Business context and reporting period
HealthStream, Inc. provides primarily SaaS-based applications for healthcare organizations. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Results are reported in U.S. dollars. The company’s segments are Workforce Solutions and Provider Solutions, with a strategy to unify applications on its hStream platform.
Key financial metrics
Amounts below are in millions except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $65.6 | $64.8 | $131.0 | $128.3 |
| Operating income | $3.0 | $3.4 | $7.0 | $6.7 |
| Net income | $3.1 | $2.4 | $6.0 | $4.7 |
| Diluted EPS | $0.10 | $0.08 | $0.19 | $0.15 |
| Adjusted EBITDA (non-GAAP) | $13.1 | $14.5 | $27.1 | $28.1 |
| Operating margin | 4.5% | 5.3% | 5.3% | 5.2% |
- Q2 revenue rose 1%; Workforce Solutions grew 1% to $52.5 million and Provider Solutions grew 4% to $13.2 million. H1 revenue rose 2%; segment growth was 1% and 6%, respectively.
- Subscription services generated $62.5 million of Q2 revenue and $124.5 million in H1. At June 30, remaining performance obligations were approximately $455 million; management expected to recognize about 46% within 12 months.
- Q2 operating income fell 14% and adjusted EBITDA fell 10%, while net income rose 26%, helped in part by a lower tax provision and a CloudCME-related gain. H1 operating income increased 4%, net income 26%, and adjusted EBITDA declined 4%.
- Cost of revenue, excluding depreciation and amortization, was 34% of revenue in Q2 and H1, compared with 35% in the prior-year periods. Sales and marketing costs rose 15% year over year in both Q2 and H1; product development costs rose 2% in Q2 and 6% in H1.
- H1 operating cash flow was $28.0 million, versus $24.3 million. Investing cash outflow was $14.0 million and financing cash outflow was $23.6 million, primarily reflecting $23.1 million of share repurchases. Cash declined $9.7 million to $37.2 million.
- At June 30, cash and cash equivalents were $37.2 million and marketable securities $2.0 million. Working capital was negative $9.6 million, versus positive $6.5 million at year-end 2021, mainly due to repurchases, the CloudCME acquisition, and higher deferred revenue.
- No borrowings were outstanding under the $65 million revolving facility, which was fully available; the facility matures October 28, 2023. The company reported compliance with covenants. Lease liabilities were $24.8 million noncurrent; the filing reports no other outstanding debt balance.
Material changes, outlook, and risks
- On May 18, HealthStream acquired the remaining approximately 82% of CloudCME for about $4.0 million cash and $4.1 million in HealthStream shares. The previously held 18% interest was remeasured, producing a $0.9 million gain included in other income. The acquisition was described as immaterial to the financial statements; $5.6 million of goodwill was recorded.
- Legacy resuscitation revenue declined $0.9 million in Q2 and $2.6 million in H1; lower related royalties reduced cost of revenue. Workforce growth from acquisitions and other products partly offset the declines. Provider Solutions growth was primarily from new subscriptions.
- Management said pandemic-related booking delays from 2021 weighed on H1 2022 revenue and could continue to do so at least through Q3, potentially through year-end. Higher bookings in H1 were expected to benefit revenue in the latter half of 2022. No specific numerical revenue or earnings guidance was provided.
- Management cited healthcare staffing shortages and higher labor costs as factors delaying some elective product sales, alongside inflation, recessionary concerns, supply-chain disruption, and challenging labor markets. It believes its offerings can help customers with workforce onboarding, training, development, engagement, and retention.
- Management believed cash, operating cash generation, securities, and available facility borrowings would meet anticipated needs for at least the next 12 months. It cautioned that future acquisitions, financing availability, operating cash flow, and share issuance could affect liquidity, results, or dilution. Strategic private-company investments may also produce valuation volatility.
- The company had approximately 5.30 million contracted hStream subscriptions, up from 4.52 million a year earlier. It early adopted an accounting standard for acquired contract assets and liabilities on January 1, 2022; management reported no material impact to date. Previously disclosed risk factors had no material changes, and disclosure controls were considered effective.
Important facts for investors to verify
- Whether H1 booking growth converts into recognized revenue as management expected, and whether pandemic-related sales delays persist beyond Q3.
- Underlying operating performance excluding the $0.9 million CloudCME remeasurement gain and the tax benefit associated with it; adjusted EBITDA is a non-GAAP measure.
- The sustainability of segment growth, particularly against continuing declines in legacy resuscitation products and rising sales, development, personnel, and hosting costs.
- Liquidity after repurchases and the acquisition: negative working capital, available borrowing capacity, facility maturity and covenant compliance.
- Progress integrating CloudCME and hStream subscriptions, and the extent to which acquisitions and platform investment contribute to recurring revenue and profitability.