HealthStream, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. HealthStream provides primarily SaaS-based workforce and provider solutions for healthcare organizations.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $65.4 million | $63.5 million | +3% |
| Operating income | $4.0 million | $3.3 million | +22% |
| Net income | $2.9 million | $2.3 million | +26% |
| Diluted EPS | $0.09 | $0.07 | Up $0.02 |
| Adjusted EBITDA (non-GAAP) | $14.0 million | $13.6 million | +3% |
| Cash from operations | $20.7 million | $19.1 million | +$1.6 million |
- Workforce Solutions revenue rose 2% to $52.0 million; Provider Solutions revenue grew 9% to $13.3 million, primarily on new subscription revenue. Subscription services generated $62.1 million of total revenue.
- Operating margin was approximately 6.2%, versus 5.2%; net margin was approximately 4.4%, versus 3.6%. Cost of revenue declined to 34% of revenue from 36%.
- Operating cash flow benefited from lower royalty payments, partly offset by lower cash receipts and higher labor costs. DSO improved to 45 days from 52 days.
Balance sheet, liquidity and capital allocation
- At March 31, 2022, cash and cash equivalents were $43.4 million and marketable securities were $2.0 million. Total assets were $483.9 million; shareholders’ equity was $322.6 million.
- No revolving credit facility borrowings were outstanding. The $65 million facility was fully available, matures October 28, 2023, and the company reported compliance with its covenants.
- Working capital was negative $7.3 million, versus positive $6.5 million at year-end 2021, primarily reflecting cash used for share repurchases and higher deferred revenue. Management expects cash, operating cash flow and available borrowing capacity to meet anticipated needs for at least 12 months.
- Investing cash outflow was $4.0 million, including $6.3 million for capitalized software development. Financing cash outflow was $20.2 million, primarily due to $19.7 million of share repurchases.
- The initial $20 million repurchase authorization was completed March 8. A further $10 million authorization was approved March 14; $5.0 million was used in Q1 under that expansion.
Changes, outlook and risks
- Revenue growth was partly constrained by pandemic-era delays in bookings and renewals. Management said this drag could continue through Q2 2022 and potentially the rest of the year, while increased Q1 bookings were expected to benefit revenue in the latter half of 2022. No specific revenue or earnings guidance was provided.
- Healthcare staffing shortages and employee burnout continue to delay sales of some more elective products. Management also cited inflationary pressures, labor costs, supply-chain disruption and customer spending pressures as potential adverse factors.
- Management is continuing to develop hStream as a common platform. Contracted hStream subscriptions increased to approximately 5.13 million from 4.34 million a year earlier.
- Q1 expense trends included higher product development and sales and marketing costs, primarily from personnel, contract labor, commissions and marketing; lower general and administrative costs reflected reduced acquisition transition-service and facilities costs.
- The company early adopted ASU 2021-08 on January 1, 2022, changing the accounting for contract assets and liabilities acquired in future business combinations. Adjusted EBITDA remains a non-GAAP measure and includes adjustments for legacy acquired deferred-revenue write-downs. Q1 2021 also included a $1.0 million non-cash benefit from a PTO policy change.
- Other loss increased to $0.3 million, primarily due to greater losses from equity-method investments. The filing reported no material changes to previously disclosed risk factors and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether delayed healthcare customer bookings and renewals continue to constrain revenue beyond Q2, and whether Q1 booking growth converts to revenue in the second half of 2022.
- How staffing constraints, inflation and labor costs affect customer purchasing and HealthStream’s operating expenses and margins.
- The sustainability of operating cash flow and the implications of negative working capital, including deferred-revenue timing.
- Remaining capacity and execution of the additional $10 million repurchase authorization, alongside the company’s cash needs and acquisition plans.
- Adjusted EBITDA’s reconciliation and adjustments, and the potential volatility of strategic equity investments.