[PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's unaudited financial statements and management's analysis of its performance and condition [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section contains the unaudited condensed consolidated financial statements and accompanying notes for the period [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) The balance sheet shows a slight decrease in total assets and shareholders' equity as of September 30, 2020 Condensed Consolidated Balance Sheets (Unaudited) (in thousands) | Item | September 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------------- | :------------------ | | **ASSETS** | | | | Cash and cash equivalents | $107,007 | $131,538 | | Marketable securities | $42,666 | $41,328 | | Total current assets | $199,097 | $224,572 | | Goodwill | $123,285 | $102,196 | | Total assets | $476,557 | $489,544 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $95,014 | $105,185 | | Total shareholders' equity | $336,265 | $338,168 | | Total liabilities and shareholders' equity | $476,557 | $489,544 | [Condensed Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) The income statement reflects lower net revenues and net income for the third quarter of 2020 compared to 2019 Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share data) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues, net | $60,883 | $62,450 | $183,008 | $191,417 | | Total operating costs and expenses | $57,749 | $58,702 | $168,327 | $180,033 | | Operating income | $3,134 | $3,748 | $14,681 | $11,384 | | Income from continuing operations | $2,634 | $3,461 | $13,168 | $10,642 | | Net income | $2,634 | $3,712 | $13,168 | $12,087 | | Net income per share – basic (Continuing operations) | $0.08 | $0.11 | $0.41 | $0.33 | | Net income per share – diluted (Continuing operations) | $0.08 | $0.11 | $0.41 | $0.33 | [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Comprehensive income decreased in the third quarter of 2020 compared to the prior year period Condensed Consolidated Statements of Comprehensive Income (Unaudited) (in thousands) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $2,634 | $3,712 | $13,168 | $12,087 | | Total other comprehensive income (loss) | $5 | $(14) | $2 | $32 | | Comprehensive income | $2,639 | $3,698 | $13,170 | $12,119 | [Condensed Consolidated Statements of Shareholders' Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Unaudited)) Shareholders' equity slightly decreased due to stock repurchases exceeding net income for the nine-month period Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (in thousands) | Item | Balance at Dec 31, 2019 | Balance at Sep 30, 2020 | | :-------------------------------- | :---------------------- | :---------------------- | | Total Shareholders' Equity | $338,168 | $336,265 | Changes for Nine Months Ended September 30, 2020 (in thousands) | Item | Amount | | :-------------------------------- | :------- | | Net income | $13,168 | | Stock based compensation | $1,665 | | Repurchase of common stock | $(16,352) | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash from operating activities decreased significantly in the first nine months of 2020 compared to 2019 Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) | Item | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $30,753 | $52,547 | | Net cash used in investing activities | $(38,462) | $(52,047) | | Net cash used in financing activities | $(16,821) | $(907) | | Net decrease in cash and cash equivalents | $(24,531) | $(407) | | Cash and cash equivalents at end of period | $107,007 | $133,914 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) These notes provide detailed explanations of accounting policies and specific financial statement items [1. BASIS OF PRESENTATION](index=9&type=section&id=1.%20BASIS%20OF%20PRESENTATION) The interim financial statements are prepared in accordance with US GAAP but do not include all annual disclosures - The financial statements are prepared in accordance with US GAAP for interim information and do not include all footnotes required for complete financial statements[20](index=20&type=chunk) - Operating results for the three and nine months ended September 30, 2020, are **not indicative of the full year**[20](index=20&type=chunk) - The Company divested its Patient Experience (PX) business on February 12, 2018, and its results are classified as **discontinued operations** for the three and nine months ended September 30, 2019[21](index=21&type=chunk) [2. RECENT ACCOUNTING PRONOUNCEMENTS](index=9&type=section&id=2.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The company adopted a new accounting standard for credit losses with an immaterial impact on its financials - The Company adopted ASU 2016-03 (ASC 326) on January 1, 2020, regarding credit losses, with an **immaterial effect** on its financial statements[23](index=23&type=chunk) [3. REVENUE RECOGNITION AND SALES COMMISSIONS](index=9&type=section&id=3.%20REVENUE%20RECOGNITION%20AND%20SALES%20COMMISSIONS) Revenue is primarily generated from subscription services and recognized when control is transferred to the customer - Revenue is recognized when control of promised goods or services is transferred to the customer, following a five-step model[24](index=24&type=chunk) - As of September 30, 2020, **$408 million of revenue** is expected to be recognized from remaining performance obligations, with **45% recognized over the next 12 months**[27](index=27&type=chunk) - Sales commissions are capitalized and amortized over the expected period of benefit, typically the contract term or approximately three years for non-commensurate commissions[28](index=28&type=chunk) - Amortization for the nine months ended September 30, 2020, was **$6.6 million**[28](index=28&type=chunk) Revenues Disaggregated by Source (in thousands) | Business Segments | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Subscription services | $58,245 | $58,999 | $174,525 | $181,276 | | Professional services | $2,638 | $3,451 | $8,483 | $10,141 | | Total revenues, net | $60,883 | $62,450 | $183,008 | $191,417 | [4. INCOME TAXES](index=11&type=section&id=4.%20INCOME%20TAXES) The effective tax rate decreased in 2020 primarily due to higher research and development tax credits - The decrease in the effective tax rate for the nine months ended September 30, 2020, is primarily due to **higher research and development tax credits**[31](index=31&type=chunk) Income Tax Provision and Effective Tax Rate (Continuing Operations) | Period | Income Tax Provision (in thousands) | Effective Tax Rate | | :-------------------------------- | :-------------------------------- | :----------------- | | Three Months Ended Sep 30, 2020 | $600 | 19% | | Three Months Ended Sep 30, 2019 | $1,140 | 25% | | Nine Months Ended Sep 30, 2020 | $3,519 | 21% | | Nine Months Ended Sep 30, 2019 | $3,270 | 24% | [5. SHAREHOLDERS' EQUITY](index=11&type=section&id=5.%20SHAREHOLDERS'%20EQUITY) The company executed a share repurchase program and recorded stock-based compensation expenses - The Company authorized a **$30.0 million share repurchase program** on March 13, 2020, expiring March 12, 2021[34](index=34&type=chunk) - During the nine months ended September 30, 2020, **762,843 shares were repurchased for $16.3 million** at an average price of $21.42 per share[34](index=34&type=chunk) - In June 2019, the CEO contributed 78,520 shares (valued at $2.0 million) to the Company for employee benefit, resulting in **$2.0 million of stock-based compensation expense**[35](index=35&type=chunk)[36](index=36&type=chunk) Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenues | $16 | $13 | $39 | $684 | | Product development | $92 | $77 | $266 | $895 | | Sales and marketing | $60 | $57 | $170 | $575 | | Other general and administrative | $389 | $422 | $1,190 | $1,489 | | Total stock based compensation expense | $557 | $569 | $1,665 | $3,643 | [6. EARNINGS PER SHARE](index=12&type=section&id=6.%20EARNINGS%20PER%20SHARE) Diluted earnings per share from continuing operations decreased for the third quarter but increased year-to-date - Common equivalent shares excluded from diluted EPS calculations due to anti-dilutive effect or contingent performance conditions were **115,000** and **54,000** for the three months ended September 30, 2020 and 2019, respectively[37](index=37&type=chunk) Net Income Per Share (in thousands, except per share data) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income per share - basic (Continuing operations) | $0.08 | $0.11 | $0.41 | $0.33 | | Net income per share - diluted (Continuing operations) | $0.08 | $0.11 | $0.41 | $0.33 | | Weighted-average diluted shares | 31,981 | 32,437 | 32,121 | 32,416 | [7. MARKETABLE SECURITIES](index=13&type=section&id=7.%20MARKETABLE%20SECURITIES) The company's marketable securities portfolio consists primarily of time deposits and corporate debt securities - All marketable securities are classified as **current assets** as they mature within one year from the balance sheet date[39](index=39&type=chunk) Marketable Securities (Available for Sale, in thousands) | Item | September 30, 2020 Fair Value | December 31, 2019 Fair Value | | :-------------------------------- | :---------------------------- | :--------------------------- | | Time deposits | $15,000 | $0 | | Corporate debt securities | $32,666 | $37,327 | | Government-sponsored enterprise debt securities | $0 | $4,001 | | Total marketable securities | $42,666 | $41,328 | [8. BUSINESS COMBINATIONS](index=13&type=section&id=8.%20BUSINESS%20COMBINATIONS) The company completed two acquisitions, CredentialMyDoc and NurseGrid, to expand its solution offerings - On December 16, 2019, the Company acquired CredentialMyDoc for **$9.0 million in cash**, adding a provider credentialing and enrollment SaaS solution to its Provider Solutions segment[40](index=40&type=chunk) - On March 9, 2020, the Company acquired NurseGrid for approximately **$21.5 million net cash**, integrating its nurse scheduling and management applications into the Workforce Solutions segment[44](index=44&type=chunk) - A **$1.2 million gain** was recognized from remeasuring the Company's existing minority interest in NurseGrid[44](index=44&type=chunk) CredentialMyDoc Acquisition Summary (in thousands) | Item | Amount | | :-------------------------------- | :------- | | Total consideration paid | $8,995 | | Goodwill | $4,661 | | Intangible assets | $4,340 | | Deferred revenue write-down | $311 | NurseGrid Acquisition Summary (in thousands) | Item | Amount | | :-------------------------------- | :------- | | Net consideration paid | $25,077 | | Goodwill | $21,085 | | Intangible assets | $1,845 | | Deferred revenue write-down | $79 | [9. BUSINESS SEGMENTS](index=16&type=section&id=9.%20BUSINESS%20SEGMENTS) The company operates through Workforce Solutions and Provider Solutions segments, with the former generating most revenue - The Company operates in two business segments: **Workforce Solutions** (workforce development) and **Provider Solutions** (credentialing, privileging, enrollment)[48](index=48&type=chunk) Business Segment Performance (in thousands) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | **Revenues, net:** | | | | | | Workforce Solutions | $49,197 | $51,023 | $147,909 | $157,739 | | Provider Solutions | $11,686 | $11,427 | $35,099 | $33,678 | | Total revenues, net | $60,883 | $62,450 | $183,008 | $191,417 | | **Operating income from continuing operations:** | | | | | | Workforce Solutions | $9,758 | $10,274 | $33,575 | $30,694 | | Provider Solutions | $913 | $1,385 | $3,382 | $4,206 | | Unallocated | $(7,537) | $(7,911) | $(22,276) | $(23,516) | | Total operating income from continuing operations | $3,134 | $3,748 | $14,681 | $11,384 | Segment Assets (in thousands) | Segment | September 30, 2020 | December 31, 2019 | | :---------------- | :------------------- | :------------------ | | Workforce Solutions | $139,602 | $118,382 | | Provider Solutions | $140,655 | $148,398 | | Unallocated | $196,300 | $222,764 | | Total assets | $476,557 | $489,544 | [10. DISCONTINUED OPERATIONS](index=17&type=section&id=10.%20DISCONTINUED%20OPERATIONS) The company reported no discontinued operations in 2020 following the 2018 divestiture of its PX business - The Company divested its Patient Experience (PX) business on February 12, 2018, for **$65.2 million cash**, resulting in a **$20.5 million gain** (net of tax)[52](index=52&type=chunk) - No discontinued operations were reported for the three and nine months ended September 30, 2020[52](index=52&type=chunk) [11. DEBT](index=17&type=section&id=11.%20DEBT) The company maintained a revolving credit facility with no outstanding balance and was in compliance with all covenants - The Company has a Revolving Credit Facility with a **$50.0 million borrowing capacity**, maturing November 24, 2020, used for working capital, acquisitions, and stock repurchases[53](index=53&type=chunk)[54](index=54&type=chunk) - As of September 30, 2020, the Company was in compliance with all debt covenants and had **no outstanding balances** on the Revolving Credit Facility[56](index=56&type=chunk) [12. NON-MARKETABLE EQUITY INVESTMENTS](index=18&type=section&id=12.%20NON-MARKETABLE%20EQUITY%20INVESTMENTS) The fair value of non-marketable equity investments was adjusted upward due to the NurseGrid acquisition - Non-marketable equity investments are measured at fair value, with changes recognized in net income, and the aggregate carrying amount was **$3.9 million** at September 30, 2020[58](index=58&type=chunk) - A **$1.2 million upward adjustment** was recorded for the non-marketable equity investment in NurseGrid due to a change in fair value upon its acquisition[58](index=58&type=chunk) [13. CONTRACTUAL ADJUSTMENT](index=18&type=section&id=13.%20CONTRACTUAL%20ADJUSTMENT) A contractual adjustment reduced cost of revenues following the resolution of a royalty dispute - A **$3.4 million reduction** to cost of revenues was recorded in Q1 2020 due to the de-recognition of a royalty liability following the resolution of a dispute with a former royalty partner[59](index=59&type=chunk) [14. SUBSEQUENT EVENTS](index=18&type=section&id=14.%20SUBSEQUENT%20EVENTS) The company acquired ShiftWizard and amended its credit facility after the reporting period ended - On October 12, 2020, the Company acquired ShiftWizard, Inc for **$32.0 million in cash**, a SaaS-based workforce management solution[60](index=60&type=chunk) - On October 28, 2020, the Revolving Credit Facility was amended to increase capacity to **$65.0 million** and extend maturity to October 28, 2023[61](index=61&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, operational results, and the significant impact of COVID-19 [Special Cautionary Notice Regarding Forward‑Looking Statements](index=19&type=section&id=Special%20Cautionary%20Notice%20Regarding%20Forward%E2%80%91Looking%20Statements) This report includes forward-looking statements that are subject to various risks and uncertainties - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that may cause **actual results to differ materially**[63](index=63&type=chunk)[64](index=64&type=chunk) [Business Overview](index=19&type=section&id=Business%20Overview) HealthStream provides workforce and provider solutions to healthcare organizations, with revenues declining in Q3 2020 - HealthStream provides workforce and provider solutions for healthcare organizations, focusing on clinical development, talent management, credentialing, privileging, and enrollment[66](index=66&type=chunk) - As of September 30, 2020, the company had approximately **3.82 million contracted subscriptions** to hStream, its Platform-as-a-Service technology[66](index=66&type=chunk) Significant Financial Metrics for Q3 2020 (in millions, except EPS) | Metric | Q3 2020 | Q3 2019 | Change | | :-------------------------------- | :------ | :------ | :----- | | Revenues | $60.9 | $62.5 | -3% | | Operating income | $3.1 | $3.7 | -16% | | Income from continuing operations | $2.6 | $3.5 | -24% | | EPS from continuing operations (diluted) | $0.08 | $0.11 | -27% | | Adjusted EBITDA from continuing operations | $11.1 | $11.5 | -3% | [Impact of and Response to COVID-19 Pandemic](index=20&type=section&id=Impact%20of%20and%20Response%20to%20COVID-19%20Pandemic) The COVID-19 pandemic negatively impacted bookings and renewals but led to operational expense savings - The COVID-19 pandemic has caused a significant economic downturn, impacting healthcare organizations and leading to **delayed/reduced bookings and renewals** for HealthStream[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - Operating income for the nine months ended September 30, 2020, benefited from a **$2.2 million reduction in travel expenses** and a **$0.2 million reduction from cancelled tradeshows** due to COVID-19[73](index=73&type=chunk) - The Company provided free COVID-19 training and resources, resulting in approximately **3.0 million course completions** through September 30, 2020[76](index=76&type=chunk) - Cash receipts decreased, and **Days Sales Outstanding (DSO) increased from 40 days in Q3 2019 to 43 days in Q3 2020**, partly due to COVID-19 and a decline in legacy resuscitation sales[79](index=79&type=chunk) - Expense management measures contributed to a **$3.4 million decrease in operating expenses** for the nine months ended September 30, 2020[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - In Q3 2020, the Company provided a supplemental payroll payment and increased the 401(k) match, **reducing operating income by approximately $1.9 million**[86](index=86&type=chunk) [Key Business Metrics](index=22&type=section&id=Key%20Business%20Metrics) The company tracks operating income, adjusted EBITDA, and hStream subscriptions to measure performance Key Business Metrics (in millions) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating Income | $3.1 | $3.7 | $14.7 | $11.4 | | Adjusted EBITDA from continuing operations | $11.1 | $11.5 | $34.9 | $35.7 | | hStream Subscriptions (at period end) | 3.82 million | 2.78 million | 3.82 million | 2.78 million | [Critical Accounting Policies and Estimates](index=22&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies and estimates have not materially changed from the 2019 Form 10-K - Critical accounting policies include revenue recognition, accounting for income taxes, software development costs, goodwill/intangibles/other long-lived assets, and allowance for doubtful accounts[94](index=94&type=chunk) - There have been **no material changes** in critical accounting policies and estimates from those reported in the 2019 Form 10-K[89](index=89&type=chunk) [Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019](index=23&type=section&id=Three%20Months%20Ended%20September%2030%2C%202020%20Compared%20to%20Three%20Months%20Ended%20September%2030%2C%202019) Q3 2020 saw a decline in revenue and net income, driven by lower Workforce Solutions sales and higher expenses - Workforce Solutions revenue decreased primarily due to a **$3.7 million decline in legacy resuscitation products**, partially offset by a $2.6 million increase in platform and content subscriptions[90](index=90&type=chunk) - Provider Solutions revenue increased mainly due to **$0.4 million from the CredentialMyDoc acquisition**[91](index=91&type=chunk) - The **24% decrease in income from continuing operations** was driven by a $1.5 million expense (net of tax) for supplemental payroll and increased 401k match[103](index=103&type=chunk) Revenue Comparison (Three Months Ended September 30, in thousands) | Business Segment | 2020 | 2019 | Change | | :---------------- | :--- | :--- | :----- | | Workforce Solutions | $49,197 | $51,023 | -4% | | Provider Solutions | $11,686 | $11,427 | +2% | | Total revenues, net | $60,883 | $62,450 | -3% | Key Financial Changes (Three Months Ended September 30, in thousands) | Item | 2020 | 2019 | Change | | :-------------------------------- | :--- | :--- | :----- | | Cost of Revenues | $23,302 | $25,348 | -8% | | Product Development | $8,192 | $7,195 | +14% | | Sales and Marketing | $8,863 | $9,003 | -2% | | Other General and Administrative | $9,986 | $10,007 | -0.2% | | Depreciation and Amortization | $7,406 | $7,149 | +4% | | Other Income, Net | $100 | $853 | -85% | | Income Tax Provision | $600 | $1,140 | -47% | | Income from Continuing Operations | $2,634 | $3,461 | -24% | | Net Income | $2,634 | $3,712 | -29% | | Adjusted EBITDA from continuing operations | $11,135 | $11,481 | -3% | [Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019](index=25&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202020%20Compared%20to%20Nine%20Months%20Ended%20September%2030%2C%202019) Year-to-date revenue declined, but income from continuing operations grew due to significantly lower cost of revenues - Workforce Solutions revenue decreased due to a **$14.7 million decline in legacy resuscitation products**, partially offset by a $6.2 million increase in platform and content subscriptions[107](index=107&type=chunk) - Cost of revenues decreased significantly due to lower royalty expense from legacy resuscitation and a **$3.4 million contractual adjustment**[109](index=109&type=chunk)[110](index=110&type=chunk) - Sales and marketing expenses decreased due to lower sales commissions, **reduced travel/tradeshow expenses from COVID-19**, and general marketing declines[114](index=114&type=chunk) Revenue Comparison (Nine Months Ended September 30, in thousands) | Business Segment | 2020 | 2019 | Change | | :---------------- | :--- | :--- | :----- | | Workforce Solutions | $147,909 | $157,739 | -6% | | Provider Solutions | $35,099 | $33,678 | +4% | | Total revenues, net | $183,008 | $191,417 | -4% | Key Financial Changes (Nine Months Ended September 30, in thousands) | Item | 2020 | 2019 | Change | | :-------------------------------- | :--- | :--- | :----- | | Cost of Revenues | $66,596 | $79,015 | -16% | | Product Development | $23,491 | $21,763 | +8% | | Sales and Marketing | $26,286 | $28,343 | -7% | | Other General and Administrative | $29,949 | $30,283 | -1% | | Depreciation and Amortization | $22,005 | $20,629 | +7% | | Other Income, Net | $2,006 | $2,528 | -21% | | Income Tax Provision | $3,519 | $3,270 | +8% | | Income from Continuing Operations | $13,168 | $10,642 | +24% | | Net Income | $13,168 | $12,087 | +9% | | Adjusted EBITDA from continuing operations | $34,893 | $35,723 | -2% | [Discontinued Operations](index=26&type=section&id=Discontinued%20Operations) No discontinued operations were reported in 2020 following the 2018 divestiture of the PX business - The Company's PX business was divested in February 2018, resulting in a **$20.5 million gain**[125](index=125&type=chunk) - No discontinued operations were reported for the three and nine months ended September 30, 2020[126](index=126&type=chunk) [Other Developments](index=27&type=section&id=Other%20Developments) The company is transitioning away from legacy resuscitation products toward new, higher-margin offerings - Revenues from legacy resuscitation products (HeartCode and RQI) under agreements with Laerdal **decreased to $9.7 million in Q3 2020** and are expected to be zero by Q1 2021[127](index=127&type=chunk) - A new agreement with RQI Partners provides a fee for delivering HeartCode/RQI via HealthStream Learning Center, but it is **not expected to supplant legacy agreement revenues**[128](index=128&type=chunk) - The Company launched the American Red Cross Resuscitation Suite in January 2019 and is developing broader simulation-based offerings, aiming for **higher margin opportunities**[129](index=129&type=chunk) [Reconciliation of Non-GAAP Financial Measures](index=27&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section reconciles GAAP net income to the non-GAAP measure of Adjusted EBITDA - Adjusted EBITDA and Adjusted EBITDA from continuing operations are non-GAAP measures used by management to assess financial results, excluding non-cash and non-operating items[130](index=130&type=chunk)[131](index=131&type=chunk) Reconciliation of Adjusted EBITDA (in thousands) | Item | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | GAAP income from continuing operations | $2,634 | $3,461 | $13,168 | $10,642 | | Adjusted EBITDA from continuing operations | $11,135 | $11,481 | $34,893 | $35,723 | | GAAP net income | $2,634 | $3,712 | $13,168 | $12,087 | | Adjusted EBITDA | $11,135 | $11,821 | $34,893 | $37,683 | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity despite a decrease in operating cash flow, driven by acquisitions and share repurchases - Net cash provided by operating activities **decreased by $21.8 million to $30.8 million** for the nine months ended September 30, 2020, primarily due to declining legacy resuscitation sales and lower new sales[135](index=135&type=chunk) - Working capital decreased to **$104.1 million** at September 30, 2020, from $119.4 million at December 31, 2019, mainly due to the NurseGrid acquisition and share repurchases[139](index=139&type=chunk) - As of September 30, 2020, liquidity included **$107.0 million in cash and cash equivalents**, $42.7 million in marketable securities, and an available $50.0 million revolving credit facility[139](index=139&type=chunk) - The Company repurchased **762,843 shares for $16.3 million** under its $30.0 million share repurchase program during the first nine months of 2020[140](index=140&type=chunk) - Management believes existing liquidity and cash generation will be **sufficient for anticipated needs** for at least the next 12 months[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations affecting its investment income - The Company is exposed to market risk from changes in interest rates but has **no material foreign currency exchange rate or commodity price risk**[143](index=143&type=chunk) - As of September 30, 2020, the Company had no outstanding debt, and a hypothetical **10% decrease in interest rates** would reduce annualized interest income by **$41,000**[143](index=143&type=chunk) - The Company's investment policy focuses on **highly rated securities** to minimize principal loss, with limits on credit exposure per issuer and average portfolio maturity[144](index=144&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal controls over financial reporting were effective [Evaluation of Controls and Procedures](index=30&type=section&id=Evaluation%20of%20Controls%20and%20Procedures) The CEO and CFO have confirmed the effectiveness of the company's disclosure controls and procedures - The CEO and CFO concluded that HealthStream's disclosure controls and procedures were **effective** as of September 30, 2020[146](index=146&type=chunk) [Changes in Internal Control over Financial Reporting](index=30&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes were made to internal controls over financial reporting during the third quarter of 2020 - There were **no material changes** in HealthStream's internal control over financial reporting during the third quarter of 2020[147](index=147&type=chunk) [PART II ‑ OTHER INFORMATION](index=31&type=section&id=Part%20II%20%E2%80%91%20Other%20Information) This part provides supplementary information, including risk factors, share repurchase details, and filed exhibits [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 pandemic poses significant risks to the company's business, operations, and financial results - The COVID-19 pandemic has adversely impacted the business, leading to reduced elective procedures for healthcare customers, potential inability of customers to pay, and **delays in contract renewals and new sales**[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk) - Customer unwillingness to allow vendor visits and cancellation of tradeshows have **negatively impacted sales opportunities**[152](index=152&type=chunk) - Delays in product implementation by customers or the Company due to COVID-19 could **adversely affect financial results**[152](index=152&type=chunk) - Operating as a prolonged remote workforce due to COVID-19 could **decrease productivity, increase security risks**, and impair business management and employee attraction/retention[154](index=154&type=chunk) - Significant uncertainties remain regarding the severity and duration of the pandemic, which could **materially affect the business**[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company provides details on its active share repurchase program and activity during the third quarter - The Board of Directors authorized a **$30.0 million share repurchase program** on March 13, 2020, set to terminate by March 12, 2021[158](index=158&type=chunk) Share Repurchase Program Activity (Three Months Ended September 30, 2020) | Period | Total number of shares purchased | Average price paid per share | | :-------------------------------- | :----------------------------- | :--------------------------- | | Month 3 (September 1 - September 30) | 318,902 | $19.87 | | Total | 318,902 | $19.87 | Cumulative Repurchases (Nine Months Ended September 30, 2020) | Item | Amount | | :-------------------------------- | :------- | | Total shares repurchased | 762,843 | | Aggregate fair value | $16.3 million | | Average price per share | $21.42 | | Maximum dollar value remaining | $13,663,393 | [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the CEO and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.1 INS, SCH, CAL, DEF, LAB, PRE, 104)[162](index=162&type=chunk) [SIGNATURE](index=34&type=section&id=SIGNATURE) This section contains the official signature block confirming the report's submission by the registrant - The report was signed by Scott A. Roberts, Chief Financial Officer, on behalf of HealthStream, Inc on **October 29, 2020**[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)

Financial Data and Key Metrics Changes - Revenues for Q3 2020 decreased by 3% or $1.6 million to $60.9 million compared to the prior year [24] - Operating income fell by 16% to $3.1 million, while income from continuing operations dropped by 24% to $2.6 million [24] - Adjusted EBITDA from continuing operations decreased by 3% to $11.1 million [24] - Gross margin improved to 61.7% from 59.4% in the prior year, attributed to a favorable revenue mix [26] Business Line Data and Key Metrics Changes - Workforce Solutions segment revenues totaled $49.2 million, down 4% or $1.8 million year-over-year [25] - Revenues from legacy resuscitation products declined by $3.7 million, while revenues from other workforce products increased by $1.9 million or 5% [25] - Provider Solutions segment revenues grew by 2% to $11.7 million, primarily due to the acquisition of CredentialMyDoc [25] Market Data and Key Metrics Changes - The pandemic has led to a significant increase in COVID-19 cases, impacting healthcare organizations and consequently the company's business [7][10] - Nearly three-fourths of hospital executives reported concerns about financial viability without effective treatment or vaccine for COVID-19 [13] Company Strategy and Development Direction - The company announced the acquisition of ShiftWizard, enhancing its portfolio in workforce management solutions [5][32] - The strategy includes transitioning sales and marketing efforts to higher-margin products and platforms, such as the Red Cross Resuscitation Suite and VerityStream [15][17] - The company aims to leverage data across its applications to enhance service delivery and operational efficiency [56] Management's Comments on Operating Environment and Future Outlook - Management noted that while sales have slowed, they have not stopped, with customers adapting to virtual sales and implementation [12] - The company expects continued impacts from COVID-19 on sales volumes and purchasing decisions, particularly in the fourth quarter [36] - There is cautious optimism regarding future sales activities, with a focus on maintaining operational stability [37] Other Important Information - The company ended the quarter with approximately $150 million in cash and investments, maintaining a solid balance sheet with no debt [40] - A share repurchase program of up to $30 million was authorized, with $16.3 million repurchased through Q3 [31] Q&A Session Summary Question: Can you provide insights on sales cycle activity and demand environment? - Management indicated that while there has been a deferral in some elective product purchases, the sales pipeline remains strong with new sales in the Red Cross resuscitation suite [48] Question: What is the outlook for gross margins? - Management attributed gross margin fluctuations to revenue mix and noted that supplemental payroll payments impacted costs [50][51] Question: How do you envision integrating ShiftWizard with existing platforms? - The company plans to leverage the strengths of NurseGrid and ShiftWizard to enhance scheduling capabilities and connect them through the hStream platform [56] Question: What are the trends in contract renewals and pricing? - Pricing remains steady, with bundling services providing additional value, while unit pricing for core products is competitive [68] Question: How is employment trending among clients? - There has been a return of furloughed employees, with growth observed in certain healthcare sectors, indicating a positive employment trend [69]

(Mark One) ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q For the quarterly period ended June 30, 2020 Commission File No.: 000-27701 HealthStream, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-1443555 (State or other jurisdiction of incorporation or organization) 500 11th Avenue North , Suite 1000, Nashville, Tennessee 37203 (Address of principal executive ...

HealthStream, Inc. (NASDAQ:HSTM) Q2 2020 Earnings Conference Call July 28, 2020 9:00 AM ET Company Participants Mollie Condra - Vice President, Investor Relations & Communications Robert Frist, Jr. - Chief Executive Officer & Chairman Scotty Roberts - Chief Financial Officer & Senior Vice President Conference Call Participants Jared Haase - William Blair Matthew Hewitt - Craig-Hallum Richard Close - Canaccord Genuity Vincent Colicchio - Barrington Research Operator Ladies and gentlemen, thank you for standi ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No.: 000-27701 HealthStream, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-1443555 (State or other jurisdiction of incorporation or organization) 500 ...

HealthStream, Inc. (NASDAQ:HSTM) Q1 2020 Earnings Conference Call April 28, 2020 9:00 AM ET Company Participants Mollie Condra - Vice President Investor Relations and Communications Robert Frist, Jr. - CEO and Chairman Scotty Roberts - CFO and Senior Vice President Conference Call Participants Matt Hewitt - Craig Hallum Ryan Daniels - William Blair Richard Close - Canaccord Genuity Vincent Colicchio - Barrington Research Operator Ladies and gentlemen, thank you for standing by, and welcome to the HealthStre ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 000-27701 HEALTHSTREAM, INC. (Exact name of registrant as specified in its charter) incorporation or organization) Tennessee 62-14 ...

HealthStream, Inc. (NASDAQ:HSTM) Q4 2019 Results Conference Call February 19, 2020 9:00 AM ET Company Participants Mollie Condra - Vice President Investor Relations and Communications Robert A. Frist, Jr. - CEO and Chairman Scotty Roberts - CFO and Senior Vice President Conference Call Participants Ryan Daniels - William Blair Matt Hewitt - Craig Hallum Andrew Cooper - Raymond James Vincent Colicchio - Barrington Research Operator Ladies and gentlemen, thank you for standing by, and welcome to the HealthStr ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Exact name of registrant as specified in its charter) ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Mark One) Commission File No.: 000-27701 ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 HealthStream, Inc. FORM 10-Q For the quarterly period ended September 30, 2019 Tennessee 62-1443555 (State or other jurisdiction of incorporation or organization) ...

HealthStream, Inc. (NASDAQ:HSTM) Q3 2019 Earnings Conference Call October 22, 2019 9:00 AM ET Company Participants Mollie Condra - Vice President, Investor Relations and Communications Robert Frist - Chief Executive Officer and Chairman Scotty Roberts - Chief Financial Officer and Senior Vice President Conference Call Participants Ryan Daniels - William Blair Matt Hewitt - Craig-Hallum Capital Richard Close - Canaccord Genuity Frank Sparacino - First Analysis Operator Ladies and gentlemen, thank you for sta ...