HealthStream(HSTM) - 2024 Q4 - Annual Report

Part I Business HealthStream provides SaaS solutions for healthcare workforce, clinical, credentialing, and scheduling, leveraging its hStream platform and AI/ML - HealthStream's core mission is to improve healthcare quality by developing and supporting healthcare professionals through Software-as-a-Service (SaaS) solutions[16] - The company's strategy revolves around a single platform, hStream, designed for interoperability across its diverse ecosystem of applications, including learning, credentialing, and scheduling[16][19] - Since January 2023, HealthStream operates as a single reportable business segment, consolidating its Workforce Solutions and Provider Solutions[21] - In 2024, HealthStream acquired Total Clinical Placement System (TCPS) and The Clinical Hub, Inc. to expand its clinical rotation management offerings for nursing and allied healthcare students[35] - As of December 31, 2024, HealthStream had 1,083 full-time and 10 part-time employees, with approximately 61% working remotely under a hybrid policy[21][71] Overview and History HealthStream, founded in 1990, offers a diverse SaaS ecosystem for healthcare workforce optimization, GRC compliance, scheduling, and credentialing - HealthStream's mission is to improve healthcare quality by developing the people who deliver care, evolving from online learning to a comprehensive SaaS ecosystem[16] - The hStream technology platform is central to its strategy, enabling interoperability and utilizing advanced technologies like AI/ML for solutions in learning, credentialing, and scheduling[16][19] - The company transitioned to a single reportable business segment (Workforce Solutions and Provider Solutions consolidated) effective January 1, 2023[21] Industry Background The U.S. healthcare industry, exceeding $4.9 trillion in 2023, faces staffing shortages and complex regulations, driving demand for workforce solutions U.S. Healthcare Industry Spending (2023) | Metric | Amount | | :--- | :--- | | Total Healthcare Spending | >$4.9 trillion | | % of U.S. GDP | 17.6% | | YoY Growth | 4.6% | | Hospital Care Expenditures | >$1.5 trillion | | Hospital Care % of Total | >30% | | Hospital Care YoY Growth | 10.4% | - Approximately 22 million professionals are employed in the U.S. healthcare and social assistance sector, with 5.4 million in acute-care hospitals and 5.9 million in other healthcare organizations[23] - The industry faces a projected 10% shortage of registered nurses (RNs) by 2027, increasing the need for workforce development and retention solutions[25] - Healthcare professionals are mandated to complete various training (OSHA, Joint Commission, HIPAA) and continuing education for licensing and certification[24][26] HealthStream's Solutions HealthStream offers SaaS, subscription-based applications for learning, clinical development, credentialing, and scheduling via its 'One HealthStream' approach - HealthStream's solutions are primarily SaaS, subscription-based applications for learning, clinical development, credentialing, and scheduling, provided through a 'One HealthStream' approach[31][32] - Key offerings include content libraries, scheduling solutions for workforce optimization, and CredentialStream for comprehensive provider lifecycle management (recruiting, credentialing, privileging, enrollment, performance evaluation)[32] - Pricing is mainly subscription-based, determined by the number of subscriptions, solutions, and other factors, with services hosted on a combination of private and public cloud infrastructure (AWS, Azure)[33] Business Acquisitions HealthStream completed four acquisitions since early 2022, including CloudCME, eeds, TCPS, and The Clinical Hub, to expand its offerings - HealthStream completed four acquisitions since early 2022 as part of its growth strategy[35] - Acquisitions in 2022 included CloudCME and eeds, both focused on continuing medical education (CME/CE) management[35] - In 2024, the company acquired TCPS and The Clinical Hub, which specialize in clinical rotation management for healthcare students[35] Customers HealthStream serves diverse healthcare entities, including providers, pharma, and nursing schools, with no single customer accounting for 10% of 2024 revenue - HealthStream's customer base spans various healthcare entities, including providers, pharmaceutical/medical device companies, and nursing education institutions[36] - No single customer represented 10% or more of the company's annual revenue for the year ended December 31, 2024[36] Sales and Marketing The company markets through direct sales teams and expanded e-commerce, utilizing diverse digital campaigns and partnerships - The company primarily uses direct sales teams across the U.S. to market to healthcare organizations[37] - E-commerce sales capabilities have been expanded to support direct sales to individual healthcare professionals and students[37] - Marketing efforts include the hStream content marketplace, trade shows, social media, digital campaigns, and public relations[38] Operations and Technology Operations are supported by technical, implementation, product, and development teams, with services hosted on hybrid cloud infrastructure for reliability and security - Operations teams focus on technical support, customer implementation, product management, and software development to maintain customer relationships and innovate products[40] - Services are built on a reliable, secure, and scalable architecture, combining proprietary and commercial software[41] - Hosting is a hybrid model, using third-party data centers and public cloud infrastructure (AWS, Azure), with redundant disaster recovery capabilities[42] Competition HealthStream competes with multi-industry and healthcare-focused companies, leveraging its hStream platform, broad solutions, and healthcare expertise as competitive advantages - HealthStream faces competition from both large multi-industry software providers (e.g., Oracle, Workday) and specialized healthcare solution companies (e.g., Relias Learning, Symplr)[44] - The hStream technology platform is considered a key competitive advantage due to its interoperability, comprehensive education, training, assessment, and credentialing capabilities[45] - Principal competitive factors include the hStream platform, scope of Internet-based solutions, singular focus on healthcare, quality of professional services, competitive pricing, customer service, data value, and company reputation[46] Government Regulation of the Internet and the Healthcare Industry HealthStream navigates complex and evolving regulations, including data privacy (HIPAA, GDPR), content, and mandatory healthcare training requirements - The company is subject to rapidly evolving federal, state, and foreign privacy and security laws (e.g., HIPAA, FERPA, GDPR) governing personal information, which can increase compliance costs and risks[47] - Healthcare professionals are required to complete training mandated by various bodies like OSHA, The Joint Commission, and HIPAA, forming a core part of HealthStream's market[48][49][50] - Continuing education requirements for nurses (CNE) and physicians (CME) are critical, with HealthStream accredited by ANCC and ACCME to provide such credits[53][54][55] - Regulations like the Sunshine Act and OIG Guidelines impact educational program sponsorship by pharmaceutical and medical device companies, affecting HealthStream's commercial support[59][60] Environmental Matters Compliance with environmental laws currently has no material impact, but future regulations for a lower carbon economy could increase costs - Compliance with environmental laws, including climate change regulations, currently has no material effect on capital expenditures, financial results, or operations[65] - Future environmental developments or legal requirements for a lower carbon economy could potentially increase costs and disrupt operations[65] Intellectual Property and Other Proprietary Rights HealthStream protects its IP through copyrights, trademarks, patents, and trade secrets, but faces risks of infringement or independent development by competitors - HealthStream protects its intellectual property through a combination of copyright, trademark, patent, and trade secret laws, along with confidentiality agreements[66] - The company holds federal trademark registrations for its main brands and several patents, with ongoing applications[66] - Risks include third-party infringement, misappropriation, or independent development of similar technologies by competitors, which could negatively impact its competitive position[68] Available Information HealthStream's SEC filings (10-K, 10-Q, 8-K) are publicly available on the SEC's website and the company's investor relations page - The company's SEC filings (10-K, 10-Q, 8-K) are accessible on the SEC's website and HealthStream's investor relations page[70] Human Capital Resources As of December 31, 2024, HealthStream had 1,093 employees, with 61% remote, facing challenges in a competitive labor market Employee Count and Work Model (as of Dec 31, 2024) | Category | Count | | :--- | :--- | | Full-time employees | 1,083 | | Part-time employees | 10 | | Employees working remotely | ~61% | | Employees working within commutable distance | ~39% | - HealthStream's culture is driven by its Constitution, focusing on diversity, equity, and inclusion[72][73] - The competitive labor market, particularly for technical and managerial roles, presents challenges in attracting and retaining qualified personnel, potentially impacting the company's growth[74][135] Information About Our Executive Officers HealthStream's executive officers, elected by the Board, include CEO Robert A. Frist, Jr., and other key leaders, with one resignation effective March 2025 Executive Officers of HealthStream, Inc. | Name | Age | Position | | :--- | :--- | :--- | | Robert A. Frist, Jr. | 57 | Chief Executive Officer and Chairman of the Board of Directors | | Michael M. Collier | 49 | Executive Vice President, Corporate Strategy, Development, and Operations | | Michael Sousa | 56 | Executive Vice President, Enterprise Applications (resigning March 31, 2025) | | Trisha L. Coady | 49 | Executive Vice President, Workforce Solutions | | Kevin O'Hara | 55 | Executive Vice President, Enterprise Workforce Platform | | Scott A. Roberts | 48 | Senior Vice President and Chief Financial Officer | | Jeffrey D. Cunningham | 58 | Senior Vice President and Chief Technology Officer | | M. Scott McQuigg | 57 | Senior Vice President, Digital & Network Development | | Scott Fenstermacher | 56 | Senior Vice President, Sales | - Robert A. Frist, Jr., a co-founder, has served as CEO and Chairman since 1990[76] - Michael Sousa will be resigning from his position as EVP, Enterprise Applications, effective March 31, 2025[74] Risk Factors HealthStream faces risks from its business model, financial performance, operations, government regulation, intellectual property, and international activities - Unfavorable macroeconomic conditions (inflation, high interest rates) and healthcare industry challenges (staffing shortages, reimbursement pressures) could limit business growth and negatively affect operating results[87][88][89] - Failure to effectively execute business strategy, including new product development, market expansion, and integration of acquisitions, poses a risk to competitive position and financial performance[91][98] - The company's reliance on SaaS subscriptions means revenue recognition is spread over contract terms (1-5 years), delaying the reflection of new sales or renewals in immediate operating results[119] - Intense competition from both multi-industry and healthcare-focused companies, along with the rapid evolution of technologies like AI/ML, could disrupt HealthStream's market position[105] - Significant risks include data breaches, cybersecurity incidents, errors in software products (especially for credentialing), and the inability to protect intellectual property, which could lead to liability, reputational damage, and financial losses[139][140][149][156] Risks Related to Our Business Model Risks include adverse economic conditions, challenges in growth strategy execution, acquisition integration, and competition from emerging technologies like AI/ML - Unfavorable U.S. economic conditions, including inflation and elevated interest rates, have adversely impacted and may continue to impact HealthStream's business and operating results[87] - The company's growth strategy is at risk from difficulties in developing and integrating new products, leveraging its platform, and maintaining customer relationships[91] - Failure to effectively identify, complete, or integrate acquisitions, joint ventures, or strategic investments could inhibit growth and lead to financial harm, including potential goodwill impairment[98][100] - Lengthy and varying sales cycles (3-9 months or longer) make financial performance difficult to predict, especially with new products and diversified offerings[104] - Competition from companies with greater resources and the disruptive potential of emerging technologies like AI/ML pose threats to HealthStream's competitive position[105] - Reliance on third-party ecosystem partners means their non-renewal, unfavorable terms, or performance issues could adversely impact HealthStream's ability to market and deliver products[107][109] Financial Risks Financial risks stem from customer renewals (96% subscription-based), revenue recognition unpredictability, inflation, and potential goodwill impairment - Approximately 96% of net revenue is derived from SaaS-based subscriptions and software licensing agreements, making renewals critical to financial performance[116] - Inability to renew a substantial portion of contracts or maintain pricing could adversely affect results, especially given current macroeconomic conditions[116] - Revenue recognition timing is difficult to predict due to lengthy implementation lead times and customer dependencies, impacting operating results[118] - Inflationary conditions may adversely impact the company, particularly for longer-term contracts with fixed fees, as operating costs increase while revenue rates remain constant[120] - Goodwill, identifiable intangible assets, and strategic investments are subject to impairment losses, which could reduce reported assets and earnings, especially under negative macroeconomic conditions[125] - Healthcare reform efforts and potential reductions in government healthcare spending (Medicare/Medicaid) could reduce demand for products or increase pricing pressure on customers[126][128][129] Risks Related to Operations Operational risks include customer rejection of pricing changes, talent acquisition challenges, infrastructure failures, cybersecurity incidents, and software errors - Refinements to pricing models may not be accepted by customers, potentially affecting business and operating results[132] - Inability to attract and retain qualified personnel, especially in technical and sales roles, due to a competitive labor market, could harm business and financial performance[134][135] - Network infrastructure and computer system failures, including cybersecurity incidents, pose significant risks of data loss, operational disruption, liability, and reputational damage[139][140][145] - Errors or omissions in software products, particularly those related to credentialing, privileging, and payer enrollment, could lead to litigation and negatively impact the business[149] Risks Related to Government Regulation, Content, and Intellectual Property HealthStream faces risks from evolving privacy laws, content liability, and challenges in protecting its intellectual property from infringement - Evolving and inconsistent government regulations, particularly in privacy, security, and AI/ML, could subject HealthStream to investigations, litigation, fines, and reputational harm[150][153] - A reduction or change in mandatory continuing education and training regulations for healthcare professionals could adversely affect the company's business model and demand for its services[154] - HealthStream may be liable for third-party content that infringes intellectual property rights, is inaccurate, or does not meet healthcare standards, potentially damaging its reputation and incurring legal costs[155] - Protecting intellectual property is difficult and costly; unauthorized copying, misappropriation, or infringement claims from third parties could reduce the value of products and competitive advantage[156][157][158] - The use of open-source software in products could lead to litigation or requirements to release proprietary source code[161] Risks Related to International Operations International operations expose HealthStream to regulatory changes, geopolitical instability, currency fluctuations, and intellectual property protection challenges - International operations expose HealthStream to risks such as changes in regulatory requirements (taxes, trade, data privacy), differing labor laws, and geopolitical instability[163] - Challenges include managing a dispersed workforce, currency exchange rate fluctuations, and uncertainties in legal interpretations and intellectual property protection[163] Risks Related to Ownership of Our Common Stock Corporate law and company provisions could deter acquisitions and affect stock price, while the dividend policy remains discretionary - Tennessee corporate law and company documents contain provisions that could delay or prevent a change in control, potentially discouraging acquisitions and impacting stock price[166][167][168] - The company's quarterly dividend policy is discretionary and can be modified, suspended, or canceled by the board at any time[169] Unresolved Staff Comments There are no unresolved staff comments Cybersecurity HealthStream's cybersecurity program aligns with NIST and HITRUST, with Board oversight, but cyber liability insurance may not cover all losses - HealthStream's cybersecurity risk management program aligns with NIST CSF and HITRUST CSF, focusing on governance, risk, compliance, and proactive vulnerability monitoring[171] - An Incident Response Team (IRT), led by the CTO and including senior management, is established to evaluate, respond to, and report cybersecurity incidents[173] - The Audit Committee of the Board of Directors provides oversight of the company's privacy, data, and cybersecurity risk exposures, with quarterly reports from the CTO[175][176] - While cyber liability insurance is maintained, it may not fully compensate for all potential losses from cybersecurity threats[174] Properties HealthStream's principal office is leased in Nashville, Tennessee, until October 2031, with additional leased facilities in Nashville and San Diego - The principal office is located in Nashville, Tennessee, with a lease extending to October 2031[177] - Additional facilities are leased in Nashville, Tennessee, and San Diego, California[177] Legal Proceedings No material legal proceedings are currently pending against HealthStream - No material legal proceedings are currently pending against the company[178] Mine Safety Disclosures This item is not applicable to HealthStream Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities HealthStream's common stock (HSTM) trades on Nasdaq, with 12,806 shareholders, and a quarterly dividend policy approved in February 2023 - HealthStream's common stock (HSTM) is traded on the Nasdaq Global Select Market[181] Common Stock and Shareholder Information | Metric | Value | | :--- | :--- | | Shares Outstanding (Feb 21, 2025) | 30,434,310 | | Market Value (June 30, 2024) | $673.6 million | | Total Shareholders (Feb 14, 2025) | 12,806 | Quarterly Dividends Declared (2024) | Dividend Payment Date | Dividend Per Share | Cash Outlay | | :--- | :--- | :--- | | March 22, 2024 | $0.028 | $849,000 | | May 17, 2024 | $0.028 | $851,000 | | August 16, 2024 | $0.028 | $851,000 | | November 15, 2024 | $0.028 | $852,000 | | Total 2024 Dividends | $0.112 | $3,403,000 | - A quarterly cash dividend of $0.031 per share was approved for March 21, 2025, an 11% increase over the previous quarter[182] Cumulative 5-Year Total Shareholder Return (Dec 31, 2019 - Dec 31, 2024) | Index | 12/19 | 12/20 | 12/21 | 12/22 | 12/23 | 12/24 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | HealthStream, Inc. | $100.00 | $80.29 | $96.91 | $91.32 | $99.78 | $117.87 | | NASDAQ Composite | $100.00 | $144.92 | $177.06 | $119.45 | $172.77 | $223.87 | | Dow Jones US Software TSM | $100.00 | $147.65 | $194.54 | $129.99 | $207.07 | $243.89 | - A $10.0 million share repurchase program expired on March 31, 2024, with $8.9 million (404,188 shares) repurchased in 2023 at an average price of $22.07 per share[189] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations HealthStream's 2024 revenues increased 5% to $291.6 million, with net income up 32% to $20.0 million, maintaining strong liquidity despite macroeconomic challenges Key Financial Highlights (Year Ended December 31) | Metric | 2024 (in millions) | 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues, net | $291.6 | $279.1 | 5% | | Operating income | $21.3 | $16.0 | 33% | | Net income | $20.0 | $15.2 | 32% | | Diluted EPS | $0.66 | $0.50 | 32% | | Cash, cash equivalents, and marketable securities | $97.2 | $71.1 | 36.7% | | Cash dividends paid | $3.4 | $3.1 | 9.7% | - Subscription revenue growth was primarily driven by CredentialStream, ShiftWizard, and Competency Suite, partially offset by declines in legacy solutions[196] - Macroeconomic conditions, including inflationary pressures and elevated interest rates, continue to adversely impact the business and its customers[200] - Critical accounting estimates involve revenue recognition (identifying distinct performance obligations, standalone selling prices) and accounting for income taxes (deferred tax assets, valuation allowances)[201][202][203] - The company adopted ASU 2023-07 (Segment Reporting) effective January 1, 2024, and is evaluating ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures)[243][244][245] Overview HealthStream provides SaaS applications for healthcare workforce development, clinical, credentialing, and scheduling, with 2024 revenues up 5% to $291.6 million - HealthStream's core business is providing SaaS-based applications for healthcare workforce development, clinical development, credentialing, and scheduling, centered on its hStream technology platform[192][193][194] Financial Performance Overview (2024 vs. 2023) | Metric | 2024 (in millions) | 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $291.6 | $279.1 | 5% | | Operating Income | $21.3 | $16.0 | 33% | | Net Income | $20.0 | $15.2 | 32% | | Diluted EPS | $0.66 | $0.50 | 32% | - In 2024, HealthStream acquired TCPS and The Clinical Hub to enhance its clinical rotation management offerings[198] Recent Developments Macroeconomic conditions (inflation, high interest rates) and reduced governmental healthcare spending adversely affect HealthStream's expenditures and financial results - Challenging macroeconomic conditions (inflation, elevated interest rates) have increased expenditures for HealthStream and its customers[200] - Adverse developments in healthcare, such as reduced governmental spending, may negatively impact the company's business and financial results[200] Critical Accounting Estimates Critical accounting estimates involve revenue recognition (performance obligations, standalone selling prices) and income taxes (deferred tax assets, valuation allowances) - Revenue recognition requires judgment in identifying distinct performance obligations, determining standalone selling prices, and estimating variable consideration[202] - Accounting for income taxes involves assessing the realizability of deferred tax assets and establishing valuation allowances[203] - As of December 31, 2024, a valuation allowance of $1.9 million was established for deferred tax assets not expected to be realized[203] Results of Operations HealthStream's 2024 revenues increased 5% to $291.6 million, with operating income up 33% to $21.3 million, and net income up 32% to $20.0 million Revenue by Source (Year Ended December 31, in thousands) | Revenue Source | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Subscription services | $280,316 | $267,935 | 5% | | Professional services | $11,330 | $11,128 | 2% | | Total revenues, net | $291,646 | $279,063 | 5% | Operating Costs and Expenses (Year Ended December 31, in thousands) | Expense Category | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Cost of revenues (excl. D&A) | $97,936 | $95,021 | 3% | | Product development | $48,890 | $45,540 | 7% | | Sales and marketing | $47,158 | $45,743 | 3% | | General and administrative | $35,132 | $35,664 | -1% | | Depreciation and amortization | $41,243 | $41,076 | 1% | | Total operating costs and expenses | $270,359 | $263,044 | 3% | Profitability Metrics (Year Ended December 31, in thousands) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Operating income | $21,287 | $16,019 | 33% | | Net income | $20,007 | $15,213 | 32% | | Diluted EPS | $0.66 | $0.50 | 32% | | Adjusted EBITDA | $66,782 | $61,295 | 9% | Key Business Metrics Key metrics show 2024 net revenues increased 5% to $291.6 million, net income rose to $20.0 million, and Adjusted EBITDA grew 9% to $66.8 million Key Business Metrics (Year Ended December 31) | Metric | 2024 (in millions) | 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues, net | $291.6 | $279.1 | 5% | | Net Income | $20.0 | $15.2 | 32% | | Adjusted EBITDA | $66.8 | $61.3 | 9% | | Capital Expenditures | $28.1 | $28.0 | 0.4% | - Management uses these metrics to assess growth, operational performance, capital deployment, and investment in product development[225] Reconciliation of Non-GAAP Financial Measures HealthStream uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance, which increased 9% to $66.8 million in 2024 - Adjusted EBITDA is a non-GAAP financial measure used to evaluate operating performance, excluding items like interest, taxes, stock-based compensation, depreciation, amortization, and changes in fair value of non-marketable equity investments[227] - For periods prior to January 1, 2024, Adjusted EBITDA included an adjustment for deferred revenue write-downs from pre-2022 acquisitions; this adjustment is no longer recognized from January 1, 2024, onwards due to ASU 2021-08 adoption[228] Adjusted EBITDA Reconciliation (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | GAAP net income | $20,007 | $15,213 | | Deferred revenue write-down | — | $212 | | Interest income | ($3,834) | ($2,356) | | Interest expense | $100 | $124 | | Income tax provision | $4,796 | $3,298 | | Stock-based compensation expense | $4,470 | $4,153 | | Depreciation and amortization | $41,243 | $41,076 | | Change in fair value of non-marketable equity investments | — | ($425) | | Adjusted EBITDA | $66,782 | $61,295 | Liquidity and Capital Resources Operating cash flow decreased 10% to $57.7 million in 2024, but HealthStream maintains strong liquidity with $97.2 million in cash and full credit facility availability Cash Flow Summary (Year Ended December 31, in millions) | Activity | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $57.7 | $64.0 | -10% | | Net cash used in investing activities | $34.0 | $56.6 | -40% | | Net cash used in financing activities | $4.5 | $13.0 | -65.4% | - The decrease in operating cash flow was mainly due to a $6.1 million increase in income tax payments and higher cash disbursements[232] - As of December 31, 2024, the company had $97.2 million in cash, cash equivalents, and marketable securities, and $50.0 million available under its revolving credit facility[236] - The company's share repurchase program expired on March 31, 2024, with no repurchases in 2024[237] - Contractual obligations include $24.6 million in operating lease obligations and $10.1 million in purchase obligations as of December 31, 2024[241] Recent Accounting Pronouncements HealthStream adopted ASU 2023-07 (Segment Reporting) in 2024 and is evaluating ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation) - ASU 2023-07 (Segment Reporting) was adopted effective January 1, 2024, requiring disclosures of significant reportable segment expenses[243] - ASU 2023-09 (Income Tax Disclosures), effective for fiscal years after December 15, 2024, requires disaggregated tax rate reconciliation and income taxes paid by jurisdiction; no material impact expected[244] - ASU 2024-03 (Expense Disaggregation Disclosures), effective for fiscal years after December 15, 2026, requires disaggregated income statement expense information[245] Quantitative and Qualitative Disclosures About Market Risk HealthStream faces market risks from interest rate fluctuations, foreign currency exchange rates, and strategic equity investments - The company is exposed to market risks from changes in interest rates, foreign currency, and investments[247] - Interest rate risk primarily impacts interest income from cash, cash equivalents, and marketable securities ($97.2 million as of Dec 31, 2024); a hypothetical 10% decrease in rates would reduce annualized interest income by $0.4 million[248] - Foreign currency risk stems from revenues and expenses denominated in Canadian, New Zealand, and Australian dollars, with potential for increased risk as international operations grow[249][250] - Investment risk relates to strategic equity investments in early-to-late stage privately held healthcare technology companies, which can experience volatility and impairment[252] Financial Statements and Supplementary Data This section presents HealthStream's audited consolidated financial statements for 2024, 2023, and 2022, with an unqualified opinion from Ernst & Young LLP - The consolidated financial statements for 2024, 2023, and 2022 are presented in this section[259] - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2024[259][260][270] - Revenue recognition was identified as a critical audit matter due to the judgment required in identifying distinct performance obligations in customer contracts[264][265] Reports of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on HealthStream's 2024 consolidated financial statements, highlighting revenue recognition as a critical audit matter - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2024[259] - Revenue recognition was identified as a critical audit matter due to the judgment required in determining distinct performance obligations within customer contracts[264][265] Opinion on Internal Control Over Financial Reporting Ernst & Young LLP issued an unqualified opinion on HealthStream's internal control over financial reporting as of December 31, 2024 - Ernst & Young LLP provided an unqualified opinion on the effectiveness of HealthStream's internal control over financial reporting as of December 31, 2024[270] - The assessment was based on criteria established in the Internal Control—Integrated Framework (2013 framework) by COSO[270] Consolidated Balance Sheets HealthStream's total assets reached $510.8 million in 2024, with increased cash and marketable securities, and shareholders' equity rising to $359.4 million Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability/Equity | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $59,469 | $40,333 | | Marketable securities | $37,748 | $30,800 | | Total current assets | $153,122 | $130,210 | | Goodwill | $191,220 | $191,379 | | Intangibles, net | $55,548 | $68,031 | | Total assets | $510,766 | $499,942 | | Total current liabilities | $115,693 | $118,361 | | Deferred revenue | $84,227 | $83,623 | | Total shareholders' equity | $359,355 | $340,752 | - Cash and cash equivalents increased by $19.1 million, and marketable securities increased by $6.9 million from 2023 to 2024[279] - Total shareholders' equity increased by $18.6 million, primarily due to net income and stock-based compensation[279][286] Consolidated Statements of Income HealthStream's 2024 net revenues were $291.6 million, with operating income at $21.3 million, net income at $20.0 million, and diluted EPS of $0.66 Consolidated Statements of Income (in thousands, except per share data) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues, net | $291,646 | $279,063 | $266,826 | | Total operating costs and expenses | $270,359 | $263,044 | $254,377 | | Operating income | $21,287 | $16,019 | $12,449 | | Income before income tax provision | $24,803 | $18,511 | $15,585 | | Income tax provision | $4,796 | $3,298 | $3,494 | | Net income | $20,007 | $15,213 | $12,091 | | Diluted EPS | $0.66 | $0.50 | $0.39 | | Dividends declared per share | $0.112 | $0.100 | $— | - Net income increased by $4.8 million (32%) from 2023 to 2024, driven by revenue growth outpacing expense increases[222][281] Consolidated Statements of Comprehensive Income HealthStream reported comprehensive income of $18.6 million in 2024, including a $1.37 million foreign currency translation loss Consolidated Statements of Comprehensive Income (in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net income | $20,007 | $15,213 | $12,091 | | Foreign currency translation adjustments | ($1,371) | $283 | ($1,091) | | Unrealized gain on marketable securities | $13 | $7 | $4 | | Total other comprehensive (loss) income | ($1,358) | $290 | ($1,087) | | Comprehensive income | $18,649 | $15,503 | $11,004 | - Total other comprehensive loss was $1.36 million in 2024, primarily due to foreign currency translation adjustments[284] Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $359.4 million in 2024, driven by net income and stock-based compensation, partially offset by dividends Shareholders' Equity Changes (in thousands) | Item | 2024 Impact | | :--- | :--- | | Net income | $20,007 | | Comprehensive loss | ($1,358) | | Dividends declared | ($3,403) | | Stock-based compensation | $4,470 | | Common stock issued (net of taxes) | ($1,113) | | Total Shareholders' Equity (End of Period) | $359,355 | - Common stock issued and outstanding increased from 30.3 million shares in 2023 to 30.4 million shares in 2024[286] Consolidated Statements of Cash Flows Operating cash flow decreased 10% to $57.7 million in 2024, while investing and financing cash outflows significantly reduced Consolidated Statements of Cash Flows (in thousands) | Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $57,660 | $63,970 | $51,188 | | Net cash used in investing activities | ($33,972) | ($56,598) | ($28,389) | | Net cash used in financing activities | ($4,516) | ($13,039) | ($23,702) | | Net increase (decrease) in cash and cash equivalents | $19,136 | ($5,690) | ($882) | | Cash and cash equivalents at end of period | $59,469 | $40,333 | $46,023 | - Income taxes paid increased significantly from $2.6 million in 2023 to $8.7 million in 2024[289] - No common stock repurchases occurred in 2024, compared to $8.9 million in 2023[289] Notes to Consolidated Financial Statements Notes detail accounting policies, segment reporting, business combinations, income taxes, stock-based compensation, and debt/lease obligations - The company operates as a single reportable segment since January 1, 2023, with the CEO as the chief operating decision maker[302] - Revenue recognition follows ASC 606, with subscription revenues recognized over the contract term and professional services over time as performed[293][294][295] - Goodwill and intangible assets are evaluated for impairment annually, with no impairments identified in 2024, 2023, or 2022[317][318] - In 2024, HealthStream acquired TCPS and The Clinical Hub for $1.3 million in cash, expanding clinical rotation management offerings[353] - Total stock-based compensation expense was $4.47 million in 2024, with $6.7 million in unrecognized expense remaining as of December 31, 2024[367] - The company had no outstanding debt as of December 31, 2024, and maintains a $50.0 million revolving credit facility, with all covenants in compliance[370][371][377] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - No changes in or disagreements with accountants on accounting and financial disclosure were reported[384] Controls and Procedures CEO and CFO confirmed effective disclosure controls and internal control over financial reporting as of December 31, 2024 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2024[385] - Management assessed and confirmed the effectiveness of internal control over financial reporting based on the COSO 2013 Framework[388] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2024[389] Other Information No other information is required, and no Rule 10b5-1 or non-Rule 10b-5 trading arrangements were adopted or terminated in Q4 2024 - No other information is required, and no Rule 10b5-1 or non-Rule 10b-5 trading arrangements were adopted or terminated by directors or officers in Q4 2024[390] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections No disclosures are required regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions preventing inspections are applicable[391] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement[393] - A summary of executive officers is provided in Part I of this Form 10-K[393] - The company has an Insider Trading Policy to promote compliance with insider trading laws[394] Executive Compensation Executive compensation details are incorporated by reference from HealthStream's 2025 Proxy Statement - Executive compensation details are incorporated by reference from the 2025 Proxy Statement[395] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from HealthStream's 2025 Proxy Statement - Security ownership information is incorporated by reference from the 2025 Proxy Statement[396] Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2025 Proxy Statement - Details on related party transactions and director independence are incorporated by reference from the 2025 Proxy Statement[397] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2025 Proxy Statement[398] Part IV Exhibits, Financial Statement Schedules This item lists exhibits and financial statement schedules, with many incorporated by reference from previous SEC filings - This item includes a list of exhibits and financial statement schedules for the 10-K report[400] - Financial statements are referenced from Item 8, and all financial statement schedules are omitted as not applicable[400] - Exhibits include corporate governance documents, employment agreements, credit agreements, and certifications, many incorporated by reference[401][402][403] Form 10-K Summary No Form 10-K Summary is included in this report - No Form 10-K Summary is included in this report[404]