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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2019

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.: 000-27701

HealthStream, Inc.

(Exact name of registrant as specified in its charter)

 

Tennessee

62-1443555

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

500 11th Avenue North, Suite 1000,

 

Nashville, Tennessee

37203

(Address of principal executive offices)

(Zip Code)

 

(615) 301‑3100

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock (Par Value $0.00)

HSTM

Nasdaq

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

As of October 24, 2019, there were 32,378,352 shares of the registrant’s common stock outstanding.

 

 

 


 

 

Index to Form 10‑Q

HEALTHSTREAM, INC.

 

 

 

 

 

Page

Number

 

 

 

 

 

Part I.

 

Financial Information

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (Unaudited) – September 30, 2019 and December 31, 2018

 

1

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Unaudited) – Three and Nine Months Ended September 30, 2019 and 2018

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and Nine Months Ended September 30, 2019 and 2018

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) – Three and Nine Months Ended September 30, 2019 and 2018

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine Months Ended September 30, 2019 and 2018

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

Part II.

 

Other Information

 

26

 

 

 

 

 

Item 6.

 

Exhibits

 

26

 

 

 

 

 

 

 

Signature

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

133,914

 

 

$

134,321

 

Marketable securities

 

 

38,724

 

 

 

34,497

 

Accounts receivable, net of allowance for doubtful accounts of $824 and

   $1,161 at September 30, 2019 and December 31, 2018, respectively

 

 

25,921

 

 

 

38,124

 

Accounts receivable - unbilled

 

 

2,333

 

 

 

2,880

 

Prepaid royalties, net of amortization

 

 

11,875

 

 

 

13,596

 

Other prepaid expenses and other current assets

 

 

10,200

 

 

 

18,016

 

Total current assets

 

 

222,967

 

 

 

241,434

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $18,720 and

   $20,827 at September 30, 2019 and December 31, 2018, respectively

 

 

26,931

 

 

 

15,866

 

Capitalized software development, net of accumulated amortization of $54,887 and

   $46,757 at September 30, 2019 and December 31, 2018, respectively

 

 

20,701

 

 

 

18,352

 

Operating lease right of use assets, net

 

 

30,134

 

 

 

 

Goodwill

 

 

97,538

 

 

 

86,144

 

Customer-related intangibles, net of accumulated amortization of $28,116 and

   $23,245 at September 30, 2019 and December 31, 2018, respectively

 

 

52,099

 

 

 

53,469

 

Other intangible assets, net of accumulated amortization of $11,958 and

   $9,663 at September 30, 2019 and December 31, 2018, respectively

 

 

6,064

 

 

 

5,909

 

Deferred tax assets

 

 

251

 

 

 

145

 

Deferred commissions

 

 

15,725

 

 

 

16,470

 

Non-marketable equity investments

 

 

6,805

 

 

 

3,376

 

Other assets

 

 

982

 

 

 

783

 

Total assets

 

$

480,197

 

 

$

441,948

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

19,930

 

 

$

25,037

 

Accrued royalties

 

 

15,204

 

 

 

15,756

 

Deferred revenue

 

 

64,565

 

 

 

66,061

 

Total current liabilities

 

 

99,699

 

 

 

106,854

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

12,872

 

 

 

11,068

 

Deferred revenue, noncurrent

 

 

2,052

 

 

 

2,868

 

Operating lease liability, noncurrent

 

 

31,338

 

 

 

 

Other long term liabilities

 

 

343

 

 

 

2,211

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, no par value, 75,000 shares authorized; 32,378 and 32,325 shares

   issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

289,424

 

 

 

286,597

 

Retained earnings

 

 

44,460

 

 

 

32,373

 

Accumulated other comprehensive income (loss)

 

 

9

 

 

 

(23

)

Total shareholders’ equity

 

 

333,893

 

 

 

318,947

 

Total liabilities and shareholders’ equity

 

$

480,197

 

 

$

441,948

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

1

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Revenues, net

 

$

62,450

 

 

$

59,925

 

 

$

191,417

 

 

$

171,791

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (excluding depreciation and amortization)

 

 

25,348

 

 

 

25,102

 

 

 

79,015

 

 

 

70,586

 

Product development

 

 

7,195

 

 

 

6,600

 

 

 

21,763

 

 

 

19,149

 

Sales and marketing

 

 

9,003

 

 

 

8,559

 

 

 

28,343

 

 

 

26,536

 

Other general and administrative expenses

 

 

10,007

 

 

 

8,997

 

 

 

30,283

 

 

 

24,769

 

Depreciation and amortization

 

 

7,149

 

 

 

6,006

 

 

 

20,629

 

 

 

18,097

 

Total operating costs and expenses

 

 

58,702

 

 

 

55,264

 

 

 

180,033

 

 

 

159,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

3,748

 

 

 

4,661

 

 

 

11,384

 

 

 

12,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (loss), net

 

 

853

 

 

 

(548

)

 

 

2,528

 

 

 

241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax provision

 

 

4,601

 

 

 

4,113

 

 

 

13,912

 

 

 

12,895

 

Income tax provision

 

 

1,140

 

 

 

1,077

 

 

 

3,270

 

 

 

2,575

 

Income from continuing operations

 

 

3,461

 

 

 

3,036

 

 

 

10,642

 

 

 

10,320

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations before income tax provision

 

 

 

 

 

 

 

 

 

 

 

(64

)

Gain on sale of discontinued operations

 

 

340

 

 

 

 

 

 

1,960

 

 

 

29,490

 

Income tax provision

 

 

89

 

 

 

 

 

 

515

 

 

 

10,319

 

Income from discontinued operations

 

 

251

 

 

 

 

 

 

1,445

 

 

 

19,107

 

Net income

 

$

3,712

 

 

$

3,036

 

 

$

12,087

 

 

$

29,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share – basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.11

 

 

$

0.09

 

 

$

0.33

 

 

$

0.32

 

Discontinued operations

 

 

 

 

 

 

 

 

0.04

 

 

 

0.59

 

Net income per share - basic

 

$

0.11

 

 

$

0.09

 

 

$

0.37

 

 

$

0.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.11

 

 

$

0.09

 

 

$

0.33

 

 

$

0.32

 

Discontinued operations

 

 

 

 

 

 

 

 

0.04

 

 

 

0.59

 

Net income per share - diluted

 

$

0.11

 

 

$

0.09

 

 

$

0.37

 

 

$

0.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

32,376

 

 

 

32,322

 

 

 

32,369

 

 

 

32,244

 

Diluted

 

 

32,437

 

 

 

32,415

 

 

 

32,416

 

 

 

32,308

 

Dividends declared per share

 

$

 

 

$

 

 

$

 

 

$

1.00

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

2

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2019

 

 

September 30,

2018

 

 

September 30,

2019

 

 

September 30,

2018

 

Net income

 

$

3,712

 

 

$

3,036

 

 

$

12,087

 

 

$

29,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(14

)

 

 

16

 

 

 

32

 

 

 

21

 

Total other comprehensive (loss) income

 

 

(14

)

 

 

16

 

 

 

32

 

 

 

21

 

Comprehensive income

 

$

3,698

 

 

$

3,052

 

 

$

12,119

 

 

$

29,448

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

3

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTs OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

 

 

Nine Months Ended September 30, 2019

 

 

 

Common Stock

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Total Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

(Loss) Income

 

 

Equity

 

Balance at December 31, 2018

 

 

32,325

 

 

$

286,597

 

 

$

32,373

 

 

$

(23

)

 

$

318,947

 

Net income

 

 

 

 

 

 

 

 

5,974

 

 

 

 

 

 

5,974

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

32

 

Stock based compensation

 

 

 

 

 

516

 

 

 

 

 

 

 

 

 

516

 

Common stock issued under stock plans,

    net of shares withheld for employee taxes

 

 

63

 

 

 

(328

)

 

 

 

 

 

 

 

 

(328

)

Balance at March 31, 2019

 

 

32,388

 

 

$

286,785

 

 

$

38,347

 

 

$

9

 

 

$

325,141

 

Net income

 

 

 

 

 

 

 

 

2,401

 

 

 

 

 

 

2,401

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

14

 

Stock donated to Company (held in treasury)

 

 

(86

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

2,558

 

 

 

 

 

 

 

 

 

2,558

 

Common stock issued under stock plans,

    net of shares withheld for employee taxes

 

 

72

 

 

 

(443

)

 

 

 

 

 

 

 

 

(443

)

Balance at June 30, 2019

 

 

32,374

 

 

$

288,900

 

 

$

40,748

 

 

$

23

 

 

$

329,671

 

Net income

 

 

 

 

 

 

 

 

3,712

 

 

 

 

 

 

3,712

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Stock based compensation

 

 

 

 

 

569

 

 

 

 

 

 

 

 

 

569

 

Common stock issued under stock plans,

    net of shares withheld for employee taxes

 

 

4

 

 

 

(45

)

 

 

 

 

 

 

 

 

(45

)

Balance at September 30, 2019

 

 

32,378

 

 

$

289,424

 

 

$

44,460

 

 

$

9

 

 

$

333,893

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

 

4

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTs OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands, except per share data)

 

 

Nine Months Ended September 30, 2018

 

 

 

Common Stock

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Total Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

(Loss) Income

 

 

Equity

 

Balance at December 31, 2017

 

 

31,908

 

 

$

282,666

 

 

$

17,542

 

 

$

(38

)

 

$

300,170

 

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

15,132

 

 

 

 

 

 

 

15,132

 

Net income

 

 

 

 

 

 

 

 

23,846

 

 

 

 

 

 

23,846

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

15

 

Dividends declared on common stock ($1.00 per share)

 

 

 

 

 

 

 

 

 

 

(32,518

)

 

 

 

 

 

 

(32,518

)

Stock based compensation

 

 

 

 

 

328

 

 

 

 

 

 

 

 

 

 

328

 

Common stock issued under stock plans,

    net of shares withheld for employee taxes

 

 

394

 

 

 

2,071

 

 

 

 

 

 

 

 

 

2,071

 

Balance at March 31, 2018

 

 

32,302

 

 

$

285,065

 

 

$

24,002

 

 

$

(23

)

 

$

309,044

 

Net income

 

 

 

 

 

 

 

 

2,545

 

 

 

 

 

 

2,545

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

(10

)

Stock based compensation

 

 

 

 

 

427

 

 

 

 

 

 

 

 

 

427

 

Common stock issued under stock plans,

    net of shares withheld for employee taxes

 

 

15

 

 

 

181

 

 

 

 

 

 

 

 

 

181

 

Balance at June 30, 2018

 

 

32,317

 

 

$

285,673

 

 

$

26,547

 

 

$

(33

)

 

$

312,187

 

Net income

 

 

 

 

 

 

 

 

3,036

 

 

 

 

 

 

3,036

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

16

 

 

 

16

 

Stock based compensation