HEALTHSTREAM INC annual report, FY2020

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HealthStream, Inc. — FY2020 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. HealthStream provides subscription-based workforce and provider software and services to healthcare organizations, principally through its Workforce Solutions and Provider Solutions segments.

Financial performance

  • Revenue: $244.8 million, down 4% from $254.1 million in 2019. Workforce Solutions revenue fell 5% to $197.6 million; Provider Solutions rose 4% to $47.2 million. Subscription services generated $233.9 million, about 96% of revenue.
  • Drivers and margins: Legacy HeartCode and RQI revenue declined $20.5 million to $38.4 million. Other workforce revenue, including acquisitions, increased $9.4 million. Gross margin improved to 63.5% from 59.1%, reflecting lower resuscitation royalties and a $3.4 million favorable royalty adjustment.
  • Profit: Operating income increased 7% to $15.8 million. Continuing-operations net income was $14.1 million versus $14.2 million; diluted EPS from continuing operations was $0.44 in both years. Net income was $14.1 million, or $0.44 diluted EPS, versus $15.8 million and $0.49 in 2019, which included a $1.6 million after-tax gain from discontinued operations.
  • Adjusted EBITDA (non-GAAP): $46.0 million from continuing operations versus $47.2 million in 2019. Total adjusted EBITDA was $46.0 million versus $49.2 million; the filing attributes part of the total comparison to the 2019 PX divestiture gain. These company-defined measures are not GAAP and may not be comparable with other companies’ measures.
  • Cash flow and investment: Cash from continuing operating activities was $35.9 million, down 45% from $65.7 million. Investing activities used $110.4 million, including $121.3 million for four acquisitions; financing activities used $20.5 million, including $20.0 million of share repurchases.
  • Liquidity and debt: Cash, cash equivalents, and marketable securities totaled $46.5 million at year-end, down from $172.9 million. The company had no debt outstanding and had the full $65.0 million revolver available, subject to covenants; it reported covenant compliance. Working capital was negative $4.7 million versus positive $119.4 million a year earlier. Management said existing liquidity, operating cash flow, and available borrowing capacity should meet anticipated needs for at least 12 months.
  • Other indicators: Contracted hStream subscriptions increased to 4.22 million from 3.15 million. DSO rose to 51 days from 47 days. The company repurchased 957,367 shares at an average $20.89 per share.

Material changes and unusual items

  • Acquisitions in 2020 were NurseGrid, ShiftWizard, ANSOS, and myClinicalExchange. Goodwill rose to $178.4 million from $102.2 million. ComplyALIGN was acquired in January 2021 for $2.0 million.
  • Legacy Laerdal agreements for HeartCode and RQI expired at the end of 2018; related revenue was $38.4 million in 2020 and is expected to be approximately zero starting in 2021. New resuscitation offerings are not expected to match the legacy products’ 2020 revenue and earnings contribution in 2021.
  • The pandemic reduced sales activity and delayed bookings, renewals, and some implementations. Lower travel and trade-show spending benefited 2020 operating income; management cautioned that delayed and reduced bookings are expected to weigh on 2021 results and potentially later periods.
  • Management estimated pandemic-related expense reductions of approximately $5.6 million before specified employee payments and match changes; a supplemental employee payment and increased 401(k) match reduced 2020 operating income by approximately $2.1 million.
  • The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, while ShiftWizard, ANSOS, and myClinicalExchange were excluded from the year-end control assessment during integration.

Outlook, risks, and contingencies

The filing provides no formal numerical revenue or earnings guidance. Management expected salary increases and hiring to return to normal or near pre-pandemic levels in 2021. It described ongoing uncertainty around the pandemic and its effects on healthcare customers, sales, renewals, collections, and implementations. Principal risks include acquisition integration and valuation, customer renewals and spending, competition, data privacy and cybersecurity, and the substantial decline in legacy resuscitation revenue. Item 3 reports no legal proceedings; the notes state that routine pending or threatened matters are not expected to have a material adverse effect.

Important facts for investors to verify

  • Whether bookings, renewals, customer implementations, and collections recovered after the reported pandemic-related delays—and the resulting effect on 2021 revenue and margins.
  • How effectively the new resuscitation offerings replace legacy HeartCode and RQI revenue and earnings over time.
  • Acquisition performance, integration costs, purchase-price allocations, and recoverability of the increased goodwill and intangible assets.
  • The cash-flow and liquidity trajectory after acquisitions and repurchases, including working-capital needs and revolver covenant capacity.
  • The filing’s remaining-performance-obligations disclosure reports $464 million and says approximately 47% is expected to be recognized over the 12 months ending December 31, 2020. Because that stated recognition period predates the filing date, investors should verify the amount and timing in the filing or subsequent disclosures.