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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

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 July 24, 2019, there were 32,373,525 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) – June 30, 2019 and December 31, 2018

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended June 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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

120,849

 

 

$

134,321

 

Marketable securities

 

 

40,737

 

 

 

34,497

 

Accounts receivable, net of allowance for doubtful accounts of $843 and

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

 

 

27,800

 

 

 

38,124

 

Accounts receivable - unbilled

 

 

2,036

 

 

 

2,880

 

Prepaid royalties, net of amortization

 

 

11,970

 

 

 

13,596

 

Other prepaid expenses and other current assets

 

 

11,089

 

 

 

18,016

 

Total current assets

 

 

214,481

 

 

 

241,434

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $16,754 and

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

 

 

28,544

 

 

 

15,866

 

Capitalized software development, net of accumulated amortization of $52,084 and

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

 

 

20,764

 

 

 

18,352

 

Operating lease right of use assets, net

 

 

30,774

 

 

 

 

Goodwill

 

 

97,300

 

 

 

86,144

 

Customer-related intangibles, net of accumulated amortization of $26,478 and

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

 

 

53,437

 

 

 

53,469

 

Other intangible assets, net of accumulated amortization of $11,266 and

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

 

 

7,356

 

 

 

5,909

 

Deferred tax assets

 

 

251

 

 

 

145

 

Deferred commissions

 

 

15,534

 

 

 

16,470

 

Non-marketable equity investments

 

 

6,786

 

 

 

3,376

 

Other assets

 

 

1,224

 

 

 

783

 

Total assets

 

$

476,451

 

 

$

441,948

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

18,121

 

 

$

25,037

 

Accrued royalties

 

 

13,462

 

 

 

15,756

 

Deferred revenue

 

 

66,730

 

 

 

66,061

 

Total current liabilities

 

 

98,313

 

 

 

106,854

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

13,136

 

 

 

11,068

 

Deferred revenue, noncurrent

 

 

2,669

 

 

 

2,868

 

Operating lease liability, noncurrent

 

 

32,046

 

 

 

 

Other long term liabilities

 

 

616

 

 

 

2,211

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Common stock, no par value, 75,000 shares authorized; 32,374 and 32,325 shares

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

 

 

288,900

 

 

 

286,597

 

Retained earnings

 

 

40,748

 

 

 

32,373

 

Accumulated other comprehensive income (loss)

 

 

23

 

 

 

(23

)

Total shareholders’ equity

 

 

329,671

 

 

 

318,947

 

Total liabilities and shareholders’ equity

 

$

476,451

 

 

$

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

 

 

Six Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

Revenues, net

 

$

63,781

 

 

$

57,008

 

 

$

128,967

 

 

$

111,866

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (excluding depreciation and amortization)

 

 

26,806

 

 

 

23,236

 

 

 

53,667

 

 

 

45,484

 

Product development

 

 

7,640

 

 

 

6,547

 

 

 

14,567

 

 

 

12,548

 

Sales and marketing

 

 

9,819

 

 

 

8,913

 

 

 

19,340

 

 

 

17,977

 

Other general and administrative expenses

 

 

10,306

 

 

 

8,029

 

 

 

20,276

 

 

 

15,772

 

Depreciation and amortization

 

 

6,942

 

 

 

6,019

 

 

 

13,480

 

 

 

12,091

 

Total operating costs and expenses

 

 

61,513

 

 

 

52,744

 

 

 

121,330

 

 

 

103,872

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,268

 

 

 

4,264

 

 

 

7,637

 

 

 

7,994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

852

 

 

 

476

 

 

 

1,674

 

 

 

789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income tax provision

 

 

3,120

 

 

 

4,740

 

 

 

9,311

 

 

 

8,783

 

Income tax provision

 

 

719

 

 

 

1,084

 

 

 

2,130

 

 

 

1,498

 

Income from continuing operations

 

 

2,401

 

 

 

3,656

 

 

 

7,181

 

 

 

7,285

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations before income tax provision

 

 

 

 

 

 

 

 

 

 

 

(64

)

(Loss) Gain on sale of discontinued operations

 

 

 

 

 

(1,502

)

 

 

1,620

 

 

 

29,490

 

Income tax (benefit) provision

 

 

 

 

 

(391

)

 

 

426

 

 

 

10,319

 

(Loss) Income from discontinued operations

 

 

 

 

 

(1,111

)

 

 

1,194

 

 

 

19,107

 

Net income

 

$

2,401

 

 

$

2,545

 

 

$

8,375

 

 

$

26,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share – basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.07

 

 

$

0.11

 

 

$

0.22

 

 

$

0.23

 

Discontinued operations

 

 

 

 

 

(0.03

)

 

 

0.04

 

 

 

0.59

 

Net income per share - basic

 

$

0.07

 

 

$

0.08

 

 

$

0.26

 

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.07

 

 

$

0.11

 

 

$

0.22

 

 

$

0.23

 

Discontinued operations

 

 

 

 

 

(0.03

)

 

 

0.04

 

 

 

0.59

 

Net income per share - diluted

 

$

0.07

 

 

$

0.08

 

 

$

0.26

 

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

32,394

 

 

 

32,312

 

 

 

32,366

 

 

 

32,205

 

Diluted

 

 

32,434

 

 

 

32,378

 

 

 

32,406

 

 

 

32,255

 

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

 

 

Six Months Ended

 

 

 

June 30,

2019

 

 

June 30,

2018

 

 

June 30,

2019

 

 

June 30,

2018

 

Net income

 

$

2,401

 

 

$

2,545

 

 

$

8,375

 

 

$

26,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

14

 

 

 

(10

)

 

 

46

 

 

 

5

 

Total other comprehensive income (loss)

 

 

14

 

 

 

(10

)

 

 

46

 

 

 

5

 

Comprehensive income

 

$

2,415

 

 

$

2,535

 

 

$

8,421

 

 

$

26,397

 

 

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

3

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTs OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands)

 

 

Six Months Ended June 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

 

 

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)

 

 

Six Months Ended June 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

 

 

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

 

5

 


 

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

8,375

 

 

$

26,392

 

Income from discontinued operations

 

 

(1,194

)

 

 

(19,107

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,480

 

 

 

12,091

 

Stock based compensation

 

 

3,074

 

 

 

846

 

Amortization of deferred commissions

 

 

4,201

 

 

 

3,735

 

Provision for doubtful accounts

 

 

48

 

 

 

390

 

Deferred income taxes

 

 

2,066

 

 

 

636

 

Gain on non-marketable equity investments

 

 

(69

)

 

 

(5

)

Other

 

 

(84

)

 

 

 

Changes in operating assets and liabilities: