What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 88 added, 82 removed, 376 unchanged (31% of the section changed)

7 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of $ 383 and

$ 549 at March 31, 2021 and December 31, 2020, respectively

$ 549 at June 30, 2021 and December 31, 2020, respectively

Accounts receivable - unbilled

3 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 22,587 and

$ 19,237 at March 31, 2021 and December 31, 2020, respectively

$ 19,237 at June 30, 2021 and December 31, 2020, respectively

Capitalized software development, net of accumulated amortization of $ 77,778 and

$ 70,516 at March 31, 2021 and December 31, 2020, respectively

$ 70,516 at June 30, 2021 and December 31, 2020, respectively

Operating lease right of use assets, net

Customer-related intangibles, net of accumulated amortization of $ 41,155 and

$ 36,723 at March 31, 2021 and December 31, 2020, respectively

$ 36,723 at June 30, 2021 and December 31, 2020, respectively

Other intangible assets, net of accumulated amortization of $ 14,005 and

$ 10,748 at March 31, 2021 and December 31, 2020, respectively

$ 10,748 at June 30, 2021 and December 31, 2020, respectively

Deferred tax assets

15 unchanged sentences

31,554 and 31,493 shares

issued and outstanding at March 31, 2021 and December 31, 2020, respectively

issued and outstanding at June 30, 2021 and December 31, 2020, respectively

Retained earnings

7 unchanged sentences

Three Months Ended

Six Months Ended

Revenues, net

17 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

Unrealized gain (loss) on marketable securities

Unrealized gain on marketable securities

Total other comprehensive income (loss)

4 unchanged sentences

(In thousands)

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Accumulated Other Comprehensive

6 unchanged sentences

Balance at March 31, 2021

Three Months Ended March 31, 2020

Comprehensive income

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Balance at June 30, 2021

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements .

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

Six Months Ended June 30, 2020

Accumulated Other Comprehensive

8 unchanged sentences

Balance at March 31, 2020

Comprehensive income

Stock based compensation

Repurchase of common stock

Balance at June 30, 2020

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:

23 unchanged sentences

Payments to acquire non-marketable equity investments

Payments to acquire equity method investments

Payments associated with capitalized software development

3 unchanged sentences

Taxes paid related to net settlement of equity awards

Repurchase of common stock

Repurchases of common stock

Payment of cash dividends

4 unchanged sentences

Cash and cash equivalents at end of period

SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash additions to non-marketable equity investments

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

6 unchanged sentences

All intercompany transactions have been eliminated in consolidation.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 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.

11 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Business Segments

2 unchanged sentences

Total revenues, net

For the three months ended March 31, 2021 and 2020, the Company recognized $ 0.1 million and $ 0.3 million, respectively, in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Business Segments

Subscription services

Professional services

Total revenues, net

For the six months ended June 30, 2021 and 2020, the Company recognized $ 3,000 and $ 0.4 million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

Deferred revenue represents contract liabilities that are recorded when cash payments are received or are due in advance of our satisfaction of performance obligations.

During the three months ended March 31, 2021 and 2020, we recognized revenues of approximately $ 33.6 million and $ 31.6 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of March 31, 2021, approximately $ 446 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

During the three months ended June 30, 2021 and 2020, we recognized revenues of approximately $ 40.5 million and $ 35.2 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the six months ended June 30, 2021 and 2020, we recognized $ 52.2 million and $ 49.9 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of June 30, 2021, approximately $ 448 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 46 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Sales Commissions

2 unchanged sentences

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

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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 $ 2.1 million and $ 2.2 million for the three months ended March 31, 2021 and 2020 , respectively, which is included in s ales and marketing expenses in the accompanying C ondensed C onsolidated S tatements of I ncome.

The Company recorded amortization of deferred commissions of approximately $ 2.4 million and $ 2.1 million for the three months ended June 30, 2021 and 2020, and $ 4.5 million and $ 4.3 million for the six months ended June 30, 2021 and 2020, 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 March 31, 2021 and 2020 , the Company recorded a provision for income taxes of approximately $ 0.9 million and $ 1.9 million, respectively.

The Company’s effective tax rate for the three months ended March 31, 2021 and 2020 was 29 % and 21 %, respectively.

During the three months ended June 30, 2021 and 2020 , the Company recorded a provision for income taxes of approximately $ 0.9 million and $ 1.1 million, respectively.

During the six months ended June 30, 2021 and 2020, the Company recorded a provision for income taxes of $ 1.8 million and $ 2.9 million, respectively.

The Company’s effective tax rate for the six months ended June 30, 2021 and 2020 was 28 % and 22 %, 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, 2021, the Company recorded discrete tax expense of $ 0.1 million related to various items, including recording a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period.

During the three months ended March 31, 2020, the Company recorded a $ 1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $ 0.3 million.

The Company recognizes excess tax benefits and tax deficiencies associated with stock based awards as a component of its provision for income taxes.

The Company recorded additional income tax expense associated with tax deficiencies of approximately $ 17,000 and $ 26,000 during the three months ended March 31, 2021 and 2020, respectively.

During the six months ended June 30, 2021, the Company recorded discrete tax expense of $ 0.2 million related to various items, including recording a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period.

During the six months ended June 30, 2020, the Company recorded a $ 1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $ 0.3 million.

SHAREHOLDERS’ EQUITY

2 unchanged sentences

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

During the three months ended March 31, 2021, the Company issued 121,551 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 23.16 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the three months ended March 31, 2020, the Company issued 111,510 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.96 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the three months ended June 30, 2018, the Company issued 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 in increments of 10 %, 15 %, 20 %, 25 %, and 30 % based on performance in 2018, 2019, 2020, 2021, and 2022, respectively.

The performance criteria for 17,500 of these performance-based RSUs, along with 7,000 performance-based catch-up RSUs which did not vest based on 2020 performance and remain eligible for vesting, will be based on 2021 performance.

The measurement date for these 24,500 performance-based RSUs was established during the three months ended March 31, 2021 with a grant date fair value of $ 23.01 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 21,000 performance-based RSUs has not yet been determined and will be established in 2022 based on performance in 2022;

therefore, the measurement date for these remaining 21,000 performance-based RSUs cannot be determined until the performance criteria have been established.

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

During the six months ended June 30, 2020, the Company issued 111,510 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.96 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

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

Three Months Ended

Six Months Ended

Cost of revenues (excluding depreciation and amortization)

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Share Repurchase Plan

On March 13, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $ 30.0 million of outstanding shares of common stock.

The share repurchase program expired on March 12, 2021 .

Under this program, the Company repurchased a total of 957,367 shares in open market purchases at an aggregate fair value of $ 20.0 million, reflecting an average price per share of $ 20.89 (excluding the cost of broker commissions).

No repurchases occurred during the three months ended March 31, 2021.

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 148,000 and 106,000 for the three months ended March 31, 2021 and 2020 , 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 111,000 and 108,000 for the three months ended June 30, 2021 and 2020 , respectively, and 130,000 and 107,000 for the six months ended June 30, 2021 and 2020, respectively.

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

Three Months Ended

Six Months Ended

Weighted-average shares outstanding

4 unchanged sentences

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

March 31, 2021

June 30, 2021

Cash and Cash Equivalents

Current Marketable Securities

Time deposits

Corporate debt securities

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2020

4 unchanged sentences

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 March 31, 2021, the Company did no t recognize any allowance for credit impairments on its available for sale debt securities.

As of June 30, 2021, the Company did no t 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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BUSINESS COMBINATIONS

12 unchanged sentences

Fair value of existing equity interest in NurseGrid

Total purchase price

Net consideration paid

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

13 unchanged sentences

The fair value estimate for trade name intangible asset included significant assumptions in the prospective financial information, such as projected revenues, royalty rate, and the discount rate.

Additionally, these assumptions are forward looking and could be affected by future

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

economic and market conditions.

Additionally, these assumptions are forward looking and could be affected by future economic and market conditions.

The goodwill balance is primarily attributed to the assembled workforce, future market opportunities to engage and support the NurseGrid Mobile user community, and expected synergies from integrating NurseGrid with other combined functional areas within the Company.

7 unchanged sentences

Total intangible assets

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

Six Months Ended

Total revenues

7 unchanged sentences

The financial results of ShiftWizard have been included in the Workforce Solutions segment from October 12, 2020.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Accounts and unbilled receivable, net

12 unchanged sentences

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

acquisition date) as the Company finalizes the valuation of these items.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes .

Included in the assets and liabilities is an indemnification asset and liability of $ 0.5 million associated with a Paycheck Protection Program loan pending forgiveness as of the acquisition date that was subsequently forgiven.

8 unchanged sentences

The $ 1.1 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

4 unchanged sentences

Three Months Ended

Six Months Ended

Total revenues

8 unchanged sentences

The financial results of ANSOS have been included in the Workforce Solutions segment from December 2, 2020.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

12 unchanged sentences

Net assets acquired

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The excess of purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill.

1 unchanged sentence

The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items.

During the three months ended March 31, 2021, the Company determined that a portion of the acquired accounts receivable balance required an adjustment to net realizable value.

Additionally, the Company recorded opening balance sheet deferred tax liabilities related to the allocation of intangible assets to the foreign entities.

As a result of these two items coupled with the post-closing working capital adjustment, the Company recorded a measurement period adjustment which increased goodwill by $ 1.7 million.

The measurement period adjustment had no effect on current or prior period earnings.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes and working capital accounts.

Included in the preliminary assets and liabilities acquired is an indemnification asset and an uncertain tax position liability of $ 0.7 million determined based on management’s estimate of the most likely value related to income tax attributes.

Included in the preliminary assets and liabilities acquired is an indemnification asset and an uncertain tax position liability determined based on management’s estimate of the most likely value related to income tax attributes.

During the six months ended June 30, 2021, the Company made adjustments to accounts receivable, deferred revenue, indemnification asset, uncertain tax position liability, and deferred tax assets based on updated information obtained since our preliminary estimates were made.

As a result of these items, coupled with the impact of the post-closing working capital adjustment, the Company recorded a measurement period adjustment which increased goodwill by $ 1.5 million.

The measurement period adjustment had no effect on current or prior period earnings.

The primary intangible assets acquired were customer relationships and developed technology.

13 unchanged sentences

Total intangible assets

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited pro forma financial information summarizes the results of operations of the Company and ANSOS as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

Six Months Ended

Total revenues

11 unchanged sentences

On January 19, 2021, the Company acquired the issued and outstanding equity of ProcessDATA, Ltd.

(d/b/a ComplyALIGN and HospitalPORTAL) (“ComplyALIGN”), a Chicago, Illinois-based healthcare technology company offering a SaaS-based policy management system for healthcare organizations, for $ 2.0 million in cash.

(d/b/a ComplyALIGN and HospitalPORTAL) (“ComplyALIGN”), a Chicago, Illinois-based healthcare technology company offering a SaaS-based policy

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

management system for healthcare organizations, for $ 2.0 million in cash.

The acquisition is not considered material to the Company’s financial statements.

1 unchanged sentence

Acquisition-related transaction costs were $ 0.1 million.

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

During the three months ended March 31, 2021, the carrying amount of goodwill increased by $ 2.7 million, consisting of a $ 1.7 million of measurement period adjustment related to ANSOS, $ 0.6 million of acquired goodwill related to ComplyALIGN, and $ 0.4 million for the effect of currency translation adjustments.

The results of operations for ComplyALIGN are included in the Company’s Condensed C onsolidated F inancial S tatements from the date of acquisition and are included in the Workforce Solutions segment.

During the six months ended June 30, 2021, the carrying amount of goodwill increased by $ 3.1 million, consisting of a $ 1.5 million of measurement period adjustment related to ANSOS, $ 1.0 million of acquired goodwill related to ComplyALIGN, and $ 0.6 million for the effect of currency translation adjustments .

BUSINESS SEGMENTS

1 unchanged sentence

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).

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.

2 unchanged sentences

Three Months Ended

Six Months Ended

Revenues, net:

7 unchanged sentences

Segment assets *

March 31, 2021

June 30, 2021

December 31, 2020

14 unchanged sentences

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

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

The Revolving Credit Facility contains certain 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.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

1 unchanged sentence

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

As of March 31, 2021, 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, 2021.

NON-MARKETABLE EQUITY INVESTMENTS

The aggregate carrying amount of non-marketable equity investments accounted for using the measurement alternative for equity investments that do not have readily determinable fair values was $ 3.9 million as of March 31, 2021 and December 31, 2020, which carrying value we evaluate for impairment at each reporting period.

Cumulatively, the Company has recorded $ 0.1 million in downward adjustments to the carrying value of non-marketable equity investments.

Such is the combination of cumulative downward adjustments of $ 1.3 million offset by cumulative upward adjustments of $ 1.2 million.

These adjustments are the result of changes in fair value based on observable prices from orderly transactions for similar investments made in investees.

The fair value of non-marketable equity investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

As of June 30, 2021, 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, 2021.

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