UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
Commission File No.:
HealthStream, Inc.
(Exact name of registrant as specified in its charter)
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Tennessee |
62‑1443555 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock (Par Value $0.00) |
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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.
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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
Index to Form 10‑Q
HEALTHSTREAM, INC.
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Page Number |
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Part I. |
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1 |
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Item 1. |
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1 |
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Condensed Consolidated Balance Sheets (Unaudited) – June 30, 2019 and December 31, 2018 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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7 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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17 |
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Item 3. |
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25 |
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Item 4. |
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25 |
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Part II. |
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26 |
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Item 6. |
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26 |
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27 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
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June 30, |
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December 31, |
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2019 |
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2018 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable, net of allowance for doubtful accounts of $ $ |
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Accounts receivable - unbilled |
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Prepaid royalties, net of amortization |
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Other prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ $ |
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Capitalized software development, net of accumulated amortization of $ $ |
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Operating lease right of use assets, net |
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— |
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Goodwill |
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Customer-related intangibles, net of accumulated amortization of $ $ |
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Other intangible assets, net of accumulated amortization of $ $ |
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Deferred tax assets |
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Deferred commissions |
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Non-marketable equity investments |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accrued royalties |
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Deferred revenue |
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Total current liabilities |
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Deferred tax liabilities |
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Deferred revenue, noncurrent |
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Operating lease liability, noncurrent |
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— |
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Other long term liabilities |
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Commitments and contingencies |
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Shareholders’ equity: |
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Common stock, par value, issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
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Retained earnings |
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Accumulated other comprehensive income (loss) |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended |
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Six Months Ended |
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June 30, 2019 |
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June 30, 2018 |
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June 30, 2019 |
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June 30, 2018 |
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Revenues, net |
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$ |
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$ |
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$ |
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$ |
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Operating costs and expenses: |
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Cost of revenues (excluding depreciation and amortization) |
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Product development |
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Sales and marketing |
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Other general and administrative expenses |
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Depreciation and amortization |
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Total operating costs and expenses |
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Operating income |
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Other income, net |
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Income from continuing operations before income tax provision |
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Income tax provision |
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Income from continuing operations |
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Discontinued operations: |
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Loss from discontinued operations before income tax provision |
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— |
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— |
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— |
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( |
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(Loss) Gain on sale of discontinued operations |
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— |
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Income tax (benefit) provision |
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— |
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( |
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(Loss) Income from discontinued operations |
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— |
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( |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) per share – basic: |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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— |
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( |
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Net income per share - basic |
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$ |
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$ |
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$ |
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$ |
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Net income (loss) per share - diluted: |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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— |
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( |
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Net income per share - diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares of common stock outstanding: |
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Basic |
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Diluted |
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Dividends declared per share |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
2
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
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Three Months Ended |
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Six Months Ended |
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June 30, 2019 |
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June 30, 2018 |
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June 30, 2019 |
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June 30, 2018 |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income, net of taxes: |
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Unrealized gain (loss) on marketable securities |
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Total other comprehensive income (loss) |
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( |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
3
HEALTHSTREAM, INC.
CONDENSED CONSOLIDATED STATEMENTs OF SHAREHOLDERS' EQUITY (UNAUDITED)
(In thousands)
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Six Months Ended June 30, 2019 |
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Common Stock |
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Retained |
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Accumulated Other Comprehensive |
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Total Shareholders’ |
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Shares |
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Amount |
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Earnings |
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(Loss) Income |
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Equity |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Comprehensive income |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares withheld for employee taxes |
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( |
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— |
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— |
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( |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Comprehensive income |
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— |
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— |
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— |
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Stock donated to Company (held in treasury) |
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( |
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— |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares withheld for employee taxes |
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( |
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— |
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— |
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( |
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Balance at June 30, 2019 |
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$ |
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$ |
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$ |
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$ |
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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)
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Six Months Ended June 30, 2018 |
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Common Stock |
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Retained |
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Accumulated Other Comprehensive |
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Total Shareholders’ |
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Shares |
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Amount |
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Earnings |
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(Loss) Income |
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Equity |
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Balance at December 31, 2017 |
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$ |
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$ |
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$ |
( |
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$ |
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Cumulative effect of accounting change |
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Net income |
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— |
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— |
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— |
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Comprehensive income |
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— |
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— |
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— |
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Dividends declared on common stock ($ |
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( |
) |
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( |
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Stock based compensation |
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— |
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— |
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Common stock issued under stock plans, net of shares withheld for employee taxes |
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— |
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— |
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Balance at March 31, 2018 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net income |
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— |
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— |
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— |
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Comprehensive loss |
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— |
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— |
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— |
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( |
) |
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( |
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Stock based compensation |
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— |
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— |
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— |
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Common stock issued under stock plans, net of shares withheld for employee taxes |
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— |
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— |
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Balance at June 30, 2018 |
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$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
Income from discontinued operations |
|
|
( |
) |
|
|
( |
) |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
Amortization of deferred commissions |
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
Gain on non-marketable equity investments |
|
|
( |
) |
|
|
( |
) |
|
Other |
|
|
( |
) |
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts and unbilled receivables |
|
|
|
|
|
|
|
|
|
Prepaid royalties |
|
|
|
|
|
|
|
|
|
Other prepaid expenses and other current assets |
|
|
|
|
|
|
( |
) |
|
Deferred commissions |
|
|
( |
) |
|
|
( |
) |
|
Other assets |
|
|
( |
) |
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
( |
) |
|
Accrued royalties |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities |
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operating activities |
|
|
— |
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Business combinations, net of cash acquired |
|
|
( |
) |
|
|
— |
|
|
Proceeds from sale of discontinued operations |
|
|
|
|
|
|
|
|
|
Proceeds from maturities of marketable securities |
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of property and equipment |
|
|
|
|
|
|
— |
|
|
Payments to acquire cost method investments |
|
|
( |
) |
|
|
— |
|
|
Payments associated with capitalized software development |
|
|
( |
) |
|
|
( |
) |
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) provided by continuing investing activities |
|
|
( |
) |
|
|
|
|
|
Net cash used in discontinued investing activities |
|
|
— |
|
|
|
( |
) |
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
|
|
|
Taxes paid related to net settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
|
Payments of earn-outs related to acquisitions |
|
|
( |
) |
|
|
( |
) |
|
Payment of cash dividends |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in continuing financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in discontinued financing activities |
|
|
— |
|
|
|
— |
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).
6
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements (unaudited) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X. Accordingly, Condensed Consolidated Financial Statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
On February 12, 2018, the Company divested its Patient Experience (“PX”) business to Press Ganey Associates, Inc. (“Press Ganey”). The sale of the PX business resulted in the Company’s divestiture of the Company’s patient experience solutions business segment. The Company has classified the results of its previously owned PX segment as discontinued operations in its Condensed Consolidated Statements of Income and Cash Flows for all periods presented. See Note 8 for additional information.
The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Financial Statements at that date and has been adjusted to reflect the Company’s discontinued operations as noted above but does not include all of the information and footnotes required by US GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto for the year ended December 31, 2018 (included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 25, 2019).
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Recently Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (“ASC 842”), which, among other things, requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, including operating leases. The Company adopted ASC 842 effective January 1, 2019 utilizing the modified retrospective approach such that prior year Financial Statements were not recast under the new standard. Adoption of this standard resulted in changes to the Company’s Condensed Consolidated Balance Sheets and accounting policies for leases but did not have an impact on the Condensed Consolidated Statements of Income or Cash Flows. See Note 12 for additional information regarding the new standard and its impact on the Company’s Financial Statements.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-03, Financial Instruments—Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASC 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2019. The Company will adopt this ASU on January 1, 2020 and is currently evaluating the impact that adoption of this ASU will have on the Company’s consolidated financial position and results of operations.
3. REVENUE RECOGNITION AND SALES COMMISSIONS
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.
Revenue is recognized based on the following five step model:
|
|
• |
Identification of the contract with a customer |
|
|
• |
Identification of the performance obligations in the contract |
|
|
• |
Determination of the transaction price |
|
|
• |
Allocation of the transaction price to the performance obligations in the contract |
|
|
• |
Recognition of revenue when, or as, the Company satisfies a performance obligation |
7
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table represents our revenues included in continuing operations from contracts with customers disaggregated by revenue source for the three and six months ended June 30, 2019 and 2018 (in thousands). Sales taxes are excluded from revenues.
|
|
|
Three Months Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2019 |
|
||||||||||||||||||
|
Business Segments |
|
Workforce Solutions |
|
|
Provider Solutions |
|
|
Consolidated |
|
|
Workforce Solutions |
|
|
Provider Solutions |
|
|
Consolidated |
|
||||||
|
Subscription/SaaS services |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Professional services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018 |
|
|
Six Months Ended June 30, 2018 |
|
||||||||||||||||||
|
Business Segments |
|
Workforce Solutions |
|
|
Provider Solutions |
|
|
Consolidated |
|
|
Workforce Solutions |
|
|
Provider Solutions |
|
|
Consolidated |
|
||||||
|
Subscription/SaaS services |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Professional services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Subscription/SaaS services revenues primarily consist of fees in consideration of providing customers access to one or more of our SaaS-based solutions and/or courseware subscriptions, as well as fees related to licensing agreements, all of which include routine customer support and technology enhancements. Revenue is generally recognized over time during the contract term beginning when the service is made available to the customer.
Professional services revenues primarily consist of fees for implementation services, custom courseware development, and training. The majority of our professional services contracts are billed in advance based on a fixed price basis, and revenue is recognized over time as the services are performed. For both subscription/SaaS services and professional services, the time between billing the customer and when performance obligations are satisfied is not significant.
Our contracts with customers often contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The contract price, which represents transaction price, is allocated to the separate performance obligations on a relative standalone selling price basis. We generally determine standalone selling prices based on the standard list price for each product, taking into consideration certain factors, including contract length and the number of subscriptions within the contract.
We receive payments from customers based on billing schedules established in our contracts. Accounts receivable - unbilled represent contract assets related to our conditional right to consideration for subscription/SaaS and professional services contracts where performance has occurred under the contract. Accounts receivable are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for doubtful accounts, when the right to consideration becomes unconditional.
For the three months ended June 30, 2019, the Company recognized $
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 June 30, 2019 and 2018, we recognized $
8
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Sales Commissions
4. INCOME TAXES
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.
During the three months ended June 30, 2019 and 2018, the Company recorded a provision for income taxes from continuing operations of $
5. SHAREHOLDERS’ EQUITY
Dividends on Common Stock
On
Stock Based Compensation
The Company has stock awards outstanding under
Total stock based compensation expense recorded for the three and six months ended June 30, 2019 and 2018, which is recorded within continuing operations in the Condensed Consolidated Statements of Income, is as follows (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Cost of revenues (excluding depreciation and amortization) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
9
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock Awards
During June 2019, the Company’s Chief Executive Officer, Robert A. Frist, Jr., contributed
6. EARNINGS PER SHARE
Basic earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of potentially dilutive common and common equivalent shares outstanding during the period. Common equivalent shares are composed of incremental common shares issuable upon the exercise of stock options and RSUs subject to vesting. 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
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2019 and 2018 (in thousands, except per share data):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(Loss) Income from discontinued operations |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net income per share - basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net income per share - diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. MARKETABLE SECURITIES
At June 30, 2019 and December 31, 2018, the fair value of marketable securities, which were all classified as available for sale, included the following (in thousands):
|
|
|
June 30, 2019 |
|
|||||||||||||
|
|
|
Adjusted Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Government-sponsored enterprise debt securities |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
December 31, 2018 |
|
|||||||||||||
|
|
|
Adjusted Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
Government-sponsored enterprise debt securities |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
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 June 30, 2019, the Company does not consider any of its marketable securities to be other than temporarily impaired. During the three and six months ended June 30, 2019 and 2018, the Company did not reclassify any items out of accumulated other comprehensive (loss) income to net income. All investments in marketable securities are classified as current assets on the balance sheet because the underlying securities mature within one year from the balance sheet date.
8. DISCONTINUED OPERATIONS
Patient Experience
On February 12, 2018, the Company divested PX to Press Ganey for $
This sale of the PX business resulted in the Company’s divestiture of the Company’s patient experience solutions business segment. The Company has classified the results of the patient experience solutions business segment as discontinued operations in its Condensed Consolidated Statements of Income and Cash Flows for all periods presented.
11
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The financial results of the PX business for the period prior to divestiture during the six months ended June 30, 2018, are presented in discontinued operations in the Company’s Condensed Consolidated Statement of Income.
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
2018 |
|
|
|
Revenues, net |
|
$ |
|
|
|
Operating costs and expenses: |
|
|
|
|
|
Cost of revenues (excluding depreciation and amortization) |
|
|
|
|
|
Product development |
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
Other general and administrative expenses |
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
Total operating costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
( |
) |
|
|
|
|
|
|
|
Other loss |
|
|
— |
|
|
|
|
|
|
|
|
Loss from discontinued operations before income tax provision |
|
|
( |
) |
|
Income tax provision |
|
|
— |
|
|
Loss from discontinued operations, net of income taxes |
|
$ |
( |
) |
9. BUSINESS SEGMENTS
The Company provides services to healthcare organizations and other members within the healthcare industry. The Company’s services are focused on the delivery of workforce development products and services (HealthStream Workforce Solutions) and provider credentialing, privileging, and enrollment products and services (HealthStream Provider Solutions).
As noted above, the sale of the PX business on
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, and depreciation. The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, administrative, and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance.
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
Revenues, net: |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Workforce Solutions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provider Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Operating income from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Solutions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Provider Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total operating income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Segment assets * |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Workforce Solutions |
|
$ |
|
|
|
$ |
|
|
|
Provider Solutions |
|
|
|
|
|
|
|
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
* |
Segment assets include accounts and unbilled receivables, prepaid and other current assets, other assets, capitalized software development, certain property and equipment, goodwill and intangible assets. Cash and cash equivalents and marketable securities are not allocated to individual segments, and are included within Unallocated. A significant portion of property and equipment assets are included within Unallocated. |
10. BUSINESS COMBINATION
Providigm, LLC
On January 10, 2019, the Company acquired the outstanding equity of Providigm, LLC (“Providigm”), a Denver, Colorado based company focusing on quality assurance and performance improvement in healthcare, primarily serving skilled nursing facilities. The Company acquired Providigm to add its comprehensive quality management system, known as “abaqis®,” to its product portfolio and gain customers in the skilled nursing market. The consideration paid for Providigm consisted of $
A summary of the purchase price is as follows (in thousands):
|
Cash paid at closing |
|
$ |
|
|
|
Cash held in escrow |
|
|
|
|
|
Total consideration paid |
|
$ |
|
|
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):
|
Accounts and unbilled receivable, net |
|
$ |
|
|
|
Prepaid assets |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
Other assets |
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
Net assets acquired |
|
$ |
|
|
13
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. During the three months ended June 30, 2019, the Company updated the composition and valuation of intangible assets and recorded a measurement period adjustment increasing goodwill and decreasing intangible assets by approximately $
The following table sets forth the preliminary components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):
|
|
|
Preliminary Fair Value |
|
|
Useful life |
|
|
Customer relationships |
|
$ |
|
|
|
|
|
Developed technology |
|
|
|
|
|
|
|
Trade Name |
|
|
|
|
|
|
|
Total preliminary intangible assets subject to amortization |
|
$ |
|
|
|
|
The amounts of revenue and operating loss of Providigm included in the Company’s Condensed Consolidated Statements of Income from the date of acquisition of January 10, 2019 to the three and six months ended June 30, 2019 are as follows (in thousands):
|
|
|
Three Months Ended June 30, 2019 |
|
Six Months Ended June 30, 2019 |
|
||
|
Total revenues |
|
$ |
|
|
$ |
|
|
|
Operating loss |
|
$ |
( |
) |
$ |
( |
) |
The following unaudited pro forma financial information summarizes the combined results of continuing and discontinued operations of the Company, unless otherwise noted, and Providigm as though the companies were combined as of January 1, 2018 (in thousands, except per share data):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Total revenues |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net income per share - basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net income per share - diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to Providigm’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.
14
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. DEBT
Revolving Credit Facility
On December 31, 2018, the Company entered into a Second Amendment to its Revolving Credit Agreement, dated as of November 24, 2014 (as amended, the “Revolving Credit Facility”), with SunTrust Bank (“SunTrust”), which extended the maturity date to
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.
In addition, the Revolving Credit Facility requires the Company to meet certain financial tests, including, without limitation:
|
• |
a funded debt leverage ratio (consolidated debt/consolidated EBITDA) of not greater than |
|
• |
an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than |
As of June 30, 2019, the Company was in compliance with all covenants. There were
12. LEASES
Effective January 1, 2019, the Company adopted ASC 842, which requires an entity to recognize a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, using the modified retrospective approach. The Company elected to use the package of practicable expedients which allows companies to not reassess the following: (1) the lease classification for any expired or existing leases, (2) the treatment of initial direct costs as they related to existing leases, and (3) whether expired or existing contracts are or contain leases. The Company did not elect the use of the hindsight practical expedient, but did elect the practical expedient not to separate lease components from non-lease components related to its office space leases.
Upon adoption of ASC 842, the Company had non-cancellable operating leases for office space subject to recognition as ROU assets. Accordingly, on January 1, 2019 the Company recorded $
15
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company does not have any lease contracts that contain: (1) an option to extend that the Company is reasonably certain to exercise, (2) an option to terminate that the Company is reasonably certain not to exercise, or (3) an option to extend (or not to terminate) in which exercise of the option is controlled by the lessor. Additionally, the Company does not have any leases with residual value guarantees or material restrictive covenants. For leases already commenced, the lease term was determined to be the remaining months in the lease term as of January 1, 2019, the date of adoption. The Company has elected not to recognize leases with initial terms of one year or less on the balance sheet. Lease liabilities and their corresponding right-of-use assets have been recorded based on the present value of the future lease payments over the expected lease term. Most of the Company’s lease agreements contain provisions for escalating rent payments over the terms of the leases.
The Company’s leases do not contain readily determinable implicit discount rates, and as such the Company must use its incremental borrowing rate to discount the future lease payments based on information available at lease commencement. The incremental borrowing rate was estimated by determining the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company’s operating lease cost as presented in other general and administrative expense in the Condensed Consolidated Statement of Income was $
The table below presents the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet as of June 30, 2019 (in thousands).
|
Assets |
Classification |
|
|
|
|
|
Operating lease right-of-use assets |
Operating lease right of use assets, net |
|
$ |
|
|
|
Total leased assets |
|
|
$ |
30,774 |
|
|
Liabilities |
|
|
|
|
|
|
Operating lease liabilities, current |
Accounts payable and accrued expenses |
|
$ |
|
|
|
Operating lease liabilities, noncurrent |
Operating lease liability, noncurrent |
|
|
|
|
|
Total operating lease liabilities |
|
|
$ |
|
|
The table below presents the maturities of lease liabilities under non-cancellable leases as of June 30, 2019 (in thousands).
|
2019 |
|
|
|
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
|
Less imputed interest |
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
13. NON-MARKETABLE EQUITY INVESTMENTS
Non-marketable equity investments, where the Company is not able to exercise significant influence over the investee, are accounted for under the cost method. ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), became effective for the Company as of January 1, 2018 and requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The aggregate carrying amount of all cost method investments was $
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Special Cautionary Notice Regarding Forward‑Looking Statements
You should read the following discussion and analysis in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this report and our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2018, appearing in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (“SEC”) on February 25, 2019 (the “2018 Form 10-K”). Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements that the Company intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend on or refer to future events or conditions, or that include words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “ projects,” “should,” “will,” “would,” and similar expressions are forward-looking statements.
The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
In evaluating any forward-looking statement, you should specifically consider the information regarding forward-looking statements and the information set forth under the caption Part I, Item 1A. Risk Factors in our 2018 Form 10-K and the information regarding forward-looking statements and other disclosures in our 2018 Form 10-K, earnings releases and other filings with the SEC from time to time, as well as other cautionary statements contained elsewhere in this report, including the matters discussed in “Critical Accounting Policies and Estimates.” We undertake no obligation beyond that required by law to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we currently expect.
Overview
HealthStream provides workforce and provider solutions for healthcare organizations—all designed to develop the people that deliver patient care, which, in turn, supports the improvement of business and clinical outcomes. Workforce Solutions products are used by healthcare organizations to meet a broad range of their clinical development, talent management, training, certification, competency assessment, and performance appraisal needs. Provider Solutions products are used by healthcare organizations for provider credentialing, privileging, and enrollment needs. HealthStream’s customers include healthcare organizations, pharmaceutical and medical device companies, and other participants in the healthcare industry. At June 30, 2019, we had approximately 2.34 million contracted subscriptions to hStreamTM, our Platform-as-a-Service technology. hStream technology enables healthcare organizations and their respective workforces to easily connect to and gain value from the growing HealthStream ecosystem of applications, tools, and content.
On February 12, 2018, the Company divested its Patient Experience (“PX”) business to Press Ganey for $65.2 million in cash (after giving effect to the post-closing adjustment), resulting in a gain, net of tax, of $20.2 million.
Prior to the disposition of the PX business, our Patient Experience Solutions products provided our customers information about patients’ experiences and how to improve them, workforce engagement, physician relations, and community perceptions of their services. The historical financial results of the PX business for periods prior to the closing of the disposition of the PX business on February 12, 2018 are reflected in the Company’s Condensed Consolidated Financial Statements as discontinued operations. This sale of the PX business resulted in the Company’s divestiture of the patient experience solutions business segment.
Key financial indicators of operations for the second quarter of 2019 are set forth in the bullets below.
|
• |
Our Chief Executive Officer, Robert A. Frist, Jr., contributed $2.2 million of his personally owned HealthStream stock to the Company in order to facilitate the grant of 78,520 shares of common stock to approximately 820 employees under our 2016 Omnibus Incentive Plan, which grant resulted in a corresponding $2.2 million charge for stock based compensation and related expense in the second quarter |
|
• |
Revenues of $63.8 million in the second quarter of 2019, up 12% from $57.0 million in the second quarter of 2018 |
|
• |
Operating income of $2.3 million in the second quarter of 2019, down 47% from $4.3 million in the second quarter of 2018, which was negatively impacted in the amount of $2.2 million by the charge associated with the stock grant to employees referenced above |
|
• |
Income from continuing operations of $2.4 million in the second quarter of 2019, down 34% from $3.7 million in the second quarter of 2018, which was negatively impacted in the amount of $1.7 million by the charge associated with the stock grant to employees referenced above |
17
|
• |
Earnings per share (EPS) from continuing operations of $0.07 per share (diluted) in the second quarter of 2019, which was negatively impacted by $0.05 from the charge associated with the stock grant to employees referenced above, compared to EPS from continuing operations of $0.11 per share (diluted) in the second quarter of 2018 |
|
• |
Adjusted EBITDA1 from continuing operations of $11.8 million in the second quarter of 2019, up 10% from $10.7 million in the second quarter of 2018 |
|
(1) |
Adjusted EBITDA from continuing operations is a non-GAAP financial measure. A reconciliation of adjusted EBITDA from continuing operations to income from continuing operations and disclosure regarding why we believe adjusted EBITDA from continuing operations provides useful information to investors is included later in this report. |
As referenced above, in June 2019, Robert A. Frist, Jr. contributed 78,520 of his personally owned shares of common stock (with a value of $2.0 million) to the Company for the benefit of HealthStream employees, without any consideration paid to Mr. Frist. In connection therewith, the Company has approved the grant of the same number of shares under its 2016 Omnibus Incentive Plan to approximately 820 of its employees. These shares were issued in July 2019. Mr. Frist also contributed an additional 7,852 of his personally owned shares to cover the Company’s costs associated with such grants, such as administrative expenses and employer payroll taxes. Together, these grants resulted in the Company recognizing approximately $2.0 million stock based compensation expense and $0.2 million payroll tax expense in the second quarter of 2019. The only shareholder who will be diluted from these transactions will be Mr. Frist. See Note 5 to the Condensed Consolidated Financial Statements, included within this report, for additional information.
On January 10, 2019, the Company acquired the outstanding equity of Providigm, LLC (“Providigm”), a Denver-based company focused on quality assurance and performance improvement in healthcare, primarily serving skilled nursing facilities, for $18.0 million in cash. In addition, up to an additional $500,000 in cash may be paid by the Company contingent upon the performance of Providigm during an 18-month period following closing. The results of operations for Providigm have been included in the HealthStream Workforce Solutions segment of our Financial Statements from the date of acquisition.
Critical Accounting Policies and Estimates
The Company’s Condensed Consolidated Financial Statements are prepared in accordance with US GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our Financial Statements. We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our Financial Statements will be affected.
The accounting policies and estimates that we believe are the most critical in fully understanding and evaluating our reported financial results include the following:
|
|
• |
Revenue recognition |
|
|
• |
Accounting for income taxes |
|
|
• |
Software development costs |
|
|
• |
Goodwill, intangibles, and other long-lived assets |
|
|
• |
Allowance for doubtful accounts |
In many cases, the accounting treatment of a particular transaction is specifically dictated by US GAAP and does not require management’s judgment in its application. There are also areas where management’s judgment in selecting among available alternatives would not produce a materially different result. See Notes to Consolidated Financial Statements in our 2018 Form 10-K and the Notes to the Condensed Consolidated Financial Statements herein, which contain additional information regarding our accounting policies and other disclosures required by US GAAP. There have been no material changes in our critical accounting policies and estimates from those reported in our 2018 Form 10-K. Note 2 in the Notes to Condensed Consolidated Financial Statements summarizes new accounting guidance issued by the Financial Accounting Standards Board (“FASB”) that has been recently adopted by the Company, or not yet adopted by the Company, and our evaluation of such accounting guidance and the anticipated impact of such guidance (if known) on the Company.
18
Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Revenues, net. Revenues increased $6.8 million, or 12%, to $63.8 million for the three months ended June 30, 2019 from $57.0 million for the three months ended June 30, 2018.
A comparison of revenues by business segment is as follows (in thousands):
|
|
|
Three Months Ended June 30, |
|
|||||||||
|
Revenues by Business Segment: |
|
2019 |
|
|
2018 |
|
|
Percentage Change |
|
|||
|
Workforce Solutions |
|
$ |
52,422 |
|
|
$ |
46,968 |
|
|
|
12 |
% |
|
Provider Solutions |
|
|
11,359 |
|
|
|
10,040 |
|
|
|
13 |
% |
|
Total revenues, net |
|
$ |
63,781 |
|
|
$ |
57,008 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Solutions |
|
|
82 |
% |
|
|
82 |
% |
|
|
|
|
|
Provider Solutions |
|
|
18 |
% |
|
|
18 |
% |
|
|
|
|
Revenues for HealthStream Workforce Solutions increased $5.4 million, or 12%, to $52.4 million for the three months ended June 30, 2019 from $47.0 million for the three months ended June 30, 2018. Revenue growth in 2019 was positively impacted by higher revenues from our legacy resuscitation products, which were $15.5 million in the second quarter of 2019 compared to $13.2 million in the second quarter of 2018, and growth in our proprietary learning and compliance products. The acquisition of Providigm, which was completed in January 2019, also added $1.8 million of revenue to the second quarter of 2019.
Revenues for HealthStream Provider Solutions increased $1.4 million, or 13%, to $11.4 million for the three months ended June 30, 2019 from $10.0 million for the three months ended June 30, 2018. Revenue growth was primarily a result of new Verity platform subscriptions and professional services for implementation of new customers.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues increased $3.6 million, or 15%, to $26.8 million for the three months ended June 30, 2019 from $23.2 million for the three months ended June 30, 2018. Cost of revenues as a percentage of revenues was 42% and 41% for the three months ended June 30, 2019 and 2018, respectively.
Cost of revenues for HealthStream Workforce Solutions increased $2.9 million to $22.9 million and approximated 44% and 43% of revenues for HealthStream Workforce Solutions for the three months ended June 30, 2019 and 2018, respectively. The increase is primarily associated with increased royalties paid by us resulting from growth in courseware subscription revenues, personnel costs, and stock based compensation related to the stock awards granted during the three months ended June 30, 2019. Cost of revenues for HealthStream Provider Solutions increased $664,000 to $3.9 million and approximated 35% and 32% of HealthStream Provider Solutions revenues for the three months ended June 30, 2019 and 2018, respectively. The increase is primarily associated with increased personnel costs and stock based compensation related to the stock awards granted during the three months ended June 30, 2019 as described above.
Product Development. Product development expenses increased $1.1 million, or 17%, to $7.6 million for the three months ended June 30, 2019 from $6.5 million for the three months ended June 30, 2018. Product development expenses as a percentage of revenues were 12% and 11% for the three months ended June 30, 2019 and 2018, respectively.
Product development expenses for HealthStream Workforce Solutions increased $1.1 million to $6.3 million and approximated 12% and 11% of revenues for HealthStream Workforce Solutions for the three months ended June 30, 2019 and 2018, respectively. The increase is primarily due to increased personnel costs and stock based compensation related to the stock awards granted during the three months ended June 30, 2019 as described above. Product development expenses for HealthStream Provider Solutions increased $29,000 to $1.3 million and approximated 11% and 12% of revenues for HealthStream Provider Solutions for the three months ended June 30, 2019 and 2018, respectively.
Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $906,000, or 10%, to $9.8 million for the three months ended June 30, 2019 from $8.9 million for the three months ended June 30, 2018. Sales and marketing expenses were 15% and 16% of revenues for the three months ended June 30, 2019 and 2018, respectively.
19
Sales and marketing expenses for HealthStream Workforce Solutions increased $776,000 to $8.0 million and approximated 15% of revenues for HealthStream Workforce Solutions for both the three months ended June 30, 2019 and 2018. The increase is primarily due higher stock based compensation related to the stock awards granted during the three months ended June 30, 2019 as described above as well as higher sales commissions, consistent with the increases in revenue. Sales and marketing expenses for HealthStream Provider Solutions increased $196,000 to $1.5 million and approximated 14% of revenues for HealthStream Provider Solutions for both the three months ended June 30, 2019 and 2018. The increase is due to increased personnel and related costs and stock based compensation related to stock awards granted during the three months ended June 30, 2019. The unallocated portion of sales and marketing expenses decreased $66,000 to $279,000 compared to the prior year period primarily due to decreases in personnel costs.
Other General and Administrative Expenses. Other general and administrative expenses increased $2.3 million, or 28%, to $10.3 million for the three months ended June 30, 2019 from $8.0 million for the three months ended June 30, 2018. Other general and administrative expenses as a percentage of revenues were 16% and 14% of revenues for the three months ended June 30, 2019 and 2018, respectively.
Other general and administrative expenses for HealthStream Workforce Solutions increased $1.4 million to $3.6 million and approximated 7% and 5% of HealthStream Workforce Solutions revenues for the three months ended June 30, 2019 and 2018, respectively. The increase is primarily due to higher facilities expense related to our new corporate headquarters as well as increased personnel costs. Other general and administrative expenses for HealthStream Provider Solutions decreased $395,000 to $795,000 and approximated 7% and 12% of HealthStream Provider Solutions revenues for the three months ended June 30, 2019 and 2018, respectively. The decrease is due to lower contract labor and facilities costs. The unallocated corporate portion of other general and administrative expenses increased $1.3 million to $5.9 million compared to the prior year period primarily due to increases to personnel, software expenses, and stock based compensation.
Depreciation and Amortization. Depreciation and amortization was $6.9 million and $6.0 million for the three months ended June 30, 2019 and 2018, respectively. The increase resulted from an increase in amortization of capitalized software and intangible assets, as well as depreciation of property and equipment.
Other Income, Net. Other income, net was $852,000 for the three months ended June 30, 2019 compared to $476,000 for the three months ended June 30, 2018. The increase is a result of higher interest income from cash and investments in marketable securities.
Income Tax Provision. The Company recorded a provision for income taxes from continuing operations of $719,000 for the three months ended June 30, 2019 compared to $1.1 million for the three months ended June 30, 2018. The Company’s effective tax rate was 23% for both the three months ended June 30, 2019 and 2018, respectively.
Income from Continuing Operations. Income from continuing operations was $2.4 million in the second quarter of 2019, up from $3.7 million in the second quarter of 2018, which decline was driven by the $1.7 million charge associated with the stock grant to employees referenced above. Earnings per diluted share from continuing operations were $0.07 and $0.11 per share for the three months ended June 30, 2019 and 2018, respectively.
(Loss) Income from Discontinued Operations. The Company recorded no (loss) income from discontinued operations for the three months ended June 30, 2019 compared to a loss of $1.1 million for the three months ended June 30, 2018. Loss from discontinued operations during the three months ended June 30, 2018 was primarily due to a reduction in the gain previously recognized by the Company in connection with the sale of the PX business in February 2018.
Net Income. Net income decreased $144,000, to $2.4 million for the three months ended June 30, 2019 from $2.5 million for the three months ended June 30, 2018. Earnings per diluted share were $0.07 and $0.08 per share for the three months ended June 30, 2019 and 2018, respectively.
Adjusted EBITDA (a non-GAAP financial measure which we define as net income before interest, income taxes, stock based compensation, and depreciation and amortization) from continuing operations increased 10% to $11.8 million for the three months ended June 30, 2019, compared to $10.7 million for the three months ended June 30, 2018. Adjusted EBITDA was not impacted by the stock contribution and grant transactions described above, except for the $0.2 million payroll tax expense.
Adjusted EBITDA increased $2.6 million to $11.8 million for the three months ended June 30, 2019, compared to $9.2 million for the three months ended June 30, 2018, which increase was primarily driven by the divestiture of the PX business as noted above. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of Adjusted EBITDA from continuing operations and Adjusted EBITDA to the most directly comparable measures under US GAAP.
20
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Revenues, net. Revenues increased $17.1 million, or 15%, to $129.0 million for the six months ended June 30, 2019 from $111.9 million for the six months ended June 30, 2018.
A comparison of revenues by business segment is as follows (in thousands):
|
|
|
Six Months Ended June 30, |
|
|||||||||
|
Revenues by Business Segment: |
|
2019 |
|
|
2018 |
|
|
Percentage Change |
|
|||
|
Workforce Solutions |
|
$ |
106,716 |
|
|
$ |
91,915 |
|
|
|
16 |
% |
|
Provider Solutions |
|
|
22,251 |
|
|
|
19,951 |
|
|
|
12 |
% |
|
Total revenues, net |
|
$ |
128,967 |
|
|
$ |
111,866 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Solutions |
|
|
83 |
% |
|
|
82 |
% |
|
|
|
|
|
Provider Solutions |
|
|
17 |
% |
|
|
18 |
% |
|
|
|
|
Revenues for HealthStream Workforce Solutions increased $14.8 million, or 16%, over the first six months of 2018. Revenue growth in 2019 was positively impacted by higher revenues from our legacy resuscitation products, which were $32.8 million in the first six months of 2019 compared to $25.5 million in the first six months of 2018, and growth in our proprietary learning and compliance products. The acquisition of Providigm, which was completed in January 2019 also added $3.3 million of revenue to the first six months of 2019.
Revenues for HealthStream Provider Solutions increased $2.3 million, or 12%, over the first six months of 2018. Revenue growth was primarily a result of new Verity platform subscriptions and professional services for implementation of new customers.
Cost of Revenues (excluding depreciation and amortization). Cost of revenues increased $8.2 million, or 18%, to $53.7 million for the six months ended June 30, 2019 from $45.5 million for the six months ended June 30, 2018. Cost of revenues as a percentage of revenues was 42% and 41% for the six months ended June 30, 2019 and 2018, respectively.
Cost of revenues for HealthStream Workforce Solutions increased $7.2 million to $46.1 million and approximated 43% and 42% of revenues for HealthStream Workforce Solutions for the six months ended June 30, 2019 and 2018, respectively. The increase is primarily associated with increased royalties paid by us resulting from growth in courseware subscription revenues and additions to personnel. Cost of revenues for HealthStream Provider Solutions increased $1.0 million to $7.6 million and approximated 34% and 33% of HealthStream Provider Solutions revenues for the six months ended June 30, 2019 and 2018, respectively. The increase is primarily due to increased personnel over the prior year period.
Product Development. Product development expenses increased $2.1 million, or 16%, to $14.6 million for the six months ended June 30, 2019 from $12.5 million for the six months ended June 30, 2018. Product development expenses as a percentage of revenues were 11% of revenues for both the six months ended June 30, 2019 and 2018.
Product development expenses for HealthStream Workforce Solutions increased $2.1 million to $12.2 million and approximated 11% of revenues for HealthStream Workforce Solutions for both the six months ended June 30, 2019 and 2018. The increase is primarily due to increased personnel over the prior year period. Product development expenses for HealthStream Provider Solutions decreased $13,000 to $2.4 million and approximated 11% and 12% of revenues for HealthStream Provider Solutions for the six months ended June 30, 2019 and 2018, respectively.
Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $1.4 million, or 8%, to $19.3 million for the six months ended June 30, 2019 from $18.0 million for the six months ended June 30, 2018. Sales and marketing expenses were 15% and 16% of revenues for the six months ended June 30, 2019 and 2018, respectively.
Sales and marketing expenses for HealthStream Workforce Solutions increased $1.3 million to $15.8 million and approximated 15% and 16% of revenues for HealthStream Workforce Solutions for the six months ended June 30, 2019 and 2018, respectively. The increase is primarily due to higher sales commissions, consistent with the increases in revenues, and stock based compensation related to the stock awards granted during the six months ended June 30, 2019. Sales and marketing expenses for HealthStream Provider Solutions increased $173,000 to $3.0 million and approximated 13% and 14% of revenues for HealthStream Provider Solutions for the six months ended June 30, 2019 and 2018, respectively. The increase in amount is primarily associated with the increases to personnel and related costs. The unallocated portion of sales and marketing expenses decreased $119,000 to $539,000 compared to the prior year period primarily due to decreased personnel costs.
21
Other General and Administrative Expenses. Other general and administrative expenses increased $4.5 million, or 29%, to $20.3 million for the six months ended June 30, 2019 from $15.8 million for the six months ended June 30, 2018. Other general and administrative expenses as a percentage of revenues were 16% and 14% of revenues for the six months ended June 30, 2019 and 2018, respectively.
Other general and administrative expenses for HealthStream Workforce Solutions increased $2.5 million to $6.9 million and approximated 6% and 5% of revenues for HealthStream Workforce Solutions for the six months ended June 30, 2019 and 2018, respectively. The increase is primarily due to increases to personnel, software expenses, facilities, and telecom costs. The acquisition of Providigm in January 2019 also contributed to this increase during the first six months of 2019. Other general and administrative expenses for HealthStream Provider Solutions decreased $815,000 to $1.7 million and approximated 8% and 13% of revenues for HealthStream Provider Solutions for the six months ended June 30, 2019 and 2018, respectively. The decrease is primarily associated with lower contract labor expense compared to the prior year period. The unallocated corporate portion of other general and administrative expenses increased $2.8 million to $11.7 million compared to the first six months of 2018 primarily due to increases in software expenses as well as increases to personnel and related costs over the prior year period.
Depreciation and Amortization. Depreciation and amortization increased $1.4 million, or 11%, to $13.5 million for the six months ended June 30, 2019 from $12.1 million for the six months ended June 30, 2018. The increase resulted from an increase in amortization of capitalized software and intangible assets, as well as depreciation of property and equipment.
Other Income, Net. Other income, net was $1.7 million for the six months ended June 30, 2019 compared to $789,000 for the six months ended June 30, 2018. This increase is a result of higher interest income from cash and investments in marketable securities.
Income Tax Provision. The Company recorded a provision for income taxes of $2.1 million and $1.5 million for the six months ended June 30, 2019 and 2018, respectively. The Company’s effective tax rate was 23% for the six months ended June 30, 2019 compared to 17% for the six months ended June 30, 2018. During the six months ended June 30, 2019 and 2018, the Company recorded excess tax benefits from stock based awards of $123,000 and $663,000, respectively, as a component of the provision for income taxes, which reduced the effective tax rate compared to the statutory tax rates.
Income from Continuing Operations. Income from continuing operations was $7.2 million for the six months ended June 30, 2019 compared to $7.3 million for the six months ended June 30, 2018. Earnings per diluted share from continuing operations were $0.22 and $0.23 per share for the six months ended June 30, 2019 and 2018, respectively.
(Loss) Income from Discontinued Operations. (Loss) income from discontinued operations was income of $1.2 million for the six months ended June 30, 2019, compared to income of $19.1 million for the six months ended June 30, 2018. Income from discontinued operations during the six months ended June 30, 2019 was the result of the release of escrow funds. The gain, net of tax, of $19.1 million recognized by the Company during the six months ended June 30, 2018, related to the sale of the PX business, which occurred on February 12, 2018.
Net Income. Net income decreased to $8.4 million for the six months ended June 30, 2019 from $26.4 million for the six months ended June 30, 2018. This decrease was attributable to the $19.1 million gain from the sale of the PX business. Earnings per diluted share were $0.26 per share and $0.82 per share for the six months ended June 30, 2019 and 2018, respectively.
Adjusted EBITDA from continuing operations increased 16% to $24.2 million for the six months ended June 30, 2019, compared to $20.9 million for the six months ended June 30, 2018.
Adjusted EBITDA decreased $24.6 million to $25.9 million for the six months ended June 30, 2019 compared to $50.5 million for the six months ended June 30, 2018. This decrease resulted from the factors mentioned above. See Reconciliation of Non-GAAP Financial Measures below for our reconciliation of this calculation to measures under US GAAP.
Discontinued Operations
On February 12, 2018, the Company divested its PX business to Press Ganey for $65.2 million in cash (after giving effect to the post-closing working capital adjustment). This sale of the PX business resulted in the divestiture of our patient experience solutions business segment. We recorded a gain on sale, net of tax, of $20.2 million, of which $19.0 million was recorded during the year ended December 31, 2018 and $1.2 million was recorded during the six months ended June 30, 2019. With the proceeds of this sale, our Board of Directors declared a $1.00 per common share special cash dividend, which was paid on April 3, 2018 to shareholders of record on March 6, 2018.
We have classified the results of our PX segment as discontinued operations in our Condensed Consolidated Statements of Income and Cash Flows for all periods presented. See Note 8 to our Condensed Consolidated Financial Statements included in this report for additional information.
22
Other Developments
Our legacy agreements with Laerdal (the “Legacy Agreements”) for the HeartCode and Resuscitation Quality Improvement (“RQI”) products expired pursuant to their terms on December 31, 2018. Revenues associated with sales of HeartCode and RQI products pursuant to the Legacy Agreements have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin. In 2018, revenue generated by HeartCode and RQI products pursuant to the Legacy Agreements was $55 million. During the six months ended June 30, 2019, as noted above, we recorded revenue of $32.8 million related to HeartCode and RQI products under the Legacy Agreements compared to $25.5 million for the six months ended June 30, 2018. In addition, during the three months ended June 30, 2019, as noted above, we recorded revenue of $15.5 million related to HeartCode and RQI products under the Legacy Agreements compared to $13.2 million for the three months ended June 30, 2018. We expect revenue from HeartCode and RQI products generated pursuant to the Legacy Agreements to decline sequentially on a quarterly basis and that revenue to be generated from such products during the last six months of 2019 to be approximately $26 million to $27 million. We also continue to expect revenue from HeartCode and RQI products sold pursuant to the Legacy Agreements to be zero in the first quarter of 2021.
On December 6, 2018, we announced a new agreement with RQI Partners, a joint venture between Laerdal and the American Heart Association. This agreement with RQI Partners was not an extension or renewal of the expired Legacy Agreements with Laerdal and should not be construed as such. Under our agreement with RQI Partners, HealthStream will neither market nor sell HeartCode or RQI. Our RQI Partners agreement provides for continuity of service for customers that desire to purchase HeartCode or RQI from RQI Partners after December 31, 2018 and receive it via the HealthStream Learning Center. RQI Partners will remit a fee to us when new sales of HeartCode and RQI are delivered via the HealthStream Learning Center. This fee will not be sufficient to supplant the revenue runout associated with the Legacy Agreements.
We remain actively engaged in efforts to broaden the scope and utilization of our simulation-related offerings to include a range of clinical competencies that extend beyond resuscitation, and we intend to bring to market a broadened scope of simulation-based offerings, including resuscitation programs. On January 17, 2019, as part of a seven-year collaboration agreement with the American Red Cross which spans to 2026, we announced the launch of the American Red Cross Resuscitation Suite. We have now begun efforts to market, sell, and deliver the American Red Cross Resuscitation Suite. Several customers have been implemented, and we began to recognize a de minimis amount of revenue under this agreement during the second quarter of 2019. We believe our efforts to market, sell, and deliver the American Red Cross Resuscitation Suite, along with efforts to bring additional simulation-related offerings to market, have the potential to give rise to additional and higher margin opportunities than those that existed under the Legacy Agreements. However, there is no assurance that we will be successful in these efforts, and to the extent that new simulation-based or other solutions do not generate revenue and/or earnings in a manner that supplants the impact of the Legacy Agreements, our revenue and results of operations may be adversely affected.
Reconciliation of Non-GAAP Financial Measures
This report presents adjusted EBITDA from continuing operations and adjusted EBITDA, both of which are non-GAAP financial measures used by management in analyzing our 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 cost method investments (“adjusted EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain non-cash and non-operating items. Management also believes that adjusted EBITDA from continuing operations is a useful measure for evaluating the operating performance of the Company because such measure excludes the results of operations of the PX business that we no longer own and the gain on sale in connection with the sale of such business in February 2018 and thus reflects the Company’s ongoing business operations and assists in comparing the Company’s results of operations between periods. We also believe that adjusted EBITDA and adjusted EBITDA from continuing operations are useful to many investors to assess the Company’s ongoing results from current operations. Adjusted EBITDA and adjusted EBITDA from continuing operations are non-GAAP financial measures and should not be considered as measures of financial performance under GAAP. Because adjusted EBITDA and adjusted EBITDA from continuing operations are not measurements determined in accordance with GAAP, such non-GAAP financial measures are susceptible to varying calculations. Accordingly, adjusted EBITDA and adjusted EBITDA from continuing operations, as presented, may not be comparable to other similarly titled measures of other companies.
These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance which are prepared in accordance with US GAAP and may be different from non-GAAP financial measures used by other companies and have limitations as analytical tools.
23
A reconciliation of adjusted EBITDA and adjusted EBITDA from continuing operations to the most directly comparable GAAP measures is set forth below (in thousands).
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
GAAP income from continuing operations |
|
$ |
2,401 |
|
|
$ |
3,656 |
|
|
$ |
7,181 |
|
|
$ |
7,285 |
|
|
Interest income |
|
|
(884 |
) |
|
|
(510 |
) |
|
|
(1,674 |
) |
|
|
(850 |
) |
|
Interest expense |
|
|
30 |
|
|
|
32 |
|
|
|
51 |
|
|
|
66 |
|
|
Income tax provision |
|
|
719 |
|
|
|
1,084 |
|
|
|
2,130 |
|
|
|
1,498 |
|
|
Stock based compensation expense |
|
|
2,558 |
|
|
|
427 |
|
|
|
3,074 |
|
|
|
846 |
|
|
Depreciation and amortization |
|
|
6,942 |
|
|
|
6,019 |
|
|
|
13,480 |
|
|
|
12,091 |
|
|
Change in fair value of cost method investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Adjusted EBITDA from continuing operations |
|
$ |
11,766 |
|
|
$ |
10,708 |
|
|
$ |
24,242 |
|
|
$ |
20,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income |
|
$ |
2,401 |
|
|
$ |
2,545 |
|
|
$ |
8,375 |
|
|
$ |
26,392 |
|
|
Interest income |
|
|
(884 |
) |
|
|
(510 |
) |
|
|
(1,674 |
) |
|
|
(850 |
) |
|
Interest expense |
|
|
30 |
|
|
|
32 |
|
|
|
51 |
|
|
|
66 |
|
|
Income tax provision |
|
|
719 |
|
|
|
693 |
|
|
|
2,556 |
|
|
|
11,817 |
|
|
Stock based compensation expense |
|
|
2,558 |
|
|
|
427 |
|
|
|
3,074 |
|
|
|
755 |
|
|
Depreciation and amortization |
|
|
6,942 |
|
|
|
6,019 |
|
|
|
13,480 |
|
|
|
12,273 |
|
|
Change in fair value of cost method investments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Adjusted EBITDA |
|
$ |
11,766 |
|
|
$ |
9,206 |
|
|
$ |
25,862 |
|
|
$ |
50,453 |
|
Liquidity and Capital Resources
Net cash provided by operating activities from continuing operations increased by $20.4 million, or 126% to $36.6 million during the six months ended June 30, 2019 from $16.2 million during the six months ended June 30, 2018. The increase compared to the prior year period primarily resulted from reductions in receivables, prepaid expenses and other current assets, and current liabilities. The number of days sales outstanding (“DSO”) was 47 days for the second quarter of 2019 compared to 54 days for the second quarter of 2018. The decrease in DSO primarily relates to improved collections as compared to the prior year period. The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter. The Company’s primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, and general corporate expenses.
Net cash used in investing activities from continuing operations was $49.2 million for the six months ended June 30, 2019 compared to net cash provided by investing activities from continuing operations of $52.9 million for the six months ended June 30, 2018. During the six months ended June 30, 2019, the Company acquired Providigm for $18.0 million, invested in marketable securities of $44.2 million, purchased property and equipment of $19.6 million, made payments for capitalized software development of $8.4 million, and invested $3.3 million in cost method investments. These uses of cash were partially offset by $38.0 million in maturities of marketable securities and $6.2 million in proceeds from the sale of its PX business segment. During the six months ended June 30, 2018, the Company divested its PX business segment, receiving proceeds from the sale of $57.8 million and had maturities of marketable securities of $44.7 million. These sources of cash were partially offset by purchases of $3.3 million of property and equipment, $5.1 million for capitalized software development, and $41.3 million for investments in marketable securities.
Net cash used in financing activities from continuing operations was $860,000 for the six months ended June 30, 2019 compared to $30.1 million for the six months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, the uses of cash included the payment of employee payroll taxes in relation to the vesting of restricted share units (“RSU”) and stock awards of $985,000 and $300,000, respectively. In this regard, the Company net-share settled the employee RSUs by withholding shares with value equivalent to the employee’s minimum statutory obligation for the applicable income and other employment taxes. The uses of cash for both the six months ended June 30, 2019 and 2018 also included $37,000 of payments of earn-outs related to prior acquisitions and also included cash dividend payments of $52,000 and $32.4 million, respectively. The source of cash from financing activities for both the six months ended June 30, 2019 and 2018 was from the exercise of stock options of $214,000 and $2.6 million, respectively.
24
Our balance sheet reflects positive working capital of $116.2 million at June 30, 2019 compared to $134.6 million at December 31, 2018. The decrease in working capital is primarily a result of the acquisition of Providigm in January 2019. The Company’s primary source of liquidity as of June 30, 2019 was $120.8 million of cash and cash equivalents and $40.7 million of marketable securities. The Company also has a $50.0 million revolving credit facility, all of which was available for additional borrowing at June 30, 2019. The revolving credit facility expires on November 24, 2020, unless earlier renewed or amended.
We believe that our existing cash and cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development, and capital expenditures for at least the next 12 months.
In addition, the Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that complement or enhance our business. It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, or a combination of both. The issuance of our stock as consideration for an acquisition or to raise additional capital could have a dilutive effect on earnings per share and could adversely affect our stock price. Our revolving credit facility contains financial covenants and availability calculations designed to set a maximum leverage ratio of outstanding debt to adjusted EBITDA and an interest coverage ratio of adjusted EBITDA to interest expense. Therefore, the maximum borrowings against our revolving credit facility would be dependent on the covenant calculations at the time of borrowing. As of June 30, 2019, we were in compliance with all covenants. There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot assure you that if we need additional financing that it will be available on terms favorable to us, or at all. Failure to generate sufficient cash flow from operations or raise additional capital when required in sufficient amounts and on terms acceptable to us could harm our business, financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest rates. We do not have any material foreign currency exchange rate risk or commodity price risk. As of June 30, 2019 and during the six months then ended, the Company had no outstanding debt. We may become subject to interest rate market risk associated with any future borrowings under our revolving credit facility. The interest rate under the revolving credit facility varies depending on the interest rate option selected by the Company plus a margin determined in accordance with a pricing grid. We are also exposed to market risk with respect to our cash and investment balances, which approximated $161.6 million at June 30, 2019. Assuming a hypothetical 10% decrease in interest rates for invested balances, interest income from cash and investments would decrease on an annualized basis by $396,000.
The Company’s investment policy and strategy is focused on investing in highly rated securities, with the objective of minimizing the potential risk of principal loss. The Company’s policy limits the amount of credit exposure to any single issuer and sets limits on the average portfolio maturity.
The above market risk discussion and the estimated amounts presented are forward‑looking statements of market risk assuming the occurrence of certain adverse market conditions. Actual results in the future may differ materially from those projected as a result of actual developments in the market.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
HealthStream’s chief executive officer and principal financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, the chief executive officer and principal financial officer have concluded that HealthStream’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and the information required to be disclosed in the reports the Company files or submits under the Exchange Act was accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in HealthStream’s internal control over financial reporting that occurred during the second quarter of 2019 that has materially affected, or that is reasonably likely to materially affect, HealthStream’s internal control over financial reporting.
25
PART II ‑ OTHER INFORMATION
Item 6. Exhibits
|
|
(a) |
Exhibits |
|
10.18* |
|
HealthStream, Inc. Amended 2019 Executive and Corporate Management Cash Incentive Bonus Plan |
|
|
|
|
|
10.19* |
|
HealthStream, Inc. Amended 2019 Provider Solutions Cash Incentive Bonus Plan |
|
|
|
|
|
10.20* |
|
Contribution Agreement dated as of June 26, 2019 between HealthStream, Inc. and Robert A Frist, Jr. |
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32.1 |
|
|
|
|
|
|
|
32.2 |
|
|
|
|
|
|
|
101.1 INS |
|
XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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|
|
|
101.1 SCH |
|
XBRL Taxonomy Extension Schema |
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|
|
|
101.1 CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
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|
|
|
|
101.1 DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
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|
|
|
101.1 LAB |
|
XBRL Taxonomy Extension Label Linkbase |
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|
|
101.1 PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
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|
|
* - Management contract or compensatory plan or arrangement
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
HEALTHSTREAM, INC. |
||
|
|
|
|
|
|
July 26, 2019 |
By: |
|
/s/ Scott A. Roberts |
|
|
|
|
Scott A. Roberts |
|
|
|
|
Interim Chief Financial Officer |
27
EXHIBIT 10.18
HealthStream, Inc.
Board of Directors
Compensation Committee
Amended 2019 Executive and Corporate Management Cash Incentive Bonus Plan
Overview:
Pursuant to the HealthStream, Inc. 2016 Omnibus Incentive Plan, the Compensation Committee (the “Committee”) of the Board of Directors of HealthStream, Inc. (the “Company”) hereby establishes this Amended 2019 Executive and Corporate Management Cash Incentive Bonus Plan (the “Plan”). The Plan is the cash-based, short-term incentive portion of HealthStream's incentive compensation structure for certain executive officers, as well as the vice presidents, associate vice presidents, and directors who are assigned to a corporate function, as opposed to a business unit specific function (such individuals referred to collectively as “Management”). The purpose of the Plan is to specify appropriate opportunities to earn a cash bonus with respect to the Company’s 2019 fiscal year in order to reward Management for the Company’s financial performance during fiscal year 2019 and to further align their interests with those of the shareholders of the Company.
Definitions:
|
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• |
Actual Operating Income before bonuses – The Company’s Operating Income achieved in fiscal 2019, excluding bonuses. |
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Annual Bonus – The annual bonus paid to Management after the Committee determines the applicable financial measure has been achieved. |
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Incremental Operating Income - Actual Operating Income before bonuses less Target Operating Income. |
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Operating Income – The Company’s operating income for the 2019 fiscal year calculated in accordance with generally accepted accounting principles under ASC 606 and consistent with the Company’s past practice and presented in the Company’s audited financial statements, provided the following are excluded from the calculation of Operating Income: (i) acquisition and divestiture expenses incurred within the calendar year to the extent such expenses are in excess of the amount originally allocated to such purpose in the Company’s 2019 budget; (ii) operating income (loss) from acquisitions and divestitures consummated during the calendar year; and (iii) expenses in connection with the stock contribution from Robert A. Frist, Jr. to the Company on or about June 26, 2019 and the associated stock issuance from the Company to non-executive officers of the Company on or about July 25, 2019 (collectively, the “Excluded Expenses”). The Committee has the negative discretion to include the Excluded Expenses in the calculation of Operating Income. |
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Target Operating Income – Operating Income for the 2019 fiscal year in an amount established by the Committee by resolution within the first 90 days of the Company’s 2019 fiscal year. |
2019 Financial Measure and Plan Principles:
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The financial measure for 2019 is Operating Income - Operating Income will be the financial measure for 2019. |
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The Annual Bonus is funded by Incremental Operating Income - The Annual Bonus will be earned from the amount of Incremental Operating Income. |
The Plan
Eligibility
Three groups are eligible for participation in the Plan:
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Executive Team – The maximum Annual Bonus that Executive Team members, other than the Chief Executive Officer of HealthStream and the President & Chief Operating Officer of HealthStream, shall be eligible to receive under the Plan shall be an amount equal to 30% of such member’s base salary; provided the CEO and the President & COO shall be eligible to receive an amount equal to 40% of their base salary. Unless otherwise excluded below, the Executive Team eligible for participation includes the Chief Executive Officer, President & Chief Operating Officer, and Senior Vice Presidents of the Company. |
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Leadership Team (Vice Presidents and Associate Vice Presidents) – The |
maximum Annual Bonus that Vice Presidents and Associate Vice Presidents of
the Business Unit shall be eligible to receive under the Plan shall be an amount
equal to 16% of such Vice President or Associate Vice President’s base salary.
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Directors - The maximum Annual Bonus that Directors of the Business Unit shall be eligible to receive under the Plan shall be an amount equal to 4% of such Director’s base salary. For purposes of clarity, Directors do not include members of the Board of Directors, but are management-level employees of the Company. |
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Employment Requirements – Participants in the Plan who were employed with |
the Company through December 31, 2019 shall be eligible to receive bonus payments, if any, under the Plan regardless of whether such employees are employed on the date such payments are actually made. Notwithstanding the foregoing, in the case of death or disability, the participant’s pro rata share from January 1, 2019 through the date of participant’s death or disability shall be awarded.
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Exclusions - Members of the Executive Team with a commission based incentive compensation plan shall not be eligible to participate in the Plan. Additionally, members of the Executive Team who are eligible to participate in any one of the following shall not be eligible to participate in the Plan: (i) the 2019 Workforce Development Cash Bonus Incentive Plan, or (ii) the 2019 Provider Solutions Cash Bonus Incentive Plan. |
Payout
Payouts under the Plan shall be determined as follows:
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Incremental Operating Income will be determined by subtracting the Target Operating Income from Actual Operating Income before bonuses. The Incremental Operating Income will then be multiplied by 30% of base salary for each member of the Executive Team other than the Chief Executive Officer and the President & COO, 40% of base salary for the CEO and the President & COO, 16% of base salary for each member of the Leadership Team, and 4% of base salary for each Director. |
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Any Annual Bonus payouts made to the Executive Team, Leadership Team, or Directors pursuant to the Plan shall be payable at such time as bonuses are paid generally to executive officers of the Company. |
EXHIBIT 10.19
HealthStream, Inc.
Board of Directors
Compensation Committee
Amended 2019 Provider Solutions Cash Incentive Bonus Plan
For the Business Segment President
Overview:
Pursuant to the HealthStream, Inc. 2016 Omnibus Incentive Plan, the Compensation Committee (the “Committee”) of the Board of Directors of HealthStream, Inc. (the “Company”) hereby establishes this Amended 2019 Provider Solutions Cash Incentive Bonus Plan for the Business Segment President (the “Plan”). The Plan is a cash-based, short-term incentive portion of the Company’s Provider Solutions segment (the “Business Unit”) incentive compensation structure for the president (“President”) of the Business Unit. The purpose of the Plan is to specify appropriate opportunities to earn a cash bonus with respect to the (i) Business Unit’s 2019 fiscal year performance and/or (ii) the Company’s overall 2019 fiscal year performance, each in order to reward the President for the Business Unit’s and/or the Company’s financial performance during fiscal year 2019 and to further align his interest with those of the shareholders of the Company.
Definitions:
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Provider Solutions Actual Operating Income before bonuses – The Business Unit’s Operating Income achieved in fiscal 2019, excluding bonuses. |
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Enterprise Actual Operating Income before bonuses – The Company’s Operating Income achieved in fiscal 2019, excluding bonuses. |
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Annual Bonus – The annual bonus paid to President after the Committee determines the applicable financial measure has been achieved. |
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Provider Solutions Incremental Operating Income – Provider Solutions Actual Operating Income before bonuses less Provider Solutions Target Operating Income. |
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Enterprise Incremental Operating Income – Enterprise Actual Operating Income before bonuses less Enterprise Target Operating Income. |
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Provider Solutions Operating Income – The Business Unit’s Operating Income for the 2019 fiscal year calculated in accordance with generally accepted accounting principles under ASC 606 and consistent with the Company’s past practice and presented in the Company’s audited financial statements, provided the following expenses are excluded from the calculation of Provider Solutions Operating Income: for acquisitions and divestitures within or directly impacting the Business Unit, acquisition and divestiture expenses for transactions within the calendar year and operating income (loss) from acquisitions and divestitures consummated during the calendar year (the “Excluded Expenses”). The Committee has the negative discretion to include the Excluded Expenses in the calculation of Provider Solutions Operating Income. |
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(collectively, the “Excluded Expenses”). The Committee has the negative discretion to include the Excluded Expenses in the calculation of Enterprise Operating Income. |
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Provider Solutions Target Operating Income – Provider Solutions Operating Income for the 2019 fiscal year in an amount established by the Committee by resolution within the first 90 days of the Company’s 2019 fiscal year. |
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Enterprise Target Operating Income – Enterprise Operating Income for the 2019 fiscal year in an amount established by the Committee by resolution within the first 90 days of the Company’s 2019 fiscal year. |
2019 Financial Measure and Plan Principles:
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The financial measures for 2019 are Provider Solutions and/or Enterprise Operating Income – Provider Solutions and/or Enterprise Operating Income will be the financial measure for 2019. |
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The Annual Bonus is funded by Provider Solutions and/or Enterprise Incremental Operating Income – The Annual Bonus will be earned from an amount of Provider Solutions and/or Enterprise Incremental Operating Income. |
The Plan
Eligibility
Two groups are eligible for participation in the Plan:
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President – The maximum Annual Bonus the President shall be eligible to receive under the Plan shall be an amount equal to 40 percent of the President’s base salary, with that 40% being comprised as follows: 32% from Provider Solutions Incremental Operating Income and 8% from Enterprise Incremental Income.. Therefore, 80% of the President’s Annual Bonus is based on achieving and exceeding Provider Solutions Target Operating Income and the other 20% is based on achieving and exceeding Enterprise Target Operating Income. |
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Employment Requirements – Participants in the Plan who were employed with |
the Company through December 31, 2019 shall be eligible to receive bonus payments, if any, under the Plan regardless of whether such employees are employed on the date such payments are actually made. Notwithstanding the foregoing, in the case of death or disability, the participant’s pro rata share from January 1, 2019 through the date of participant’s death or disability shall be awarded.
Payout
Payouts under the Plan shall be determined as follows:
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Provider Solutions Incremental Operating Income will be determined by subtracting the Provider Solutions Target Operating Income from Actual Operating Income before bonuses. The Provider Solutions Incremental Operating Income will then be multiplied by 32% for the President. |
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Enterprise Incremental Operating Income will be determined by subtracting the Enterprise Target Operating Income from Enterprise Actual Operating Income before bonuses. The Enterprise Incremental Operating Income will then be multiplied by 8% for the President. |
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Any such Annual Bonus made to the President pursuant to the Plan shall be payable at such time as bonuses are paid generally to executive officers of the Company. |
EXHIBIT 10.20
CONTRIBUTION AGREEMENT
This Contribution Agreement (the “Agreement”), made and entered into as of June 26, 2019 (the “Effective Date”), is by and between HealthStream, Inc., a Tennessee corporation (“HealthStream”), and Robert A. Frist, Jr., an individual resident of the State of Tennessee (“Frist”).
WHEREAS, Frist desires to contribute to HealthStream, and HealthStream desires to accept from Frist (the “Contribution”), 86,372 shares of common stock, no par value (“Common Stock”), of HealthStream (collectively, the “Contributed Shares”);
WHEREAS, pursuant to the terms and conditions of this Agreement and the HealthStream, Inc. 2016 Omnibus Incentive Plan (the “Plan”), HealthStream desires to grant 78,520 shares of Common Stock (the “Grant Shares”) to the individuals and in the amounts set forth on the attached spreadsheet as Exhibit A (such individuals, the “Recipients”); and
WHEREAS, HealthStream and Frist desire to memorialize in writing the terms, provisions and conditions of the Contribution and the share grant.
NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:
Section 1.Contribution; Share Grant.
(a)Contribution. Subject to the terms and conditions of this Agreement and without any compensation paid by HealthStream to Frist, at the Closing (as defined below), Frist hereby contributes the Contributed Shares to HealthStream, and HealthStream hereby accepts such contribution. Frist shall execute stock powers or other evidence of transfer evidencing such contribution and transfer as may reasonably be requested by HealthStream, and shall deliver to HealthStream stock certificates (as applicable) representing all of the Contributed Shares.
(b)Closing. The closing of the Contribution (the “Closing”) will take place concurrently with the execution and delivery hereof at the offices of HealthStream at 500 11th Avenue North, Suite 1000, Nashville, Tennessee 37203 effective as of 3:01 p.m. (local time) on the Effective Date.
(c) Share Grant. HealthStream hereby agrees to grant the Grant Shares to the Recipients pursuant to the Plan in the amounts set forth on Exhibit A hereto as Other Stock-Based Awards (as defined in the Plan), which grants have been approved by the Compensation Committee of HealthStream. It is anticipated that the Grant Shares will be issued to the Recipients on or about July 25, 2019, and such Grant Shares will not be subject to any vesting conditions.
Section 2.Representations and Warranties of Frist. Frist represents and warrants as of the Closing to HealthStream as follows:
(a)Authority. This Agreement constitutes the valid and binding obligation of Frist, enforceable against Frist in accordance with its terms. Frist has all requisite power, authority and capacity to execute and deliver this Agreement and to consummate the transactions contemplated hereby.
(b)No Conflict. Neither the execution and delivery of this Agreement by Frist nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) conflict with any legal requirement or order of any court or governmental authority to which Frist is subject, or (ii) breach any provision of any material contract to which Frist is a party.
(c)No Consent. Frist is not required to give any notice to or obtain any consent or approval from any person in connection with the execution and delivery of this Agreement by Frist or the consummation of the transactions contemplated hereby.
(d)Legal Proceedings; Orders. There are no legal proceedings or actions pending or, to the knowledge of Frist, threatened, against Frist that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
(e)Ownership of Contributed Shares. Frist has good and valid title to the Contributed Shares, free and clear of all liens and encumbrances.
Section 3.Representations and Warranties of HealthStream. HealthStream represents and warrants as of the Closing to Frist as follows:
(a)Authority. This Agreement constitutes the valid and binding obligation of HealthStream, enforceable against HealthStream in accordance with its terms. HealthStream has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by HealthStream and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by HealthStream.
(b)No Conflict. Neither the execution and delivery of this Agreement by HealthStream nor the consummation of the transactions contemplated hereby will, directly or indirectly (with or without notice or lapse of time): (i) conflict with any legal requirement or order of any court or governmental authority to which HealthStream is subject, or (ii) breach any provision of any material contract to which HealthStream is a party.
(c)No Consent. HealthStream is not required to give any notice to or obtain any consent or approval from any person in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
(d)Legal Proceedings; Orders. There are no legal proceedings or actions pending or, to the knowledge of HealthStream, threatened, against HealthStream that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated hereby.
Section 4.Miscellaneous.
(a)Waiver. No failure to exercise, and no delay in exercising, on the part of either party, any privilege, any power or any right hereunder will operate as a waiver thereof, nor will any single or partial exercise of any privilege, right or power hereunder preclude further exercise of
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any other privilege, right or power hereunder.
(b)Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this agreement and supersedes all prior agreements between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement signed by the party to be charged with the amendment.
(c)Assignment; Binding Effect. This Agreement may not be assigned by either party without the prior written consent of the other party. Subject to the foregoing, this Agreement will be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns.
(d)Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any invalid or unenforceable provision shall be replaced by HealthStream and Frist with a valid provision which most closely approximates the intent and economic effect of the invalid or unenforceable provision.
(e)Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the conflict of law provisions thereof.
(f)Construction. The language used in the Agreement will be construed, in all cases, according to its fair meaning, and not for or against any party hereto. The parties acknowledge that each party has reviewed this Agreement and that rules of construction to the effect that any ambiguities are to be resolved against the drafting party will not be available in the interpretation of this Agreement.
(g)Execution of Agreement; Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Frist and HealthStream have executed this Agreement as of the Effective Date.
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Robert A. Frist, Jr. |
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Sign Name: |
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ACCEPTED AND AGREED: |
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HealthStream, Inc. |
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By: |
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Michael M. Collier |
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General Counsel & Senior Vice President |
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[Signature Page to Contribution Agreement]
Exhibit A
[See Attached.]
Exhibit 31.1
I, Robert A. Frist, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HealthStream, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: July 26, 2019 |
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/s/ Robert A. Frist, Jr. |
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Robert A. Frist, Jr. |
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Chief Executive Officer |
Exhibit 31.2
I, Scott A. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of HealthStream, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: July 26, 2019 |
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/s/ Scott A. Roberts |
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Scott A. Roberts |
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Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HealthStream, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert A. Frist, Jr., Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Robert A. Frist, Jr. |
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Robert A. Frist, Jr. |
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Chief Executive Officer |
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July 26, 2019 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HealthStream, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Scott A. Roberts, Interim Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ Scott A. Roberts |
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Scott A. Roberts |
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Interim Chief Financial Officer |
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July 26, 2019 |