HealthStream Announces Second Quarter 2024 Results || HealthStream, Inc.

HealthStream Announces Second Quarter 2024 Results

Jul 22, 2024

NASHVILLE, Tenn.--(BUSINESS WIRE)--Jul. 22, 2024-- HealthStream, Inc. (the “Company”) (Nasdaq: HSTM), a leading healthcare technology platform for workforce solutions, announced today results for the second quarter ended June 30, 2024.

Second Quarter 2024

Revenues of $71.6 million in the second quarter of 2024, up 3.4% from $69.2 million in the second quarter of 2023
Operating income of $4.4 million in the second quarter of 2024, up 10.1% from $4.0 million in the second quarter of 2023
Net income of $4.2 million in the second quarter of 2024, up 0.8% from $4.1 million in the second quarter of 2023
Earnings per share (EPS) of $0.14 per share (diluted) in the second quarter of 2024, up from $0.13 per share (diluted) in the second quarter of 2023
Adjusted EBITDA¹ of $15.8 million in the second quarter of 2024, up 3.3% from $15.3 million in the second quarter of 2023
A charge associated with a customer bankruptcy negatively impacted operating income by $1.0 million, net income by $0.8 million, EPS by $0.02 (diluted), and adjusted EBITDA by $1.0 million in the second quarter of 2024
Board of Directors declared a quarterly cash dividend of $0.028 per share, payable on August 16, 2024 to holders of record on August 5, 2024

¹Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to net income and disclosure regarding why we believe adjusted EBITDA provides useful information to investors is included later in this release.

Financial Results:
Second Quarter 2024 Compared to Second Quarter 2023

Revenues for the second quarter of 2024 increased by $2.4 million, or 3.4%, to $71.6 million, compared to $69.2 million for the second quarter of 2023. Subscription revenues increased $2.5 million, or 3.8%, and professional services revenues declined by $0.1 million, or 5.5%, compared to the second quarter of 2023.

Operating income was $4.4 million for the second quarter of 2024, up 10.1% from $4.0 million in the second quarter of 2023. The improvement in operating income was primarily attributable to increased revenues and an increase in capitalized labor associated with software development activities, which were partially offset by the $1.0 million charge associated with the bankruptcy of a single customer as referenced above as well as increases in software, labor costs, and amortization expenses.

Net income was $4.2 million in the second quarter of 2024, up 0.8% from $4.1 million in the second quarter of 2023, and EPS was $0.14 per share (diluted) in the second quarter of 2024, up from $0.13 per share (diluted) in the second quarter of 2023.

Adjusted EBITDA was $15.8 million for the second quarter of 2024, up 3.3% from $15.3 million in the second quarter of 2023.

A charge associated with the customer bankruptcy referenced above negatively impacted operating income by $1.0 million, net income by $0.8 million, EPS by $0.02 (diluted), and adjusted EBITDA by $1.0 million in the second quarter of 2024.

At June 30, 2024, the Company had cash and cash equivalents and marketable securities of $83.0 million. The Company does not have any outstanding indebtedness for borrowed money. Capital expenditures incurred during the second quarter of 2024 were $6.9 million.

Year-to-Date 2024 Compared to Year-to-Date 2023

For the six months ended June 30, 2024, revenues were $144.3 million, an increase of 4.5% over revenues of $138.1 million for the first six months of 2023. Operating income for the first six months of 2024 increased by 46.4% to $10.1 million, compared to $6.9 million for the first six months of 2023. The increase in operating income was primarily attributable to higher revenues, a decrease in labor costs (primarily resulting from the absence of restructuring charges incurred during the six months ended June 30, 2024 in connection with the Company's 2023 restructuring under a single platform strategy), and an increase in capitalized labor associated with software development activities. Operating income was also impacted by higher expenses, including software, bad debt related to the customer bankruptcy discussed above, amortization, cloud hosting, general marketing, and travel expenses. Net income for the first six months of 2024 increased to $9.4 million, compared to $6.8 million for the first six months of 2023. Earnings per share were $0.31 per share (diluted) for the first six months of 2024, compared to $0.22 per share (diluted) for the first six months of 2023. Adjusted EBITDA increased by 13.2% to $32.9 million for the first six months of 2024, compared to $29.1 million for the first six months of 2023.

Other Business Updates

On July 22, 2024, the Board approved a quarterly cash dividend under the Company's dividend policy of $0.028 per share, payable on August 16, 2024 to holders of record on August 5, 2024.

Financial Outlook for 2024

The Company is updating its guidance for 2024 for certain of the measures set forth below. In addition, the Company is including projected net income for 2024 in its guidance as set forth below. For a reconciliation of projected adjusted EBITDA, a non-GAAP financial measure defined later in this release, to projected net income (the most comparable GAAP measure) for 2024, see the table included on page nine of this release.


	Full-Year 2024 Guidance
	Low			High
Revenue	$	292.0	-	$	296.0	million

Net Income	$	16.7	-	$	18.6	million

Adjusted EBITDA¹	$	64.5	-	$	67.5	million

Capital Expenditures	$	28.0	-	$	30.0	million

¹ Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of projected adjusted EBITDA to projected net income (the most comparable GAAP measure) is included later in this release.

The Company’s guidance for 2024 as set forth above reflects the Company’s assumptions regarding, among other things, expectations for new sales and renewals, and assumes that general economic conditions, including inflationary pressures, do not deteriorate. This consolidated guidance does not include the impact of any acquisitions that we may complete during 2024, gains or losses from changes in the fair value of minority investments, or impairment of long-lived assets.

“Second quarter 2024 revenues, operating income, and adjusted EBITDA all showed year-over-year growth, which was achieved amidst a couple of unique, one-time customer events presenting headwinds in the quarter,” said Robert A. Frist, Jr., Chief Executive Officer, HealthStream. “With strong sales at the end of the second quarter and a solid sales pipeline, our confidence is reinforced in finishing the year with sequential growth and within our guidance range.”

A conference call with Robert A. Frist, Jr., Chief Executive Officer, Scott A. Roberts, Chief Financial Officer and Senior Vice President, and Mollie Condra, Vice President of Investor Relations and Communications, will be held on Tuesday, July 23, 2024, at 9:00 a.m. (ET). Participants may access the conference call live via webcast using this link: https://edge.media-server.com/mmc/p/nvbfharo. To participate via telephone, please register in advance using this link https://register.vevent.com/register/BI26a9c0161c8a4eb78840c47da97b3936. A replay of the conference call and webcast will be archived on the Company’s website in the Investor Relations section under “Events & Presentations.”

Use of Non-GAAP Financial Measures

This press release presents adjusted EBITDA, a non-GAAP financial measure used by management in analyzing the Company’s financial results and ongoing operational performance. In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, stock-based compensation, depreciation and amortization, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments (“adjusted EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items which may not, in any such case, fully reflect the underlying operating performance of our business. In addition, as discussed below, for periods ended on or prior to December 31, 2023, adjusted EBITDA excludes the impact of the deferred revenue write-downs associated with fair value accounting for acquired businesses. We believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operating performance and to compare the Company’s operating performance between periods. In addition, certain short-term cash incentive bonuses and performance-based equity awards are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

As previously disclosed, prior to the Company early adopting ASU 2021-08 effective January 1, 2022, following the completion of any acquisition by the Company, the Company was required to record the acquired deferred revenue at fair value as defined in GAAP, which typically resulted in a write-down of the acquired deferred revenue. In connection therewith, management determined that including an adjustment in the definition of adjusted EBITDA for the impact of the deferred revenue write-downs associated with fair value accounting for businesses acquired prior to the January 1, 2022 effective date of the Company's adoption of ASU 2021-08 (the “Pre-2022 Acquisitions”) provided useful information to investors because the deferred revenue write-down recognized in periods after any such Pre-2022 Acquisitions could, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance. Following the adoption of ASU 2021-08, contracts acquired in an acquisition completed on or after January 1, 2022 have been measured as if the Company had originated the contract (rather than the contract being measured at fair value) such that, for such acquisitions, the Company no longer records deferred revenue write-downs associated with acquired businesses. With respect to periods ended on or prior to December 31, 2023, the Company has included an adjustment in the calculation of adjusted EBITDA for the impact of deferred revenue write-downs associated with the Pre-2022 Acquisitions consistent with this prior accounting standard, given the ongoing impact of such deferred revenue on our financial results under GAAP over this time period. With respect to periods beginning on and after January 1, 2024, the Company no longer recognizes any deferred revenue write-downs associated with the Pre-2022 Acquisitions under GAAP, and accordingly such deferred revenue write-downs are not an adjustment in connection with the calculation of adjusted EBITDA for periods on and after January 1, 2024.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure of financial performance under GAAP. Because adjusted EBITDA is not a measurement determined in accordance with GAAP, adjusted EBITDA is susceptible to varying calculations. Accordingly, adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies and has limitations as an analytical tool.

This non-GAAP financial measure should not be considered a substitute for, or superior to, measures of financial performance, which are prepared in accordance with GAAP. Investors are encouraged to review the reconciliations of adjusted EBITDA to net income (the most comparable GAAP measure), which is set forth below in this release.

About HealthStream

HealthStream (Nasdaq: HSTM) is the healthcare industry’s largest ecosystem of platform-delivered workforce solutions that empowers healthcare professionals to do what they do best: deliver excellence in patient care. For more information about HealthStream, visit www.healthstream.com or call 800-521-0574.

HEALTHSTREAM, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Revenues, net	$	71,556	$	69,198	$	144,316	$	138,144
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		23,738		23,567		48,355		47,424
Product development		12,076		11,031		24,107		22,711
Sales and marketing		11,405		11,307		23,179		23,035
Other general and administrative expenses		9,556		9,063		17,868		17,927
Depreciation and amortization		10,370		10,222		20,706		20,148
Total operating costs and expenses		67,145		65,190		134,215		131,245

Operating income		4,411		4,008		10,101		6,899

Other income, net		889		492		1,741		742

Income before income tax provision		5,300		4,500		11,842		7,641
Income tax provision		1,132		367		2,448		885
Net income	$	4,168	$	4,133	$	9,394	$	6,756

Net income per share:
Basic	$	0.14	$	0.13	$	0.31	$	0.22
Diluted	$	0.14	$	0.13	$	0.31	$	0.22

Weighted average shares of common stock outstanding:
Basic		30,401		30,684		30,357		30,638
Diluted		30,526		30,775		30,472		30,717
Dividends declared per share	$	0.028	$	0.025	$	0.056	$	0.050

HEALTHSTREAM, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

	June 30,			December 31,
	2024			2023
ASSETS
Current assets:
Cash and cash equivalents	$	46,131		$	40,333
Marketable securities		36,869			30,800
Accounts and unbilled receivables, net		36,195			38,446
Prepaid and other current assets		19,917			20,631
Total current assets		139,112			130,210

Capitalized software development, net		41,540			40,643
Property and equipment, net		11,880			13,005
Operating lease right of use assets, net		18,842			20,114
Goodwill and intangible assets, net		252,140			259,410
Deferred commissions		31,377			31,700
Other assets		4,664			4,860
Total assets	$	499,555		$	499,942

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued, and other liabilities	$	24,996		$	34,738
Deferred revenue		86,887			83,623
Total current liabilities		111,883			118,361
Deferred tax liabilities		15,568			16,132
Deferred revenue, noncurrent		1,891			2,169
Operating lease liability, noncurrent		18,780			20,247
Other long-term liabilities		2,219			2,281
Total liabilities		150,341			159,190

Shareholders’ equity:
Common stock		250,368			249,075
Accumulated other comprehensive loss		(1,217	)		(691	)
Retained earnings		100,063			92,368
Total shareholders’ equity		349,214			340,752
Total liabilities and shareholders' equity	$	499,555		$	499,942

HEALTHSTREAM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Six Months Ended
	June 30,			June 30,
	2024			2023
Operating activities:
Net income	$	9,394		$	6,756
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,706			20,148
Stock-based compensation		2,154			2,038
Amortization of deferred commissions		5,956			5,464
Deferred income taxes		(542	)		(490	)
Provision for credit losses		1,802			371
Loss on equity method investments		82			241
Other		(746	)		(342	)
Changes in assets and liabilities:
Accounts and unbilled receivables		449			1,460
Prepaid and other assets		(5,569	)		(8,733	)
Accounts payable, accrued, and other liabilities		(9,282	)		(3,042	)
Deferred revenue		2,985			1,618
Net cash provided by operating activities		27,389			25,489

Investing activities:
Business combinations, net of cash acquired		—			(6,621	)
Changes in marketable securities		(5,330	)		(21,983	)
Proceeds from sale of non-marketable equity investments		765			—
Purchases of property and equipment		(914	)		(1,382	)
Payments associated with capitalized software development		(13,552	)		(13,309	)
Net cash used in investing activities		(19,031	)		(43,295	)

Financing activities:
Taxes paid related to net settlement of equity awards		(861	)		(797	)
Payment of cash dividends		(1,700	)		(1,534	)
Net cash used in financing activities		(2,561	)		(2,331	)

Effect of exchange rate changes on cash and cash equivalents		1			(81	)
Net increase (decrease) in cash and cash equivalents		5,798			(20,218	)
Cash and cash equivalents at beginning of period		40,333			46,023
Cash and cash equivalents at end of period	$	46,131		$	25,805

Reconciliation of GAAP to Non-GAAP Financial Measures⁽¹⁾
Operating Results Summary
(In thousands)
(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
GAAP net income	$	4,168		$	4,133		$	9,394		$	6,756
Deferred revenue write-down		—			48			—			98
Interest income		(944	)		(550	)		(1,848	)		(913	)
Interest expense		25			33			49			65
Income tax provision		1,132			367			2,448			885
Stock-based compensation expense		1,094			1,093			2,154			2,038
Depreciation and amortization		10,370			10,222			20,706			20,148
Adjusted EBITDA	$	15,845		$	15,346		$	32,903		$	29,077

⁽¹⁾ This press release presents adjusted EBITDA, which is a non-GAAP financial measure used by management in analyzing its financial results and ongoing operational performance.

Reconciliation of GAAP to Non-GAAP Financial Measures
Financial Outlook for 2024
(In thousands)
(Unaudited)

	Low			High
Net income	$	16,700		$	18,600
Interest income		(3,200	)		(3,300	)
Interest expense		100			100
Income tax provision		4,700			5,300
Stock-based compensation expense		4,500			4,700
Depreciation and amortization		41,700			42,100
Adjusted EBITDA	$	64,500		$	67,500

This press release includes certain forward-looking statements (statements other than solely with respect to historical fact), including statements regarding expectations for financial performance for 2024 and our quarterly dividend policy, that involve risks and uncertainties regarding HealthStream. These statements are based upon management’s beliefs, as well as assumptions made by and data currently available to management. This information has been, or in the future may be, included in reliance on the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by the forward-looking statements, including as a result of negative economic conditions, inflationary conditions, geopolitical instability (including as the result of the Russia/Ukraine conflict, the conflict in the Middle East, and the potential expansion of such conflicts), legal requirements and contractual restrictions which may affect continuation of our quarterly cash dividend policy and the declaration and/or payment of dividends thereunder, which may be modified, suspended, or canceled in any manner and at any time that our Board may deem necessary or appropriate, as well as risks referenced in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on February 26, 2024, and in the Company’s other filings with the Securities and Exchange Commission from time to time. Consequently, such forward-looking information should not be regarded as a representation or warranty or statement by the Company that such projections will be realized. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The Company undertakes no obligation to update or revise any such forward-looking statements.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240722762541/en/

Scott A. Roberts
Chief Financial Officer
(615) 301-3182
ir@healthstream.com

Media:
Mollie Condra, Ph.D.
Vice President,
Investor Relations &
Communications
(615) 301-3237
mollie.condra@healthstream.com

Source: HealthStream, Inc.

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