HealthStream(US:HSTM)2023-04-26 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements HealthStream's unaudited condensed consolidated financial statements for Q1 2023 cover balance sheets, income statements, comprehensive income, equity, and cash flows, with notes on accounting policies and key financial events Condensed Consolidated Balance Sheets (Unaudited) Total assets increased to $503.16 million by March 31, 2023, with rises in current assets, liabilities, and shareholders' equity | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total Assets | $503,159 | $497,741 | +1.09% | | Total Current Assets | $125,108 | $114,377 | +9.38% | | Total Liabilities | $166,538 | $163,677 | +1.75% | | Total Shareholders' Equity | $336,039 | $334,064 | +0.59% | Condensed Consolidated Statements of Income (Unaudited) Net revenues increased 5% to $68.95 million, but operating income fell 28% and net income decreased 9%, with diluted EPS flat | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Revenues, net | $68,946 | $65,367 | +5.48% | | Operating income | $2,891 | $4,035 | -28.37% | | Net income | $2,623 | $2,893 | -9.26% | | Diluted EPS | $0.09 | $0.09 | 0.00% | | Dividends declared per share | $0.025 | $— | N/A | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Comprehensive income decreased 18.24% to $2.59 million in Q1 2023, due to lower net income and negative foreign currency adjustments | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net income | $2,623 | $2,893 | -9.26% | | Total other comprehensive (loss) income | $(35) | $272 | -112.87% | | Comprehensive income | $2,588 | $3,165 | -18.24% | Condensed Consolidated Statements of Shareholders' Equity (Unaudited) Shareholders' equity rose slightly to $336.04 million, influenced by net income and stock-based compensation, offset by cash dividends - HealthStream declared its first quarterly cash dividend of $0.025 per share, with a second dividend also approved323389 | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Total Shareholders' Equity | $336,039 | $334,064 | | Net income | $2,623 | N/A | | Dividends declared | $(767) | N/A | | Stock-based compensation | $945 | N/A | Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow remained stable, but investing cash outflow surged due to an acquisition, while financing cash outflow decreased | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net cash provided by operating activities | $20,541 | $20,655 | -0.55% | | Net cash used in investing activities | $(16,916) | $(3,962) | +327.00% | | Net cash used in financing activities | $(791) | $(20,223) | -96.09% | | Cash and cash equivalents at end of period | $48,836 | $43,370 | +12.59% | - Investing activities for Q1 2023 included $6.6 million for the eeds acquisition and $7.6 million for capitalized software development84 Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations of HealthStream's accounting policies and significant financial events, including segment transition, revenue recognition, income taxes, equity changes, earnings per share calculations, marketable securities, the eeds acquisition, and the revolving credit facility 1. OVERVIEW AND BASIS OF PRESENTATION HealthStream provides SaaS applications for healthcare via its hStream platform, consolidating into a single reportable segment - HealthStream provides Software-as-a-Service (SaaS) based applications for healthcare organizations, focused on clinical development, talent management, training, education, assessment, competency management, safety and compliance, scheduling, and provider credentialing1853 - The company operates under a "One HealthStream" approach, with the hStream technology platform at its core, facilitating interoperability among applications to enhance value182154 - Effective January 1, 2023, HealthStream transitioned to a single reportable segment, consolidating its Workforce Solutions and Provider Solutions segments under a "One HealthStream" enterprise approach22235556 2. REVENUE RECOGNITION AND SALES COMMISSIONS HealthStream recognizes revenue primarily from subscription services, which grew 6%, and expects $504 million from remaining performance obligations - Revenue is recognized based on a five-step model when control of promised goods or services is transferred to the customer2425 | Revenue Source | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Subscription services | $66,015 | $62,075 | +6.35% | | Professional services | $2,931 | $3,292 | -11.00% | | Total revenues, net | $68,946 | $65,367 | +5.48% | - Approximately $504 million of revenue is expected to be recognized from remaining performance obligations, with about 44% recognized over the next 12 months28 - Amortization of deferred sales commissions increased to $2.7 million for Q1 2023, up from $2.5 million in Q1 2022, and is included in sales and marketing expenses29 3. INCOME TAXES Income tax provision decreased to $0.5 million in Q1 2023, lowering the effective tax rate to 16% due to discrete tax benefits | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Income tax provision | $518 | $866 | -40.20% | | Effective tax rate | 16% | 23% | -7 percentage points | - The effective tax rate for Q1 2023 was 16%, reflecting statutory corporate income tax, state and foreign taxes, permanent tax differences, and discrete tax benefits of **$53