30, 2024

Accumulated Other Comprehensive

3 unchanged sentences

— — 5,227 — 5,227

Other comprehensive loss

Comprehensive loss

— — — ( 481 ) ( 481 )

7 unchanged sentences

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

Three Months Ended March 31, 2023

— — 4,168 — 4,168

Comprehensive loss

— — — ( 45 ) ( 45 )

Dividends declared on common stock ($ 0.028 per share)

— — ( 851 ) — ( 851 )

Stock-based compensation

— 1,094 — — 1,094

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

10 ( 6 ) — — ( 6 )

Balance at June 30, 2024

30,408 $ 250,368 $ 100,063 $ ( 1,217 ) $ 349,214

Six Months Ended June 30, 2023

Accumulated Other Comprehensive

3 unchanged sentences

— — 2,623 — 2,623

Other comprehensive loss

Comprehensive loss

— — — ( 35 ) ( 35 )

7 unchanged sentences

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

— — 4,133 — 4,133

Comprehensive income

— — — 127 127

Dividends declared on common stock ($ 0.025 per share)

— — ( 767 ) — ( 767 )

Stock-based compensation

— 1,093 — — 1,093

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

4 ( 6 ) — — ( 6 )

Balance at June 30, 2023

30,686 $ 256,073 $ 85,435 $ ( 889 ) $ 340,619

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES:

$ 5,227 $ 2,623

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

5 unchanged sentences

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

( 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

( 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

( 40 ) ( 21 )

Net increase in cash and cash equivalents

Net increase (decrease) 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.

15 unchanged sentences

All intercompany transactions have been eliminated in consolidation.

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.

Operating results for the three and six months ended June 30, 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.

1 unchanged sentence

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Recently Adopted

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

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

Entities with a single reportable segment will also be required to apply the disclosure requirements in 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 ):

15 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Subscription services

1 unchanged sentence

Professional services

2,543 2,692 5,098 5,623

Total revenues, net

$ 71,556 $ 69,198 $ 144,316 $ 138,144

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.

three months ended June 30, 2024 and 2023 , the Company recognized

$ 1.6 million and

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

six months ended

June 30, 2024 and

2023, the Company recognized

$ 1.8 million and

$ 0.4 million in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively.

During the three months ended June 30, 2024 and 2023 , the Company recognized revenues of $ 47.2 million and $ 43.6 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the six months ended June 30, 2024 and 2023, the Company recognized revenues of $ 65.2 million and $ 62.1 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of June 30, 2024 , approximately $ 538 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 43 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

1 unchanged sentence

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.

The Company recorded amortization of deferred commissions of $ 3.0 million and $ 2.8 million for the three months ended June 30, 2024 and 2023 , respectively, and $ 6.0 million and $ 5.5 million for the six months ended June 30, 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 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.

During the three months ended June 30, 2024 and 2023 , the Company recorded a provision for income taxes of $ 1.1 million and $ 0.4 million, respectively.

During the six months ended June 30, 2024 and 2023, the Company recorded a provision for income taxes of $ 2.4 million and $ 0.9 million, respectively.

The Company’s effective tax rate was 21 % and 12 % for the six months ended June 30, 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 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.

During the six months ended June 30, 2024 , the Company recorded discrete tax expense of $ 14,000 , which consisted primarily of discrete tax expense of $ 0.2 million related to reserves for uncertain tax positions, partially offset by a $ 0.1 million discrete tax benefit associated with stock-based awards.

During the six months ended June 30, 2023 , the Company recorded discrete tax benefits of $ 0.5 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.

This tax benefit for the six months ended June 30, 2023 was partially offset by $ 0.2 million of discrete tax expense related to reserves for uncertain tax positions.

SHAREHOLDERS ’ EQUITY

Dividends on Common Stock

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

During the six months ended June 30, 2024, the Company's Board of Directors (“Board”) declared the following quarterly dividends under the Company's 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 .

May 17, 2024 April 22, 2024 0.028 May 6, 2024 851,000

Total dividends $ 0.056 $ 1,700,000

Additionally, o n July 22, 2024, the Board declared a quarterly cash dividend of $ 0.028 per share, payable on August 16, 2024 to holders of record on August 5, 2024 .

Stock-Based Compensation

1 unchanged sentence

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 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.

During the six months ended June 30, 2024 , the Company issued 69,784 RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 26.92 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, 2023 , the Company issued 72,923 RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 25.36 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 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.

During the six months ended June 30, 2023, the Company granted 138,000 performance-based RSUs, the vesting of which occurs over a five -year period in increments of 15 %, 20 %, 20 %, 20 %, and 25 % 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 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 measurement date for these 27,600 performance-based RSUs was established during the six months ended June 30, 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.

During the six months ended June 30, 2022, the Company approved the grant of 91,042 performance-based RSUs, the vesting of which occurs over a five -year period in increments of 15 %, 20 %, 20 %, 20 %, and 25 % and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis 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 six months ended June 30, 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;

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues (excluding depreciation and amortization)

$ 50 $ 50 $ 103 $ 99

Product development

202 187 399 354

Sales and marketing

140 131 276 243

Other general and administrative

702 725 1,376 1,342

Total stock-based compensation expense

$ 1,094 $ 1,093 $ 2,154 $ 2,038

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 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 176,000 and 268,000 for the three months ended March 31, 2024 and 2023 , 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 155,000 and 225,000 for the three months ended June 30, 2024 and 2023 , respectively, and 166,000 and 246,000 for the six months ended June 30, 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 March 31,

$ 5,227 $ 2,623

Three Months Ended June 30,

Six Months Ended June 30,

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):

March 31, 2024

June 30, 2024

Adjusted Cost

12 unchanged sentences

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, 2024 , the Company did not recognize any allowance for credit impairments on its available for sale securities.

As of June 30, 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.

20 unchanged sentences

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 .

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