HealthStream, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. Amounts are in U.S. dollars unless stated otherwise.
Business context
HealthStream provides primarily SaaS workforce and provider solutions to healthcare organizations. Workforce Solutions includes training, development and scheduling products; Provider Solutions includes credentialing, privileging, call center and enrollment products. The company reported approximately 4.52 million contracted hStream subscriptions at June 30, 2021, up from 3.48 million a year earlier.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $64.8m | $60.6m | $128.3m | $122.1m |
| Operating income | $3.4m | $4.3m | $6.7m | $11.5m |
| Net income | $2.4m | $3.4m | $4.7m | $10.5m |
| Diluted EPS | $0.08 | $0.11 | $0.15 | $0.33 |
| Adjusted EBITDA (non-GAAP) | $14.5m | $12.1m | $28.1m | $24.0m |
Q2 revenue grew 7%; Workforce Solutions grew 7% to $52.2m and Provider Solutions grew 9% to $12.7m. Six-month revenue increased 5%, with both segments growing. Cost of revenues excluding depreciation and amortization was 35% of revenue in Q2 2021 versus 38% in Q2 2020; reported operating margin was approximately 5.3% versus 7.1%. For the first six months, operating margin was approximately 5.2% versus 9.5%.
Operating cash flow was $24.3m for the first half, compared with $13.5m a year earlier, primarily reflecting higher collections. Cash and cash equivalents were $49.8m and current marketable securities were $5.3m at June 30. Working capital was positive $4.2m, versus negative $4.7m at year-end 2020. The company had no revolver borrowings and had $65.0m of borrowing capacity available under its facility, which matures October 28, 2023. Management said existing liquidity, operating cash flow and available borrowing capacity should cover anticipated needs for at least 12 months.
Six-month investing cash outflows included $10.3m for capitalized software development, $2.4m for property and equipment and $1.8m for equity-method investments; net cash used in investing was $10.6m. The filing reports no scheduled debt principal payments and no outstanding debt at period-end.
Changes versus prior period and notable items
- Revenue growth was achieved despite the steep decline in legacy HeartCode and RQI resuscitation revenue: $1.0m in Q2 2021 versus $10.7m in Q2 2020, and $2.8m for the first half of 2021. Management said legacy-product revenue is expected to be de minimis in the second half of 2021.
- Acquisitions contributed revenue and increased operating expenses. The company completed five acquisitions between March 2020 and January 2021; comparisons also reflect acquired deferred-revenue fair-value write-downs and higher amortization.
- Operating income and GAAP net income declined even as adjusted EBITDA increased. Higher product development and depreciation/amortization costs, lower interest income, and the prior-year NurseGrid investment remeasurement gain affected comparisons.
- First-half 2021 included a $1.0m noncash reduction to paid-time-off expense. First-half 2020 included a $3.4m noncash royalty-expense reduction from resolution of a past partnership disagreement and a $1.2m NurseGrid investment gain. These items make year-over-year comparisons less straightforward.
Outlook, commentary and risks
The filing provides no specific full-year revenue or earnings guidance. Remaining performance obligations were approximately $448m at June 30; management expects about 46% to be recognized over the next 12 months, with the balance thereafter. Management cautions that operating results for the first half are not necessarily indicative of full-year results.
Management said COVID-19 delayed or reduced customer bookings, renewals and implementations, with potential revenue and earnings effects in the remainder of 2021 and later periods. It also warned that renewed case surges, including the Delta variant, could increase uncertainty. Reduced travel and trade-show activity benefited operating income and adjusted EBITDA by $1.2m in the first half; management expected travel-related costs to weigh on second-half results before related sales activity contributes revenue, potentially beginning next year. Other monitored risks include customer payment capacity, implementation timing, renewals and strategic-investment valuation volatility. The company reported compliance with credit-facility covenants and no material changes to previously disclosed risk factors.
Disclosure controls were judged effective, and the filing reported no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether bookings and renewals recover from pandemic-related delays, and whether that translates into recognized revenue.
- How quickly travel and trade-show spending returns, and the resulting near-term effect on operating income and adjusted EBITDA.
- Revenue and margin trends excluding legacy resuscitation run-off, acquisition effects and acquired deferred-revenue write-downs.
- The sustainability and composition of operating cash flow, including working-capital movements and ongoing software-development investment.
- Acquisition integration, amortization and goodwill assumptions, as well as the performance and valuation of strategic investments.
- Adjusted EBITDA is a non-GAAP measure with company-defined adjustments; compare it with GAAP net income and review the reconciliation in the filing.