UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~FORM10-Q~~

~~Quarterly Report pursuant to Section 13 or 15(d)~~

~~of the Securities Exchange Act of 1934~~

For the quarterly period ended September 30, ~~2017~~2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.:000-27701

HealthStream, Inc.

(Exact name of registrant as specified in its charter)

Tennessee

~~Tennessee~~

62-1443555

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


~~209 10th~~500 11th Avenue ~~South,~~North, Suite ~~450~~ ~~Nashville, Tennessee~~1000,
Nashville, Tennessee	37203
(Address of principal executive offices)		(Zip Code)

(615)301-3100

(~~Registrant’s~~Registrant's telephone number, including area code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (Par Value $0.00)	HSTM	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.


Large accelerated filer	☒		☒	Accelerated filer	☐
Non-accelerated filer	☐		~~Accelerated filer~~	Smaller reporting company	☐
Emerging growth company	☐		☐

~~Non-accelerated filer~~		~~☐ (Do not check if a smaller reporting company)~~		~~Smaller reporting company~~		☐

				~~Emerging growth company~~		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~26, 2017,~~24, 2022, there were ~~31,896,317~~30,573,066 shares of the registrant’s common stock outstanding.

Table of Contents

Index ~~toForm10-Q~~to Form 10‑Q

HEALTHSTREAM, INC.


				Page Number

Part I.		Financial Information
			1
Item 1.		Financial Statements				1

		Condensed Consolidated Balance Sheets (Unaudited) – September 30, ~~2017 (Unaudited)~~2022 and December 31, ~~2016~~2021			1

		Condensed Consolidated Statements of Income (Unaudited)-– Three and Nine Months ended September 30, ~~2017~~2022 and ~~2016~~2021			2

		Condensed Consolidated Statements of Comprehensive Income (Unaudited) -– Three and Nine Months ended September 30, ~~2017~~2022 and ~~2016~~2021			3

		Condensed Consolidated Statement of ~~Shareholders’~~Shareholders' Equity (Unaudited) -– Three and Nine Months ended September 30, ~~2017~~2022 and 2021			4

		Condensed Consolidated Statements of Cash Flows (Unaudited)-– Nine Months ended September 30, ~~2017~~2022 and ~~2016~~2021			5

		Notes to Condensed Consolidated Financial Statements (Unaudited)			6

Item 2.		~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations			12
			11
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			20
			19
Item 4.		Controls and Procedures			20
			19
Part II.	Other Information	~~Other Information~~20
Item 1A.	Risk Factors
			20
Item 6.	Exhibits	~~Exhibits~~21			21

		~~Signature~~SIGNATURE	22		22

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)


	September 30, 2017			December 31, 2016			*September 30,*			*December 31,*
	(Unaudited)						*2022*			*2021*
ASSETS
Current assets:
Cash and cash equivalents	$	60,460		$	49,634		$	48,257		$	46,905
Marketable securities		62,943			53,540			3,587			5,041
Accounts receivable, net of allowance for doubtful accounts of $1,623 and $863 at September 30, 2017 and December 31, 2016, respectively		38,379			44,805
Accounts receivable – unbilled		1,746			2,581
Accounts receivable, net of allowance for doubtful accounts of $661 and $853 at September 30, 2022 and December 31, 2021, respectively								26,427			30,308
Accounts receivable - unbilled								6,243			4,612
Prepaid royalties, net of amortization		17,221			18,183			9,261			9,155
Other prepaid expenses and other current assets		8,526			8,694			10,576			10,824

Total current assets		189,275			177,437			104,351			106,845

Property and equipment, net of accumulated depreciation of $24,470 and $20,527 at September 30, 2017 and December 31, 2016, respectively		9,923			10,245
Capitalized software development, net of accumulated amortization of $39,099 and $31,787 at September 30, 2017 and December 31, 2016, respectively		18,685			16,310
Property and equipment, net of accumulated depreciation of $21,262 and $17,999 at September 30, 2022 and December 31, 2021, respectively								15,658			17,950
Capitalized software development, net of accumulated amortization of $100,024 and $86,097 at September 30, 2022 and December 31, 2021, respectively								35,537			32,412
Operating lease right of use assets, net								23,343			25,168
Goodwill		110,298			109,765			188,367			182,501
Customer-related intangibles, net of accumulated amortization of $16,405 and $11,539 at September 30, 2017 and December 31, 2016, respectively		61,580			66,446
Other intangible assets, net of accumulated amortization of $7,215 and $4,906 at September 30, 2017 and December 31, 2016, respectively		9,609			11,918
Customer-related intangibles, net of accumulated amortization of $52,204 and $45,615 at September 30, 2022 and December 31, 2021, respectively								62,571			68,803
Other intangible assets, net of accumulated amortization of $21,054 and $16,752 at September 30, 2022 and December 31, 2021, respectively								18,950			20,402
Deferred tax assets								601			601
Deferred commissions								26,377			24,012
Non-marketable equity investments		3,771			3,276			4,644			7,043
Other assets		699			603			798			1,016

Total assets	$	403,840		$	396,000		$	481,197		$	486,753

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	15,235		$	13,267		$	22,196		$	21,497
Accrued royalties		12,997			13,161			5,609			5,037
Deferred revenue		66,509			68,542			77,585			73,816

Total current liabilities		94,741			94,970			105,390			100,350

Deferred tax liabilities		4,871			5,968			18,761			18,146
Deferred revenue, noncurrent		7,074			7,859			1,264			1,583
Operating lease liability, noncurrent								24,041			26,178
Other long term liabilities		1,497			1,095			1,459			1,477
Commitments and contingencies		—			—

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 31,896 and 31,748 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		282,083			280,813
Common stock, no par value, 75,000 shares authorized; 30,573 and 31,327 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively								253,934			270,791
Retained earnings		13,594			5,346			77,764			68,122
Accumulated other comprehensive loss		(20	)		(51	)

Accumulated other comprehensive (loss) income								(1,416	)		106
Total shareholders’ equity		295,657			286,108			330,282			339,019

Total liabilities and shareholders’ equity	$	403,840		$	396,000		$	481,197		$	486,753

See accompanying ~~notes~~Notes to the unaudited ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,				*Three Months Ended*					*Nine Months Ended*
	2017		2016		2017		2016		*September 30, 2022*		*September 30, 2021*			*September 30, 2022*		*September 30, 2021*
Revenues, net	$	63,553	$	58,367	$	184,904	$	167,237	$	67,285	$	64,091		$	198,290	$	192,374
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		26,731		24,889		79,382		70,410		23,374		22,585			67,606		68,053
Product development		6,990		7,261		20,630		21,524		11,476		10,344			32,470		30,205
Sales and marketing		10,117		10,285		31,111		27,843		11,365		10,232			32,652		28,713
Other general and administrative expenses		9,163		8,891		25,622		25,396		9,096		10,004			27,856		29,445
Depreciation and amortization		6,570		5,755		19,488		15,976		9,592		9,141			28,334		27,443

Total operating costs and expenses		59,571		57,081		176,233		161,149		64,903		62,306			188,918		183,859

Operating income		3,982		1,286		8,671		6,088		2,382		1,785			9,372		8,515

Other income, net		173		337		468		465
Other income (loss), net										2,543		(99	)		2,945		(250	)

Income before income tax provision		4,155		1,623		9,139		6,553		4,925		1,686			12,317		8,265
Income tax provision		1,651		461		3,083		2,487		1,259		186			2,675		2,033

Net income	$	2,504	$	1,162	$	6,056	$	4,066	$	3,666	$	1,500		$	9,642	$	6,232

Earnings per share:
Net income per share:
Basic	$	0.08	$	0.04	$	0.19	$	0.13	$	0.12	$	0.05		$	0.31	$	0.20

Diluted	$	0.08	$	0.04	$	0.19	$	0.13	$	0.12	$	0.05		$	0.31	$	0.20

Weighted average shares of common stock outstanding:
Basic		31,893		31,739		31,848		31,714		30,570		31,558			30,672		31,538

Diluted		32,217		32,107		32,183		32,050		30,662		31,684			30,717		31,609

See accompanying ~~notes~~Notes to the unaudited ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


	Three Months Ended September 30,					Nine Months Ended September 30,				*Three Months Ended*						*Nine Months Ended*
	2017		2016			2017		2016		*September 30, 2022*			*September 30, 2021*			*September 30, 2022*			*September 30, 2021*
Net income	$	2,504	$	1,162		$	6,056	$	4,066	$	3,666		$	1,500		$	9,642		$	6,232

Other comprehensive income, net of taxes:
Foreign currency translation adjustments											(1,017	)		(470	)		(1,521	)		107
Unrealized gain (loss) on marketable securities		16		(13	)		31		43		3			(1	)		(1	)		7

Total other comprehensive income (loss)		16		(13	)		31		43

Total other comprehensive (loss) income											(1,014	)		(471	)		(1,522	)		114
Comprehensive income	$	2,520	$	1,149		$	6,087	$	4,109	$	2,652		$	1,029		$	8,120		$	6,346

See accompanying ~~notes~~Notes to the unaudited ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~SHAREHOLDERS’~~SHAREHOLDERS' EQUITY (UNAUDITED)

~~NINE MONTHS ENDED SEPTEMBER 30, 2017~~

(In thousands)

   Common Stock Retained    Accumulated
Other
Comprehensive Total
Shareholders’
   Shares    Amount Earnings    Loss Equity
Balance at December 31, 2016
   31,748    $ 280,813 $ 5,346    $ (51 ) $ 286,108
Cumulative effect of accounting change
   —      —   2,192    —   2,192
Net income
   —      —   6,056    —   6,056
Comprehensive income
   —      —   —      31 31
Stock based compensation
   —      1,358 —      —   1,358
Common stock issued under stock plans, net of shares withheld for employee taxes
   148    (88 ) —      —   (88 )






Balance at September 30, 2017
   31,896    $ 282,083 $ 13,594    $ (20 ) $ 295,657

	*Nine Months Ended September 30, 2022*
	*Common Stock*						*Retained*		*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*			*Amount*			*Earnings*		*Income (Loss)*			*Equity*
Balance at December 31, 2021		31,327		$	270,791		$	68,122	$	106		$	339,019
Net income		—			—			2,893		—			2,893
Comprehensive income		—			—			—		272			272
Stock-based compensation		—			774			—		—			774
Common stock issued under stock plans, net of shares withheld for employee taxes		83			(497	)		—		—			(497	)
Repurchase of common stock		(892	)		(19,889	)		—		—			(19,889	)
Balance at March 31, 2022		30,518		$	251,179		$	71,015	$	378		$	322,572
Net income		—			—			3,083		—			3,083
Comprehensive loss		—			—			—		(780	)		(780	)
Issuance of common stock in acquisition		209			4,084								4,084
Stock-based compensation		—			917			—		—			917
Common stock issued under stock plans, net of shares withheld for employee taxes		2			(1	)		—		—			(1	)
Repurchase of common stock		(159	)		(3,143	)		—		—			(3,143	)
Balance at June 30, 2022		30,570		$	253,036		$	74,098	$	(402	)	$	326,732
Net income		—			—			3,666		—			3,666
Comprehensive loss		—			—			—		(1,014	)		(1,014	)
Stock-based compensation		—			918			—		—			918
Common stock issued under stock plans, net of shares withheld for employee taxes		3			(20	)		—		—			(20	)
Balance at September 30, 2022		30,573		$	253,934		$	77,764	$	(1,416	)	$	330,282

	*Nine Months Ended September 30, 2021*
	*Common Stock*					*Retained*		*Accumulated Other Comprehensive*			*Total Shareholders’*
	*Shares*		*Amount*			*Earnings*		*Income*			*Equity*
Balance at December 31, 2020		31,493	$	271,784		$	62,277	$	1		$	334,062
Net income		—		—			2,291		—			2,291
Comprehensive income		—		—			—		234			234
Stock-based compensation		—		616			—		—			616
Common stock issued under stock plans, net of shares withheld for employee taxes		60		(399	)		—		—			(399	)
Balance at March 31, 2021		31,553	$	272,001		$	64,569	$	235		$	336,805
Net income		—		—			2,441		—			2,441
Comprehensive income		—		—			—		351			351
Stock-based compensation		—		782			—		—			782
Common stock issued under stock plans, net of shares withheld for employee taxes		1		—			—		—			—
Balance at June 30, 2021		31,554	$	272,783		$	67,010	$	586		$	340,379
Net income		—		—			1,500		—			1,500
Comprehensive loss		—		—			—		(471	)		(471	)
Stock-based compensation		—		862			—		—			862
Common stock issued under stock plans, net of shares withheld for employee taxes		8		(72	)		—		—			(72	)
Balance at September 30, 2021		31,562	$	273,573		$	68,510	$	115		$	342,198

See accompanying ~~notes~~Notes to the unaudited ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine Months Ended September 30,						*Nine Months Ended September 30,*
	2017			2016			*2022*			*2021*
OPERATING ACTIVITIES:
Net income	$	6,056		$	4,066		$	9,642		$	6,232
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,488			15,976			28,334			27,443
Stock based compensation expense		1,358			1,516
Excess tax benefit from equity awards		—			(661	)
Provision for doubtful accounts		963			340
Stock-based compensation								2,609			2,260
Amortization of deferred commissions								7,826			6,900
Provision for credit losses								400			99
Deferred income taxes		710			791			1,225			2,066
Loss (gain) onnon-marketable equity investments		5			(134	)
Gain on sale of fixed assets								(25	)		—
Loss on non-marketable equity investments								621			258
Non-cash paid time off expense								—			(1,011	)
Change in fair value of non-marketable equity investments								(3,596	)		—
Other		365			846			30			132
Changes in operating assets and liabilities:
Accounts and unbilled receivables		5,301			(6,855	)		2,273			13,907
Prepaid royalties		962			(2,291	)		(106	)		(162	)
Other prepaid expenses and other current assets		169			(326	)		709			1,335
Deferred commissions								(10,192	)		(9,854	)
Other assets		(96	)		(36	)		219			(278	)
Accounts payable and accrued expenses		2,770			(898	)		942			(3,062	)
Accrued royalties		91			4,415			572			(3,606	)
Deferred revenue		(2,479	)		(1,766	)		1,597			(6,223	)

Net cash provided by operating activities		35,663			14,983			43,080			36,436

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		—			(53,078	)		(4,009	)		(731	)
Proceeds from sale of long-lived assets		—			975
Proceeds from maturities of marketable securities		69,566			88,197			7,025			9,931
Purchases of marketable securities		(79,290	)		(82,771	)		(5,601	)		(5,223	)
Payments to acquire cost method investments		(500	)		—
Payments to acquire equity method investments								—			(1,750	)
Payments associated with capitalized software development		(9,213	)		(7,070	)		(17,392	)		(16,577	)
Proceeds from sale of fixed assets								26			—
Proceeds from sale of non-marketable equity investments								3,494			—
Purchases of property and equipment		(5,312	)		(3,870	)		(1,570	)		(2,602	)

Net cash used in investing activities		(24,749	)		(57,617	)		(18,027	)		(16,952	)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options		322			94
Excess tax benefit from equity awards		—			661
Taxes paid related to net settlement of equity awards		(410	)		(311	)		(518	)		(471	)
Repurchases of common stock								(23,137	)		—
Payment of cash dividends								—			(19	)
Net cash used in financing activities								(23,655	)		(490	)

Net cash (used in) provided by financing activities		(88	)		444

Net increase (decrease) in cash and cash equivalents		10,826			(42,190	)
Effect of exchange rate changes on cash and cash equivalents								(46	)		(101	)
Net increase in cash and cash equivalents								1,352			18,893
Cash and cash equivalents at beginning of period		49,634			82,010			46,905			36,566

Cash and cash equivalents at end of period	$	60,460		$	39,820		$	48,257		$	55,459

See accompanying ~~notes~~Notes to the unaudited ~~condensed consolidated financial statements.~~

Condensed Consolidated Financial Statements.

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HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.BASIS OF PRESENTATION

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form~~10-Q~~10‑Q and Article 10 of Regulation~~S-X.~~ S‑X. Accordingly, condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated in consolidation. Operating results for the three and nine ~~month periods~~ months ended September 30, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2022.

The ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet at December 31, ~~2016 has been~~2021 was derived from the audited ~~consolidated financial statements~~Consolidated Financial Statements at that date ~~(certain amounts in the 2016 balance sheet have been reclassified to conform to the 2017 presentation)~~ but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements. For further information, refer to the ~~consolidated financial statements~~Consolidated Financial Statements and ~~footnotes~~Notes thereto for the year ended December 31, ~~2016~~2021 (included in the ~~Company’s~~Company's Annual Report on Form~~10-K,~~10-K, filed with the Securities and Exchange Commission on February ~~27, 2017)~~28, 2022).

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Recently Adopted

~~The Company has adopted~~

In October 2021, the Financial Accounting Standards Board ~~(“FASB”)~~issued Accounting Standards Update ~~(“ASU”~~("ASU")~~2016-09,~~2021-08~~Improvements~~,Business Combinations (Topic805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to ~~Employee Share-Based Payment Accounting,effective January 1, 2017. As a result of~~be recognized and measured by the adoption, the Company recorded an adjustment to retained earnings of approximately $2.2 million to recognize deferred tax assets associated with previous excess tax benefits on stock based compensation that had not been previously recognized because the related tax deduction had not reduced income taxes payable. The Company elected to continue to estimate expected forfeitures rather than account for them as they occur, and to prospectively reflect the presentation of excess tax benefitsacquirer on the ~~statement of cash flows as an operating activity. In addition, effective January 1, 2017, excess tax benefits or deficiencies from equity based awards is reflected~~acquisition date in ~~the statement of income as a component of the provision for income taxes.~~

~~In January 2017, the FASB issued ASU2017-04,~~~~Simplifying the Test for Goodwill Impairment,~~which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. With the elimination of Step 2, entities will measure goodwill for impairment by comparing the fair value of the reporting unitaccordance with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, only to the extent of the carrying value of goodwill allocated to that reporting unit. The Company elected to early adopt ASU~~2017-04~~effective January 1, 2017 and is required to apply the new guidance on a prospective basis. The adoption is not expected to have a material effect on the Company’s consolidated financial statements. The Company anticipates the new guidance will make the goodwill impairment evaluation process more efficient and cost effective.

Accounting Standards ~~Not Yet Adopted~~Codification ("ASC") 606,

~~In May 2014, the FASB issued ASU2014-09,~~Revenue from Contracts with Customers ~~(Topic 606)~~, ~~which supersedes~~as if it had originated the ~~revenue recognition requirements~~contracts. This approach differs from the previous requirement to measure contract assets and contract liabilities acquired in ~~Topic 605,~~a business combination at fair value. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2022 and early adoption is permitted. The Company early adopted this ASU on January 1, 2022, and the impact of the new standard is dependent on the magnitude of future acquisitions but has not had a material impact to date. The standard does not impact contract assets or liabilities from business combinations that occurred prior to the adoption date.

3. REVENUE RECOGNITION AND SALES COMMISSIONS

Revenue Recognition~~, and most industry-specific revenue recognition guidance throughout the Industry Topics~~

Revenues are recognized when control of the ~~Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of~~ promised goods or services is transferred to ~~customers~~the customer in an amount that reflects the consideration ~~to which~~ the ~~entity~~Company expects to be entitled in exchange for transferring those goods or services.

Revenue is recognized based on the following five step model:

•

Identification of the contract with a customer

•

Identification of the performance obligations in the contract

•

Determination of the transaction price

•

Allocation of the transaction price to the performance obligations in the contract

•

Recognition of revenue when, or as, the Company satisfies a performance obligation

The ~~guidance also provides for additional disclosures with respect to~~following table represents revenues ~~and cash flows arising~~disaggregated by revenue source (in thousands). Sales taxes are excluded from contracts with customers. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, and the Company plans to adopt the standard using the modified retrospective approach effective January 1, 2018. The Company is in the processrevenues.

Three Months Ended September 30, 2022

Nine Months Ended September 30, 2022

Business Segments

Workforce Solutions

Provider Solutions

Consolidated

Workforce Solutions

Provider Solutions

Consolidated

Subscription services
$ 52,347 $ 11,720 $ 64,067 $ 153,871 $ 34,742 $ 188,613
Professional services
1,716 1,502 3,218 4,705 4,972 9,677
Total revenues, net
$ 54,063 $ 13,222 $ 67,285 $ 158,576 $ 39,714 $ 198,290

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Business Segments

Workforce Solutions

Provider Solutions

Consolidated

Workforce Solutions

Provider Solutions

Consolidated

Subscription services
$ 49,729 $ 10,973 $ 60,702 $ 150,239 $ 32,475 $ 182,714
Professional services
1,426 1,963 3,389 4,320 5,340 9,660
Total revenues, net
$ 51,155 $ 12,936 $ 64,091 $ 154,559 $ 37,815 $ 192,374
6
Table of implementing the standard in preparation for the January 1, 2018 adoption date, and has identified several key provisions that are expected to result in changes to current accounting policies, systems and processes, and internal controls, including but not limited those anticipated changes set forth below. The Company intends to update processes and systems to assist in the application of standalone selling price for its product offerings. In addition, the identification of performance obligations and the related timing of revenue recognition for certain services is expected to change under the new standard which may result in some revenues being recognized earlier, such as for new customer implementation services. Moreover, capitalizing costs to acquire contracts, such as sales commissions, is not a current accounting policy. Under the new standard, the Company expects historical sales commissions, which have been expensed as incurred, will be subject to capitalization for historical periods. Additionally, the Company expects future sales commissions will be subject to capitalization to the extent there are no substantive performance condition requirements of employees. Finally, additional investments in technology and resources will be required by the Company in order to ensure that the Company’s financial systems can record, calculate, summarize, and report the necessary information required by the standard.Contents
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended September 30, 2022 and 2021, the Company recognized a reduction of $44,000 and a charge of $96,000 in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized $0.4 million and $0.1 million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

~~2. RECENT ACCOUNTING PRONOUNCEMENTS (continued)~~Deferred revenue represents contract liabilities that are recorded when cash payments are received or are due in advance of our satisfaction of performance obligations. During the three months ended September 30, 2022 and 2021, we recognized revenues of approximately $39.9 million and $39.4 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. During the nine months ended September 30, 2022 and 2021, we recognized $67.9 million and $59.3 million of revenue from amounts included in deferred revenues at the beginning of the respective periods. As of September 30, 2022, approximately $473 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers. We expect to recognize revenue related to approximately 44% of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

Sales Commissions
Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment and associated payroll taxes, are capitalized in the period a customer contract is entered into and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit. Capitalized contract costs are included in deferred commissions in the accompanying Condensed Consolidated Balance Sheets. The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions are not commensurate with initial commissions. Non-commensurate commissions are amortized over the greater of the contract term or technological obsolescence period of approximately three years. The Company ~~has not completed its calculation~~recorded amortization of ~~the financial impact~~deferred commissions of ~~the Company’s adoption of this accounting standard on its future consolidated financial statements, but does anticipate adjustments to retained earnings upon adoption for both revenue recognition~~approximately $2.8 million and ~~sales commissions.~~
~~In January 2016, the FASB issued ASU2016-01,~~~~Financial Instruments – Overall (Sub Topic825-10)~~, which addresses certain aspects of the recognition, measurement, presentation, and disclosure of financial instruments. The guidance will, among other things, require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The standard will be effective$2.4 million for the ~~first interim period within annual reporting periods beginning after December 15, 2017,~~three months ended September 30, 2022 and ~~early adoption is permitted for only limited aspects of such guidance. The Company expects to adopt this ASU on January 1, 2018,~~2021, and ~~is currently reviewing this standard to assess the impact on its future consolidated financial statements.~~
~~In February 2016, the FASB issued ASU2016-02,~~~~Leases (Topic 842),~~ ~~which requires lessees to recognize assets~~$7.8 million and liabilities for most leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee is not expected to significantly change under such guidance; however, the Company is currently reviewing this standard to assess the impact on its future consolidated financial statements. The standard will be effective$6.9 million for the ~~first interim period within annual reporting periods beginning after December 15, 2018,~~ nine months ended September 30, 2022 and ~~early adoption~~2021, respectively, which is ~~permitted. The Company expects to adopt this ASU on January 1, 2019,~~included in sales and ~~is currently evaluating~~marketing expenses in the ~~impact that adoption~~accompanying Condensed Consolidated Statements of ~~this ASU will have on its consolidated financial position and results of operations.~~Income.
3.4. INCOME TAXES
Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income.
The Company computes its interim period provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. During the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company recorded a provision for income taxes of approximately ~~$1.7~~$1.3 million and ~~$461,000,~~$0.2 million, respectively. During the nine months ended September 30, ~~2017~~ 2022 and ~~2016,~~2021, the Company recorded a provision for income taxes of ~~approximately $3.1~~$2.7 million and ~~$2.5~~$2.0 million, respectively. The Company’s effective tax rate was 22% and 25%for the nine months ended September 30, ~~2017~~ 2022 and ~~2016 was 33.7% and 38.0%~~2021, respectively. ~~During the nine months ended September 30, 2017, the Company recorded excess tax benefits of approximately $428,000 as a component of the provision for income taxes.~~ The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, and the effect of various permanent tax differences. The Company recognizes excess tax benefits and tax deficiencies associated with stock-based awards as a component of its provision for income taxes. During the nine months ended September 30, 2022, the Company recorded discrete tax benefits of $16,000, which consisted primarily of a $0.3 million tax benefit associated with a nontaxable gain of $0.9 million recognized from the change in fair value of our previously held minority interest in CloudCME, LLC as well as a $0.1 million tax benefit for changes in estimated tax credits. This tax benefit was partially offset by $0.3 million of tax expense related to uncertain tax positions and $0.1 million of excess tax deficiencies associated with stock-based awards. During the nine months ended September 30, 2021, the Company recorded discrete tax expense of $0.2 million related to purchase accounting adjustments, the impact of a state tax rate changes enacted during the period, and changes in estimated tax credits.
5.SHAREHOLDERS’ EQUITY
~~4. STOCK BASED COMPENSATION~~
Stock-Based Compensation
The Company has stock awards outstanding under ~~three stock incentive plans: the Company’s~~ its 2016 Omnibus Incentive Plan ~~the 2010 Stock~~and 2022 Omnibus Incentive Plan. The 2022 Omnibus Incentive Plan ~~and~~was approved at the ~~2000 Stock Incentive Plan, as amended.~~ annual meeting of shareholders held on May 26, 2022. The Company accounts for its ~~stock based~~stock-based compensation plans using the fair-value based method for costs related to share-based payments, including ~~stock options and~~ restricted share units (“RSUs”). and stock options. During the nine months ended September 30, ~~2017,~~2022, the Company issued ~~111,039~~140,473 RSUs subject to service-based time vesting, with a weighted average grant date fair value of ~~$23.43~~$20.31 per share, measured based on the closing fair market value of the ~~Company’s~~Company's stock on the date of the grant. During the nine months ended September 30, ~~2016,~~2021, the Company issued ~~111,808~~129,906 RSUs subject to service-based time vesting with a weighted average grant date fair value of ~~$20.49~~$23.44 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.
~~Total stock based compensation expense recorded~~
During 2018, the Company granted 70,000 performance-based RSUs, the vesting of which occurs over a five-year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis. The performance criteria and measurement date for the ~~three~~final 21,000 performance-based RSUs is based on 2022 adjusted EBITDA and was established during the nine months ended September 30, ~~2017 and 2016, which is recorded in~~2022 with a grant date fair value of $20.32 per share, measured based on the ~~condensed consolidated statements~~closing fair market value of ~~income, is as follows (in thousands):~~the Company's stock on the date the performance criteria was established.

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Cost of revenues (excluding depreciation and amortization)
   $ 27    $ 35    $ 90    $ 110
Product development
   80    73    225    200
Sales and marketing
   36    65    172    193
Other general and administrative
   297    339    871    1,013








Total stock based compensation expense
   $ 440    $ 512    $ 1,358    $ 1,516








7
Table of Contents
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the nine months ended September 30, 2022, the Company issued 91,042 performance-based RSUs, the vesting of which occurs over a five-year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis in increments of 15%, 20%, 20%, 20%, and 25% based on performance in 2022,2023,2024,2025, and 2026, respectively. The performance criteria for the first-year tranche, or 13,654 of these performance-based RSUs, is based on 2022 adjusted EBITDA. The measurement date for these 13,654 performance-based RSUs was established during the nine months ended September 30, 2022 with a weighted average grant date fair value of $20.29 per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established or, in the case of the portion of such performance-based RSUs which were granted contingent upon the approval of the 2022 Omnibus Incentive Plan by the Company's shareholders, the date the 2022 Omnibus Incentive Plan was approved by shareholders of the Company. The performance criteria for the remaining 77,388 performance-based RSUs has not yet been determined and will be established on an annual basis in 2023,2024,2025, and 2026, as applicable; therefore, the measurement date for these remaining 77,388 performance-based RSUs cannot be determined until the performance criteria have been established.

5. Total stock-based compensation expense recognized in the Condensed Consolidated Statements of Income is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Cost of revenues (excluding depreciation and amortization)
$ 44 $ 31 $ 126 $ 82
Product development
151 111 428 329
Sales and marketing
98 76 283 217
Other general and administrative
625 644 1,772 1,632
Total stock-based compensation expense
$ 918 $ 862 $ 2,609 $ 2,260
Share Repurchase Plan
On November 30, 2021, the Company's Board of Directors authorized a share repurchase program to repurchase up to $20.0 million of the Company's outstanding shares of common stock. This share repurchase program concluded on March 8, 2022, when the maximum dollar amount authorized under the program was expended. Under this program, the Company repurchased a total of 853,023 shares through open market purchases at an aggregate value of $20.0 million, reflecting an average price per share of $23.45 (excluding the cost of broker commissions). During the nine months ended September 30,2022, the Company repurchased 649,739 shares pursuant to this share repurchase program at an aggregate fair value of $14.9 million, based on an average price per share of $22.92 (excluding the cost of broker commissions).
On March 14, 2022, the Company's Board of Directors approved an expansion of the Company's share repurchase program by authorizing the repurchase of up to an additional $10.0 million of the Company's outstanding shares of common stock. The share repurchase expansion program is scheduled to terminate on the earlier of March 13, 2023, or when the maximum dollar amount has been expended. During the nine months ended September 30, 2022, the Company repurchased 402,050 shares at an aggregate fair value of $8.1 million, reflecting an average price per share of $20.19 (excluding the cost of broker commissions). No repurchases occurred during the three months ended September 30, 2022.
6.EARNINGS PER SHARE
Basic earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of potentially dilutive common and common equivalent shares outstanding during the period. Common equivalent shares are composed of incremental common shares issuable upon the exercise of stock options and RSUs subject to vesting. The dilutive effect of common equivalent shares is included in diluted earnings per share by application of the treasury stock method. The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately ~~31,000~~205,000 and ~~21,000~~26,000 for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~approximately 68,000~~217,000 and ~~42,000~~95,000 for the nine months ended September 30, ~~2017~~ 2022 and ~~2016,~~2021, respectively.
The following table sets forth the computation of basic and diluted earnings per share ~~for the three and nine months ended September 30, 2017 and 2016~~ (in thousands, except per share data):

   Three Months Ended
September 30,    Nine Months Ended
September 30,
Three Months Ended September 30,

Nine Months Ended September 30,

   2017    2016    2017    2016
2022

2021

2022

2021

Numerator:

Net income
   $ 2,504    $ 1,162    $ 6,056    $ 4,066 $ 3,666 $ 1,500 $ 9,642 $ 6,232
Denominator:

Weighted-average shares outstanding
30,570 31,558 30,672 31,538
Effect of dilutive shares
92 126 45 71
Weighted-average diluted shares
30,662 31,684 30,717 31,609








Denominator:

Weighted average shares outstanding
   31,893    31,739    31,848    31,714
Effect of dilutive shares
   324    368    335    336








Weighted average diluted shares
   32,217    32,107    32,183    32,050








Basic earnings per share
   $ 0.08    $ 0.04    $ 0.19    $ 0.13








Diluted earnings per share
   $ 0.08    $ 0.04    $ 0.19    $ 0.13








Net income per share:

Basic
$ 0.12 $ 0.05 $ 0.31 $ 0.20
Diluted
$ 0.12 $ 0.05 $ 0.31 $ 0.20
6.
8
Table of Contents
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. MARKETABLE SECURITIES
~~At September 30, 2017 and December 31, 2016, the~~
The fair value of marketable securities, which were all classified as available for sale and which the Company does not intend to sell nor will the Company be required to sell prior to recovery of their amortized cost basis, included the following (in thousands):

September 30, 2022

Adjusted Cost

Unrealized Gains

Unrealized Losses

Fair Value

Level 2:

Corporate debt securities
$ 998 $ — $ — $ 998
U.S. government debt securities
2,591 — (2 ) 2,589
Total
$ 3,589 $ — $ (2 ) $ 3,587

December 31, 2021

Adjusted Cost

Unrealized Gains

Unrealized Losses

Fair Value

Level 2:

Corporate debt securities
$ 5,043 $ — $ (2 ) $ 5,041
Total
$ 5,043 $ — $ (2 ) $ 5,041

   September 30, 2017
   Adjusted Cost    Unrealized
Gains    Unrealized
Losses    Fair Value
Level 2:

Corporate debt securities
   $ 56,968    $ 2    $ (23 )    $ 56,947
Government-sponsored enterprise debt securities
   5,995    1    —      5,996








Total
   $ 62,963    $ 3    $ (23 )    $ 62,943








   December 31, 2016
   Adjusted Cost    Unrealized
Gains    Unrealized
Losses    Fair Value
Level 2:

Corporate debt securities
   $ 44,486    $ —      $ (50 )    $ 44,436
Government-sponsored enterprise debt securities
   9,105    1    (2 )    9,104








Total
   $ 53,591    $ 1    $ (52 )    $ 53,540








The carrying amounts reported in the ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheets approximate the fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs. As of September 30, ~~2017, the Company does not consider any of its marketable securities to be other than temporarily impaired. During the nine months ended September 30, 2017 and 2016,~~2022, the Company did not ~~reclassify~~ recognize any ~~items out of accumulated other comprehensive income to net income.~~allowance for credit impairments on its available for sale debt securities. All investments in marketable securities are classified as current assets on the ~~balance sheet~~Condensed Consolidated Balance Sheets because the underlying securities mature within one year from the balance sheet date.
~~HEALTHSTREAM, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
8. BUSINESS COMBINATION

~~7. BUSINESS COMBINATION~~
~~Morrisey Associates, Inc.~~
On ~~August 8, 2016, Echo, Inc. (“Echo”)~~May 18,2022, ~~a wholly owned subsidiary of~~ the Company acquired ~~all~~the remaining ownership interest (representing approximately 82% of the outstanding ~~stock~~equity interests) of ~~Morrisey Associates, Inc. (“MAI”~~CloudCME, LLC ("CloudCME"), a ~~Chicago, Illinois based~~Nashville-based healthcare technology company ~~that provides credentialing and privileging software to~~offering a SaaS-based application for managing all aspects of continuing education (CME/CE) within a healthcare ~~organizations. The acquisition of MAI allows the Company to expand its credentialing and privileging product offerings and solutions to healthcare organizations. The consideration paid~~organization, for ~~MAI consisted of~~ approximately ~~$48.0~~$4.0 million in cash ~~which the Company funded with cash on hand,~~ and ~~was not subject to any post-closing working capital or similar adjustment.~~$4.1 million in shares of HealthStream's common stock issued through a private placement at closing. The Company ~~incurred~~previously held a minority interest in CloudCME of approximately ~~$953,000~~18%. Of the purchase price paid at closing, $0.3 million is being held in ~~transaction costs, all~~escrow for a period of ~~which were incurred during~~time following the ~~year ended December 31, 2016. The~~closing to serve as a source of recovery for certain potential indemnification claims by the Company. Acquisition-related transaction costs were ~~recorded in other general~~$0.1 million. The acquisition is not considered material to the Company’s financial statements. The Company accounted for the acquisition as a business combination and ~~administrative expenses in~~has allocated the ~~condensed consolidated statements~~purchase consideration based on management’s estimates of ~~income.~~fair value. Net assets acquired were $9.6 million. Based on the fair value of assets acquired and liabilities assumed, including intangible assets of $3.8 million, goodwill of $6.8 million was established. The results of operations for ~~MAI have been~~CloudCME are included in the Company’s ~~consolidated financial statements~~Consolidated Financial Statements from the date of acquisition and are ~~also~~ included in the ~~HealthStream Provider~~Workforce Solutions segment.
~~A summary of the purchase price is as follows (in thousands):~~9. BUSINESS SEGMENTS

Cash paid at closing
   $ 44,120
Cash held in escrow
   3,880


Total consideration paid
   $ 48,000


~~The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):~~

Accounts receivable, net
   $ 2,406
Prepaid royalties and other prepaid assets
   187
Property and equipment
   75
Deferred tax assets
   1,377
Goodwill
   21,000
Intangible assets
   27,400
Accounts payable and accrued liabilities
   (776 )
Deferred revenue
   (3,669 )


Net assets acquired
   $ 48,000


The excess purchase price over the fair values of net tangible and intangible assets was recorded as goodwill. The fair values of tangible and identifiable intangible assets, deferred revenue, and other liabilities assumed were based on management’s estimates and assumptions. The goodwill balance was primarily attributed to the assembled workforce, additional market opportunities from offering MAI’s products, and expected synergies from integrating MAI with other products or other combined functional areas within the Company. During the three months ended September 30, 2017, the Company determined that a portion of the acquired accounts receivable required an adjustment to net realizable value and a portion of the assumed liabilities would not be satisfied and therefore recorded a measurement period adjustment, which on a net basis, increased goodwill by approximately $533,000. The measurement period adjustment has no effect on current period or prior period earnings. The goodwill balance, including the measurement period adjustment, is deductible for U.S. income tax purposes. The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $8.3 million to an estimated fair value of $3.7 million. The $4.6 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.
~~The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):~~

   Fair value    Useful life
Customer relationships
   $ 21,400    13 years
Developed technology
   5,400    5 years
Trade name
   600    6 years



Total intangible assets subject to amortization
   $ 27,400



~~HEALTHSTREAM, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~7. BUSINESS COMBINATION (continued)~~
The following unaudited pro forma financial information summarizes the combined results of operations of the Company and MAI as though the companies were combined as of January 1, 2015 (in thousands, except per share data):

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Total revenues
   $ 63,633    $ 60,711    $ 186,148    $ 176,402








Net income
   $ 2,553    $ 2,613    $ 6,909    $ 6,101








Basic earnings per share
   $ 0.08    $ 0.08    $ 0.22    $ 0.19








Diluted earnings per share
   $ 0.08    $ 0.08    $ 0.21    $ 0.19








These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as adjustments for amortization of intangible assets, depreciation of property and equipment, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations are for informational purposes only and are not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the period presented or to project the Company’s results of operations in any future period.
The unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016 combines the historical results of the Company and MAI for the three and nine months ended September 30, 2017 and 2016, taking into account the pro forma adjustments listed above.
~~8. BUSINESS SEGMENTS~~
The Company provides services to healthcare organizations and other members within the healthcare industry. The Company’s services are focused on the delivery of workforce training, certification, assessment, development, and scheduling products and services ~~(HealthStream Workforce~~(Workforce Solutions)~~, survey and research services (HealthStream Patient Experience Solutions),~~ and provider credentialing, privileging, call center, and enrollment products and services ~~(HealthStream Provider~~(Provider Solutions).
9
Table of Contents
HEALTHSTREAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company measures segment performance based on operating income before income taxes and prior to the allocation of certain corporate overhead expenses, interest income, interest expense, gains and losses from equity investments, and depreciation. The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, information systems, administrative and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance. The following is the Company’s business segment information ~~as of and for the three and nine months ended September 30, 2017 and 2016~~ (in thousands).

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Three Months Ended September 30,

Nine Months Ended September 30,

Revenues, net:

2022

2021

2022

2021

Workforce Solutions
   $ 44,603    $ 43,015    $ 132,561    $ 124,489 $ 54,063 $ 51,155 $ 158,576 $ 154,559
Patient Experience Solutions
   8,810    8,931    25,274    25,862
Provider Solutions
   10,140    6,421    27,069    16,886 13,222 12,936 39,714 37,815








Total revenues, net
   $ 63,553    $ 58,367    $ 184,904    $ 167,237 $ 67,285 $ 64,091 $ 198,290 $ 192,374








Operating income:

Workforce Solutions
$ 8,609 $ 7,732 $ 26,761 $ 25,981
Provider Solutions
1,147 1,974 5,159 6,195
Unallocated
(7,374 ) (7,921 ) (22,548 ) (23,661 )
Total operating income
$ 2,382 $ 1,785 $ 9,372 $ 8,515

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Operating income:

Workforce Solutions
   $ 8,477    $ 9,386    $ 25,786    $ 29,034
Patient Experience Solutions
   1,531    471    1,601    (319 )
Provider Solutions
   934    (959 )    856    (681 )
Unallocated
   (6,960 )    (7,612 )    (19,572 )    (21,946 )








Total operating income
   $ 3,982    $ 1,286    $ 8,671    $ 6,088








~~HEALTHSTREAM, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~8. BUSINESS SEGMENTS (continued)~~
   September 30,
2017    December 31,
2016
Segment assets *

September 30, 2022

December 31, 2021

Workforce Solutions
   $ 88,349    $ 96,323 $ 260,779 $ 258,864
Patient Experience Solutions
   33,238    35,988
Provider Solutions
   151,403    155,011 131,720 137,008
Unallocated
   130,850    108,678 88,698 90,881




Total assets
   $ 403,840    $ 396,000 $ 481,197 $ 486,753




*
Segment assets include accounts and unbilled receivables, prepaid royalties, prepaid and other current assets, other assets, capitalized software development, deferred commissions, certain property and equipment, goodwill, and intangible assets. Cash and cash equivalents, ~~and~~ marketable securities, non-marketable equity investments, and certain ROU assets are not allocated to individual segments and are included within Unallocated. A significant portion of property and equipment assets are included within Unallocated.
9.10. DEBT
Revolving Credit Facility
~~The~~
On October 28, 2020, the Company ~~maintains~~entered into a ~~Loan~~Third Amendment to Revolving Credit Agreement ~~(the “Revolving~~("Revolving Credit ~~Facility”~~Facility"), amending the Revolving Credit Facility dated as of November 24, 2014 with Truist Bank, successor by merger to SunTrust Bank ~~(“SunTrust”~~("Truist") in, extending the ~~aggregate principal amount of $50.0 million, which matures on November 24, 2017.~~ maturity date to October 28, 2023. Under the Revolving Credit Facility, the Company may borrow up to ~~$50.0~~$65.0 million, which includes a $5.0 million swing line ~~subfacility~~sub-facility and a $5.0 million letter of credit ~~subfacility,~~sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $25.0 million, subject to securing additional commitments from existing lenders or new lending institutions. ~~The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.~~
At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either ~~(1)~~(1) a rate per annum equal to the highest of ~~SunTrust’s~~Truist’s prime rate or 0.5% in excess of the Federal Funds Rate or 1.0% in excess of~~one-month~~one-month LIBOR (the ~~“Base Rate”~~"Base Rate"), plus an applicable margin, or ~~(2)~~(2) the one, two, three, or six ~~month~~-month per annum LIBOR for deposits in the applicable currency (the ~~“Eurocurrency Rate”~~"Eurocurrency Rate"), as selected by the Company, plus an applicable margin. The applicable margin for Eurocurrency Rate loans depends on the Company’s funded debt leverage ratio and varies from 1.50% to ~~2.00%~~1.75%. The applicable margin for Base Rate loans depends on the Company’s funded debt leverage ratio and varies from 0.50% to ~~1.50%~~0.75%. Commitment fees and letter of credit fees are also payable under the Revolving Credit Facility. Principal is payable in full at maturity on ~~November 24, 2017,~~ October 28, 2023, and there are no scheduled principal payments prior to maturity. The Company is required to pay a commitment fee ranging between 20 and 30 basis points per annum of the average daily unused portion of the Revolving Credit Facility, depending on the Company’s funded debt leverage ratio. The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.
The purpose of the Revolving Credit Facility is for general working capital needs, permitted acquisitions (as defined in the ~~Loan Agreement)~~Revolving Credit Facility), and for stock repurchase and/or redemption transactions that the Company may authorize.
The Revolving Credit Facility contains certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, changes to the character of the Company’s business, acquisitions, asset dispositions, mergers and consolidations, sale or discount of receivables, creation or acquisitions of additional subsidiaries, and other matters customarily restricted in such agreements.
In addition, the Revolving Credit Facility requires the Company to meet certain financial tests, including, without limitation:

~~a funded debt leverage ratio (consolidated debt/consolidated EBITDA) of not greater than 3.0 to 1.0; and~~
•
a funded debt leverage ratio (consolidated debt/consolidated EBITDA) of not greater than 3.0 to 1.0; and

~~an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0.~~
•
an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0.
As of September 30, ~~2017,~~2022, the Company was in ~~material~~ compliance with all covenants. There were no balances outstanding on the Revolving Credit Facility as of or during the three or and nine months ended September 30, ~~2017.~~2022.
~~Item 2.~~ ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Special Cautionary Notice Regarding~~Forward-Looking~~ Forward‑Looking Statements
You should read the following discussion and analysis in conjunction with our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and related ~~notes~~Notes included elsewhere in this report and our audited ~~consolidated financial statements~~Consolidated Financial Statements and the ~~notes~~Notes thereto for the year ended December 31, ~~2016,~~2021, appearing in our Annual Report on Form10-K that was filed with the Securities and Exchange Commission (“SEC”) on February ~~27, 2017~~28, 2022 (the ~~“2016~~“2021 Form10-K”). Statements contained in this Quarterly Report on Form10-Q that are not historical facts are forward-looking statements that the Company intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend on or refer to future events or conditions, or that include words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” ~~“ projects,~~“projects,” “should,” “will,” “would,” and similar expressions are forward-looking statements.
The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
In evaluating any forward-looking statement, you should specifically consider the information regarding forward-looking statements set forth above and the ~~information~~risks set forth under the caption Part I, Item 1A. Risk Factors in our ~~2016~~2021 Form10-K ~~and the information regarding forward-looking statements~~ and other disclosures in our ~~2016~~2021 Form10-K, earnings releases and other filings with the SEC from time to time, as well as other cautionary statements contained elsewhere in this report, including ~~the matters~~our critical accounting policies and estimates as discussed in ~~“Critical Accounting Policies~~this report and ~~Estimates.”~~our 2021 Form 10-K. We undertake no obligation ~~beyond that required by law~~ to update ~~publicly~~or revise any forward-looking ~~statements for any reason, even if new information becomes available or other events occur in the future.~~statements. You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we currently expect.
Business Overview
HealthStream provides ~~workforce, patient experience, and provider solutions~~primarily SaaS based applications for healthcare organizations—all designed to ~~assess and develop the people that deliver patient care which, in turn, supports the improvement of~~improve business and clinical outcomes by supporting the people who deliver patient care.
We are in the process of more completely unifying the Company under a single platform strategy that will serve as the foundation for the entire enterprise. By enabling our applications through a common technology platform known as hStream, we believe that stand-alone applications, which already provide a powerful value proposition, will begin to leverage each other to more efficiently and effectively empower our customers to manage their organizations and improve their outcomes. ~~Our workforce~~As we continue to achieve this goal of orienting multiple applications in relation to a single technology platform, distinctions between our current reporting segments of Workforce Solutions and Provider Solutions may become less applicable, or even obsolete, in terms of how we operate and report on the Company's business. At the current time, what we characterize and report on as Workforce Solutions products are used by healthcare organizations to meet a broad range of their ~~training,~~clinical development, learning and performance, certification, scheduling, safety and compliance, and competency assessment ~~performance appraisal, and development~~ needs. Our patient experience products provide our customers information about patients’ experiences and how to improve them, workforce engagement, physician relations, and community perceptions of their services. Our providerProvider Solutions products are used by healthcare organizations for provider credentialing, privileging, ~~call center,~~ and enrollment needs. HealthStream’s primary customers include healthcare organizations ~~pharmaceutical and medical device companies,~~ and other participants in the healthcare industry.
~~Key~~
Significant financial ~~indicators~~metrics for the third quarter of ~~2017 include:~~2022 are set forth in the bullets below.

~~Revenues of $63.6 million in the third quarter of 2017, up 9% from $58.4 million in the third quarter of 2016~~
~~Operating income of $4.0 million in the third quarter of 2017, up 210% from $1.3 million in the third quarter of 2016~~
Net income of $2.5 million in the third quarter of 2017, up 115% from $1.2 million in the third quarter of 2016, and earnings per share (EPS) of $0.08 per share (diluted) in the third quarter of 2017, compared to $0.04 per share (diluted) in the third quarter of 2016
•
• ~~Adjusted EBITDA~~⁽¹⁾
Revenues of ~~$11.0~~$67.3 million in the third quarter of ~~2017,~~2022, up ~~41%~~5% from ~~$7.8~~$64.1 million in the third quarter of ~~2016~~2021.

~~(1)~~
•
Operating income of $2.4 million in the third quarter of 2022, up 33% from $1.8 million in the third quarter of 2021.
•
Net income of $3.7 million in the third quarter of 2022, up 144% from $1.5 million in the third quarter of 2021. Net income was positively impacted in the amount of $2.1 million by the gain on the sale of a non-marketable equity investment recognized in the third quarter of 2022.
•
Earnings per share (“EPS”) of $0.12 per share (diluted) in the third quarter of 2022 compared to $0.05 per share (diluted) in the third quarter of 2021. EPS was positively impacted in the amount of $0.07 per share (diluted) by the gain on the sale of a non-marketable equity investment recognized in the third quarter of 2022.
•
Adjusted EBITDA¹ of $12.7 million in the third quarter of 2022, up 2% from $12.5 million in the third quarter of 2021.
¹
Adjusted EBITDA is anon-GAAP financial measure. A reconciliation of ~~Adjusted~~adjusted EBITDA to net income and disclosure regarding why we believe ~~that Adjusted~~adjusted EBITDA provides useful information to investors is included later in this report.
~~Business Combination~~
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~~We acquired Morrisey Associates, Inc. (“MAI”),~~COVID-19 Pandemic and Other Recent Developments
While the COVID-19 pandemic persists and remains a ~~Chicago, Illinois based company which provides credentialing~~cause of uncertainty and ~~privileging software~~potential volatility, public health conditions related to the pandemic have generally stabilized at the current time in the United States, and the impact of the pandemic on general economic conditions in the United States appears to have decreased. As the inflow of COVID patients with respect to healthcare ~~professionals,~~organizations has become more manageable, certain areas of our business, such as our compliance and learning solutions, have begun to return to and, in ~~August 2016. The~~some cases, even eclipse pre-pandemic norms. However, other parts of our business have continued to be negatively impacted by the ongoing impacts of the pandemic as well as current economic conditions. One of the more pronounced after-effects for our healthcare customers involves staffing challenges, including labor shortages and increased labor and staffing costs. In some instances, we believe that the pressures associated with these challenges continue to result in delayed sales for certain of our products, particularly those that are more elective in nature. However, we have begun to observe an increase in sales engagement with customers through both in-person and virtual meetings when compared to the height of the pandemic. Ultimately, we believe that our product offerings are well-positioned to help our healthcare customers successfully manage issues associated with onboarding, training, developing, engaging, and retaining employees—nurses in particular—and we remain dedicated to helping our customers overcome the challenges associated with the pandemic and ongoing economic conditions.
During the height of the pandemic, including in 2021, we experienced delayed and reduced bookings and renewals due to the pandemic. Given that we sell multiple year subscriptions to our solutions, the revenue impact of lost or delayed sales in a given period generally does not manifest until future periods, just as the revenue we recognize in a given period is generally the result of sales from a prior period. We believe that the delay in bookings from the height of the pandemic negatively impacted our revenue growth in the first three quarters of 2022, and, to a lesser extent, will continue to negatively impact our revenue throughout the remainder of the year. However, we also have experienced increased bookings during the nine months ended September 30, 2022, in comparison to the prior year period, which we expect to have a positive impact on revenue during the remainder of 2022.
In addition, the U.S. economy has been experiencing various challenges, including recessionary concerns, ongoing inflation, significant disruptions to global supply networks, and challenging labor market conditions. In this regard, we have recently experienced and believe that many of our customers have experienced increased labor, supply chain, capital, and other expenditures associated with current inflationary pressures. These conditions impacting the U.S. economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of ~~operations for MAI have been included~~operations. However, as discussed above, we also believe that our product offerings are well positioned to help customers mitigate some of the negative impacts otherwise associated with current labor challenges as we continue to fulfill our vision to improve the quality of healthcare by developing the people who deliver care.
Key Business Metrics
Our management utilizes the following financial and non-financial metrics in connection with managing our ~~condensed consolidated financial statements from the date~~business.
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Revenues, net. Revenues, net, reflect income generated by the sales of goods and services related to our operations and, for businesses acquired prior to the adoption of ASU 2021-08 on January 1, 2022, reflects deferred revenue write-downs associated with fair value accounting for such acquired businesses. Revenues, net, were $67.3 million and $198.3 million for the three and nine months ended September 30, 2022, respectively, compared to $64.1 million and $192.4 million for the three and nine months ended September 30, 2021, respectively. Management utilizes revenue in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of the growth and success of our products.
•
Operating Income. Operating income represents the amount of profit realized from our operations and is calculated as the difference between revenues, net and operating costs and expenses. Operating income was $2.4 million and $9.4 million for the three and nine months ended September 30, 2022, respectively, compared to $1.8 million and $8.5 million for the three and nine months ended September 30, 2021, respectively. Management utilizes operating income in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of profitability.
•
Adjusted EBITDA. Adjusted EBITDA, calculated as set forth below under “Reconciliation of Non-GAAP Financial Measures,” is utilized by our management in connection with managing our business and provides useful information to investors because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash and non-operating items, as more specifically set forth below, which may not fully reflect the underlying operating performance of our business. We also believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operations. Additionally, short-term cash incentive bonuses and certain performance-based equity award grants are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets. Adjusted EBITDA was $12.7 million and $39.8 million for the three and nine months ended September 30, 2022, respectively, compared to $12.5 million and $40.6 million for the three and nine months ended September 30, 2021, respectively.
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hStream Subscriptions. hStream subscriptions are determined as the number of subscriptions under contract for hStream, our emerging technology platform that enables healthcare organizations and their respective workforces to easily connect to and gain value from the growing HealthStream ecosystem of applications, tools, and content. Management utilizes hStream subscriptions in connection with managing our business and believes that this metric provides useful information to investors as a measure of our progress in growing the value of our customer base. At September 30, 2022, we had approximately 5.35 million contracted subscriptions to hStream, compared to 4.92 million as of September 30, 2021.
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Table of acquisition, and are also included in the HealthStream Provider Solutions segment. The purchase price for MAI was approximately $48 million, payable in cash at closing. For additional information regarding this business combination, please see Note 7 in the Notes to Condensed Consolidated Financial Statements.Contents
Critical Accounting Policies and Estimates
The Company’s ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements are prepared in accordance with ~~accounting principles generally accepted in the United States (“~~US ~~GAAP”).~~GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our ~~financial statements.~~Financial Statements. We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the ~~financial statements,~~Financial Statements, as well as the reported amounts of revenues and expenses during the periods ~~presented.~~presented and related disclosures. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our ~~financial statements~~Financial Statements will be affected.
The accounting policies and estimates that we believe are the most critical in fully understanding and evaluating our reported financial results include the following:

~~Revenue recognition~~
•
Revenue recognition

~~Accounting for income taxes~~
•
Accounting for income taxes

~~Software development costs~~
•
Goodwill

~~Goodwill, intangibles, and other long-lived assets~~
~~Allowance for doubtful accounts~~
~~Stock based compensation~~
In many cases, the accounting treatment of a particular transaction is specifically dictated by US GAAP and does not require management’s judgment in its application. There are also areas where management’s judgment in selecting among available alternatives would not produce a materially different result. See Notes to the Consolidated Financial Statements in our ~~2016~~2021 Form10-K and the Notes to the Condensed Consolidated Financial Statements herein which ~~contains~~contain additional information regarding our accounting policies and other disclosures required by US GAAP. There have been no changes in our critical accounting policies and estimates from those reported in our ~~2016~~2021 Form10-K.
In addition, Note 2 in the Notes to Condensed Consolidated Financial Statements summarizes new accounting guidance issued by FASB that has been recently adopted by the Company, or not yet adopted by the Company, and our evaluation of such accounting guidance and the anticipated impact of such guidance (if known) on the Company.
Three Months Ended September 30, ~~2017~~2022 Compared to Three Months Ended September 30, ~~2016~~2021
Revenues, net.Revenues increased approximately ~~$5.2~~$3.2 million, or 9%5%, to ~~$63.6~~$67.3 million for the three months ended September 30, ~~2017~~2022 from ~~$58.4~~$64.1 million for the three months ended September 30, ~~2016.~~ 2021.
A comparison of revenues by business segment is as follows (in thousands):

   Three Months Ended September 30,
   2017 2016 Percentage
Change
Three Months Ended September 30,

Revenues by Business Segment:

2022

2021

Percentage Change

Workforce Solutions
   $ 44,603 $ 43,015 4 % $ 54,063 $ 51,155 6 %
Patient Experience Solutions
   8,810 8,931 -1 %
Provider Solutions
   10,140 6,421 58 % 13,222 12,936 2 %


Total revenues, net
   $ 63,553 $ 58,367 9 % $ 67,285 $ 64,091 5 %


% of Revenues

Workforce Solutions
   70 % 74 % 80 % 80 %
Patient Experience Solutions
   14 % 15 %
Provider Solutions
   16 % 11 % 20 % 20 %
Revenues for ~~HealthStream~~ Workforce Solutions ~~which are primarily subscription-based,~~ increased ~~approximately $1.6~~$2.9 million, or 4%6%, to ~~$44.6~~$54.1 million for the three months ended September 30, ~~2017~~2022, from ~~$43.0~~$51.2 million for the three months ended September 30, ~~2016. Revenues in 2017 were positively influenced by~~2021. The Workforce Solutions segment experienced growth in ~~courseware subscriptions and our enterprise applications,~~several product categories, including contributions from recent acquisitions, but ~~were~~was partially offset by ~~an expected decline~~declines from the legacy resuscitation business of ~~$1.2 million in revenues fromICD-10~~ readiness training products, which approximated $121,000 for the third quarter of 2017, compared to $1.3 million for the third quarter of 2016. Our Workforce Solutions annualized revenue per implemented subscriber metric increased by 1.5%, to $38.37 per subscriber for the third quarter of 2017 compared to $37.80 per subscriber for the third quarter of 2016. Our implemented subscriber base increased by 2.5% over the prior year third quarter to 4.50 million implemented subscribers at September 30, 2017 compared to 4.39 million implemented subscribers at September 30, 2016. Additionally, we had a 4.0% increase in total subscribers over the prior year third quarter, with 4.65 million total subscribers at September 30, 2017 compared to 4.47 million total subscribers at September 30, 2016.
$0.4 million.
Revenues for ~~HealthStream Patient Experience~~Provider Solutions ~~decreased approximately $121,000,~~increased $0.3 million, or 1%2%, to ~~$8.8~~$13.2 million for the three months ended September 30, ~~2017~~2022, from ~~$8.9~~$12.9 million for the three months ended September 30, ~~2016.~~2021. Revenue growth was primarily attributable to new subscription revenues but was partially offset by a $0.5 million decrease in professional services revenue.
Cost of Revenues ~~from Patient Insights™ surveys, our survey research product that generates recurring~~(excluding Depreciation and Amortization). Cost of revenues increased ~~by $105,000, or 2%, compared to the prior year period. Revenues from other products, including surveys conducted on annual orbi-annual~~ ~~cycles and consulting/coaching services, collectively decreased by $226,000, or 9%, compared to the prior year third quarter due to fewer engagements compared to the prior year period.~~
~~Revenues for HealthStream Provider Solutions increased approximately $3.7~~$0.8 million, or ~~58%~~3%, to ~~$10.1~~$23.4 million for the three months ended September 30, ~~2017~~2022, from ~~$6.4~~$22.6 million for the three months ended September 30, 2016. Approximately $2.0 million of the increase resulted from the MAI acquisition which was consummated on August 8, 2016. MAI revenues in the third quarter were approximately $2.9 million, net of deferred revenue write-downs, compared to $841,000, net of deferred revenue write-downs, during the portion of the third quarter of 2016 which occurred following the completion of the MAI acquisition. Revenues from other provider solutions products increased $1.7 million, or 30%, over the third quarter of 2016.
~~Cost of Revenues (excluding depreciation and amortization).~~~~Cost of revenues increased approximately $1.8 million, or 7%, to $26.7 million for the three months ended September 30, 2017 from $24.9 million for the three months ended September 30, 2016.~~2021. Cost of revenues as a percentage of revenues was ~~42%~~35% for both the three months ended September 30, 2022 and ~~43%~~2021.
Cost of revenues for Workforce Solutions increased $0.2 million to $18.6 million for the three months ended September 30, ~~2017~~2022, compared to the prior year period and ~~2016, respectively.~~
~~Cost~~approximated 34% and 36% of revenues for ~~HealthStream Workforce Solutions increased approximately $2.0 million to $19.4 million and approximated 43% and 40% of revenues for HealthStream~~ Workforce Solutions for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The increase ~~in amount and as a percentage of revenues~~ is primarily ~~associated with increased royalties paid by us resulting from growth~~attributable to increases in ~~courseware subscription revenues~~personnel, partially related to recent acquisitions, and ~~additions to personnel over the prior year period.~~cloud hosting costs. Cost of revenues for ~~HealthStream Patient Experience~~Provider Solutions ~~decreased approximately $1.1~~increased $0.6 million to ~~$4.2~~$4.8 million ~~and approximated 48% and 60% of revenues for HealthStream Patient Experience Solutions~~ for the three months ended September 30, 2017 and 2016, respectively. The decrease in both amount and as a percentage of revenue is primarily the result of reductions in personnel costs and lower costs associated with declines in phone based survey volume2022, compared to the prior year ~~period. Cost of revenues for HealthStream Provider Solutions increased approximately $1.0 million to $3.1 million~~period and approximated ~~31%~~36% and 33% of ~~HealthStream~~ Provider Solutions revenues for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The increase in ~~both~~ amount ~~and as a percentage of revenue~~ is primarily associated with ~~the MAI acquisition~~an increase in personnel, cloud hosting, and ~~additions to personnel over the prior year period.~~software costs.
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Product Development. Product development expenses ~~decreased approximately $272,000,~~increased $1.2 million, or 4%11%, to ~~$7.0~~$11.5 million for the three months ended September 30, ~~2017~~2022, from ~~$7.3~~$10.3 million for the three months ended September 30, ~~2016.~~2021. Product development expenses as a percentage of revenues were ~~11%~~17% and ~~12%~~16% for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.
Product development expenses for ~~HealthStream~~ Workforce Solutions ~~decreased approximately $343,000~~increased $0.9 million to ~~$4.9~~$9.7 million for the three months ended September 30, 2022, compared to the prior year period and approximated ~~11%~~18% and ~~12%~~17% of revenues for ~~HealthStream~~ Workforce Solutions for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~The decrease~~Personnel expenses and contract labor costs increased over the prior year, but were partially offset by an increase in ~~both amount and as a percentage of revenues is primarily due to lower outsourced~~ labor ~~expenses.~~capitalized for internally developed software. Product development expenses for ~~HealthStream Patient Experience~~Provider Solutions ~~decreased approximately $103,000~~increased $0.3 million to ~~$1.0~~$1.8 million ~~and approximated 11% and 12% of revenues for HealthStream Patient Experience Solutions~~ for the three months ended September 30, ~~2017 and 2016, respectively. The decrease in both amount and as a percentage of revenue is primarily due~~2022, compared to ~~higher labor capitalization for internal software development. Product development expenses for HealthStream Provider Solutions increased approximately $175,000 to $1.1 million~~the prior year period and approximated ~~11%~~14% and ~~15%~~12% of revenues for ~~HealthStream~~ Provider Solutions for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The increase in ~~amount~~product development expenses is primarily ~~associated with the MAI acquisition and additions~~due to an increase in personnel ~~over~~costs compared to the prior year period.
Sales and Marketing. Sales and marketing expenses, including personnel costs, ~~decreased approximately $168,000,~~increased $1.2 million, or 2%11%, to ~~$10.1~~$11.4 million for the three months ended September 30, ~~2017~~2022, from ~~$10.3~~$10.2 million for the three months ended September 30, ~~2016.~~2021. Sales and marketing expenses were ~~16%~~17% and ~~18%~~16% of revenues for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.
Sales and marketing expenses for ~~HealthStream~~ Workforce Solutions ~~decreased approximately $231,000~~increased $1.0 million to ~~$7.1~~$9.2 million for the three months ended September 30, 2022, compared to the prior year period and approximated ~~16%~~17% and ~~17%~~16% of revenues for ~~HealthStream~~ Workforce Solutions for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The ~~decrease in amount and as a percentage of revenues~~increase is primarily due to ~~lower~~increases in personnel and related expenses, sales commissions, and ~~reduced~~travel expense. The increase was partially offset by a decrease in marketing ~~spending.~~expense compared to the prior year period. Sales and marketing expenses for ~~HealthStream Patient Experience~~Provider Solutions ~~decreased approximately $84,000~~increased $0.2 million to ~~$1.0~~$1.9 million ~~and approximated 11% and 12% of revenues for HealthStream Patient Experience Solutions~~ for the three months ended September 30, ~~2017~~2022, compared to the prior year period and ~~2016, respectively. The decrease in both amount~~approximated 15% and ~~as a percentage~~13% of revenues ~~is primarily due to reductions in personnel costs, sales commissions, and marketing spending. Sales and marketing expenses~~ for ~~HealthStream Provider Solutions increased approximately $54,000 to $1.7 million and approximated 16% and 25% of revenues for HealthStream~~ Provider Solutions for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The ~~decrease as~~increase is primarily due to increased tradeshow expense, sales commissions, and travel expense. The unallocated corporate portion of sales and marketing expenses decreased $56,000 to $0.3 million for the three months ended September 30, 2022, compared to the prior year period, primarily due to a ~~percentage of revenues is due growth~~reduction in ~~revenue.~~
personnel costs and marketing expenses.
Other General and Administrative Expenses. Other general and administrative expenses ~~increased approximately $272,000,~~decreased $0.9 million, or 3%9%, to ~~$9.2~~$9.1 million for the three months ended September 30, ~~2017~~2022, from ~~$8.9~~$10.0 million for the three months ended September 30, ~~2016.~~2021. Other general and administrative expenses were 14% and 16% of revenues for the three months ended September 30, 2022 and 2021, respectively.
Other general and administrative expenses for Workforce Solutions decreased $0.9 million to $2.0 million for the three months ended September 30, 2022, compared to the prior year period and approximated 4% and 6% of Workforce Solutions revenues for the three months ended September 30, 2022 and 2021, respectively. The decrease is primarily due to reductions in facilities costs associated with closing certain leased satellite offices, a reduction in contract labor, and lower transition service costs associated with prior acquisitions, including with regard to the end of our transition services agreement with Change Healthcare, which related to our acquisition of the Scheduling and Capacity Management business. Other general and administrative expenses for Provider Solutions increased $21,000 to $1.0 million for the three months ended September 30, 2022, compared to the prior year period and approximated 8% of Provider Solutions revenues for both the three months ended September 30, 2022 and 2021. The unallocated corporate portion of other general and administrative expenses decreased $29,000 to $6.0 million for the three months ended September 30, 2022, compared to the prior year period.
Depreciation and Amortization. Depreciation and amortization expense increased $0.5 million, or 5%, to $9.6 million for the three months ended September 30, 2022, from $9.1 million for the three months ended September 30, 2021. This increase is primarily a result of an increase in amortization associated with capitalized software but was partially offset by lower depreciation expense.
Other Income (Loss), Net. Other income (loss), net was income of $2.5 million for the three months ended September 30, 2022, compared to a loss of $99,000 for the three months ended September 30, 2021. The increase is primarily the result of a $2.7 million gain recorded during the three months ended September 30, 2022, upon the sale of a non-marketable equity investment.
Income Tax Provision. The Company recorded a provision for income taxes of $1.3 million for the three months ended September 30, 2022, compared to $0.2 million the three months ended September 30, 2022. The Company’s effective tax rate was 26% for the three months ended September 30, 2022, compared to 11% for the three months ended September 30, 2021. The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. During the three months ended September 30, 2022, the Company recorded discrete tax expense of $0.1 million, which consisted primarily of $0.2 million tax expense related to uncertain tax positions. The discrete tax expense was partially offset by a $0.1 million tax benefit for changes in estimated tax credits. During the three months ended September 30, 2021, the Company recorded discrete tax expense of $69,000 primarily related to changes in estimated tax credits.
Net Income. Net income was $3.7 million and $1.5 million for the three months ended September 30, 2022 and 2021, respectively. Earnings per share (EPS) was $0.12 per share (diluted) and $0.05 per share (diluted) for the three months ended September 30, 2022 and 2021, respectively. Net income and EPS were positively influenced by the gain from the sale of the non-marketable equity investment mentioned above, which had a positive impact on net income equal to $2.1 million and positive impact on EPS equal to $0.07 per share (diluted) during the three months ended September 30, 2022.
Adjusted EBITDA was $12.7 million for the three months ended September 30, 2022, compared to $12.5 million for the three months ended September 30, 2021. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of adjusted EBITDA to the most directly comparable measures under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.
14
Table of Contents
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Revenues, net. Revenues increased approximately $5.9 million, or 3%, to $198.3 million for the nine months ended September 30, 2022 from $192.4 million for the nine months ended September 30, 2021.
A comparison of revenues by business segment is as follows (in thousands):

Nine Months Ended September 30,

Revenues by Business Segment:

2022

2021

Percentage Change

Workforce Solutions
$ 158,576 $ 154,559 3 %
Provider Solutions
39,714 37,815 5 %
Total revenues, net
$ 198,290 $ 192,374 3 %

% of Revenues

Workforce Solutions
80 % 80 %
Provider Solutions
20 % 20 %
Revenues for Workforce Solutions increased $4.0 million, or 3%, over the first nine months of 2021. Contributions from recent acquisitions and growth in other workforce solutions more than offset the expected decline in revenues from legacy resuscitation products of $3.1 million.
Revenues for Provider Solutions increased $1.9 million, or 5%, over the first nine months of 2021. Revenue growth was primarily attributable to new subscription revenues but was partially offset by lower revenues from professional services.
Cost of Revenues (excluding Depreciation and Amortization). Cost of revenues decreased $0.5 million, or 1%, to $67.6 million for the nine months ended September 30, 2022, from $68.1 million for the nine months ended September 30, 2021. Cost of revenues as a percentage of revenues was 34% and 35% for the nine months ended September 30, 2022 and 2021, respectively.
Cost of revenues for Workforce Solutions decreased $2.1 million to $53.9 million and approximated 34% and 36% of revenues for Workforce Solutions for the nine months ended September 30, 2022 and 2021, respectively. The decrease in amount is primarily attributable to a lower royalties payable by us related to legacy resuscitation products, consistent with the reduction in these revenues, but was partially offset by higher cloud hosting costs and expenses associated with recent acquisitions. Cost of revenues for Provider Solutions increased $1.6 million to $13.7 million and approximated 35% and 32% of Provider Solutions revenues for the nine months ended September 30, 2022 and 2021, respectively. The increase in amount is primarily associated with an increase in personnel costs, cloud hosting, and software costs during the nine months ended September 30, 2022.
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Table of Contents
Product Development. Product development expenses increased $2.3 million, or 8%, to $32.5 million for the nine months ended September 30, 2022 from $30.2 million for the nine months ended September 30, 2021. Product development expenses as a percentage of revenues were 16% of revenues for both the nine months ended September 30, 2022 and 2021.
Product development expenses for Workforce Solutions increased $1.6 million to $27.3 million and approximated 17% of revenues for Workforce Solutions for both the nine months ended September 30, 2022 and 2021. The increase is primarily associated with an increase in personnel costs, partially related to recent acquisitions, and contract labor, which was partially offset by an increase in labor capitalized for internally developed software. Additionally, the nine months ended September 30, 2021 included a non-recurring, non-cash benefit related to the reduction of paid time off ("PTO") expense as a result of modifications to the Company's PTO policy. Product development expenses for Provider Solutions increased $0.7 million to $5.2 million and approximated 13% and 12% of revenues for Provider Solutions for the nine months ended September 30, 2022 and 2021, respectively. The increase is primarily due to an increase in personnel costs.
Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $4.0 million, or 14%, to $32.7 million for the nine months ended September 30, 2022 from $28.7 million for the nine months ended September 30, 2021. Sales and marketing expenses were 16% and 15% of revenues for the nine months ended September 30, 2022 and 2021, respectively.
Sales and marketing expenses for Workforce Solutions increased $3.6 million to $26.4 million and approximated 17% and 15% of revenues for Workforce Solutions for the nine months ended September 30, 2022 and 2021, respectively. The increase is primarily associated with increases in personnel and related costs, sales commissions, travel, and software costs. Sales and marketing expenses for Provider Solutions increased $0.6 million to $5.5 million and approximated 14% and 13% of revenues for Provider Solutions for the nine months ended September 30, 2022 and 2021, respectively. The increase in amount is a result of increased sales commissions, marketing expenses, and travel expenses. The unallocated portion of sales and marketing expenses decreased $0.2 million to $0.8 million compared to the prior year period primarily due to a decrease in personnel costs and marketing expenses.
Other General and Administrative Expenses. Other general and administrative expenses decreased $1.5 million, or 5%, to $27.9 million for the nine months ended September 30, 2022 from $29.4 million for the nine months ended September 30, 2021. Other general and administrative expenses as a percentage of revenues were 14% and 15% of revenues for the ~~three~~nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, respectively.
Other general and administrative expenses for ~~HealthStream~~ Workforce Solutions ~~increased approximately $656,000~~decreased $2.3 million to ~~$2.2~~$6.6 million and approximated 5%4% and 6% of ~~HealthStream~~revenues for Workforce Solutions ~~revenues~~ for ~~both~~ the ~~three~~nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021, respectively. The decrease is primarily due to reductions in facilities costs associated with closing certain leased satellite offices, lower transition service costs associated with prior acquisitions, including with regard to the end of our transition services agreement with Change Healthcare, which related to our acquisition of the Scheduling and Capacity Management business, and a decrease in contract labor. Other general and administrative expenses for Provider Solutions increased $0.2 million to $2.9 million and approximated 7% of revenues for Provider Solutions for both the nine months ended September 30, 2022 and 2021. The increase in amount is primarily due to higher facility costs and increases in other general expenses. Other general and administrative expenses for HealthStream Patient Experience Solutions decreased approximately $7,000 to $700,000 and approximated 8% of HealthStream Patient Experience Solutions revenues for both the three months ended September 30, 2017 and 2016. Other general and administrative expenses for HealthStream Provider Solutions increased approximately $251,000 to $1.2 million and approximated 12% and 15% of HealthStream Provider Solutions revenues for the three months ended September 30, 2017 and 2016, respectively. The increase in amount is primarily associated with the MAI acquisition and higher bad debt expense, while the decrease as a percentage of revenues is due to growth in revenue.personnel costs. The unallocated corporate portion of other general and administrative expenses ~~decreased approximately $626,000~~increased $0.6 million to ~~$5.0~~$18.3 million compared to the ~~prior year third quarter~~first nine months of 2021 primarily due to ~~lower professional service~~increased employee recruitment expenses as well as software expenses over the prior year period.
Depreciation and Amortization. Depreciation and amortization expense increased $0.9 million, or 3%, to $28.3 million for the nine months ended September 30, 2022, from $27.4 million for the nine months ended September 30, 2021. This increase is primarily a result of an increase in amortization associated with capitalized software but was partially offset by lower depreciation expense.
Other Income (Loss), Net. Other income (loss), net was income of $2.9 million for the nine months ended September 30, 2022, compared to a loss of $0.3 million for the nine months ended September 30, 2021. The increase is primarily a result of the ~~MAI transaction~~$2.7 million gain recorded upon the sale of a non-marketable equity investment during the ~~prior year period and reductions of other general expenses, partially offset by implementation costs related to ASC 606.~~
~~Depreciation and Amortization.~~~~Depreciation and amortization increased approximately $815,000, or 14%, to $6.6 million for the three~~nine months ended September 30, ~~2017 from $5.8~~2022 as well as the $0.9 million ~~for~~gain recorded due to the ~~three months ended September 31, 2016. The increase primarily resulted from amortization~~change in fair value of ~~capitalized software development and intangible assets from~~our previously held minority interest in CloudCME that was remeasured upon acquiring the ~~MAI acquisition.~~
~~Other Income, Net~~~~. Other income, net was approximately $173,000 for~~remaining ownership interest of CloudCME during the ~~three~~nine months ended September 30, 2017 compared to $337,000 for the three months ended September 30, 2016. This decrease was primarily due to a gain recorded in the three months ended September 30, 2016 related to the acquisition of all remaining outstanding stock of Nurse Competency.2022.
Income Tax Provision.The Company recorded a provision for income taxes of ~~approximately $1.7~~$2.7 million for the three months ended September 30, 2017 compared to $461,000 for the three months ended September 30, 2016. The Company’s effective tax rate was 40% for the three months ended September 30, 2017 compared to 28% for the three months ended September 30, 2016. The increase in the effective tax rate was primarily influenced by certain tax benefits realized upon filing tax returns during the three months ended September 30, 2016.
~~Net Income.~~ Net income increased approximately $1.3 million, or 115%, to $2.5 million for the three months ended September 30, 2017 from $1.2 million for the three months ended September 30, 2016. Earnings per diluted share were $0.08 and ~~$0.04 per share for the three months ended September 30, 2017 and 2016, respectively.~~
Adjusted EBITDA (which we define as net income before interest, income taxes, stock based compensation, and depreciation and amortization) increased approximately $3.2 million, or 41%, to $11.0 million for the three months ended September 30, 2017 compared to $7.8 million for the three months ended September 30, 2016. See Reconciliation of~~Non-GAAP~~ ~~Financial Measures below for our reconciliation of this calculation to measures under US GAAP.~~
~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~
~~Revenues, net.~~~~Revenues increased approximately $17.7 million, or 11%, to $184.9~~$2.0 million for the nine months ended September 30, ~~2017~~2022 and 2021, respectively. The Company’s effective tax rate was 22% for the nine months ended September 30, 2022, compared to 25% for the nine months ended September 30, 2021. The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. During the nine months ended September 30, 2022, the Company recorded discrete tax benefits of $16,000, which consisted primarily of a $0.3 million tax benefit associated with a nontaxable gain of $0.9 million recognized from ~~$167.2~~the change in fair value of our previously held minority interest in CloudCME as well as a $0.1 million tax benefit for changes in estimated tax credits. This tax benefit was partially offset by $0.3 million of tax expense related to uncertain tax positions and $0.1 million of excess tax deficiencies associated with stock-based awards. During the nine months ended September 30, 2021, the Company recorded discrete tax expense of $0.2 million primarily related to purchase accounting adjustments, the impact of a state tax rate changes enacted during the period, and changes in estimated tax credits.
Net Income. Net income was approximately $9.6 million and $6.2 million for the nine months ended September 30, ~~2016. A comparison of revenues~~2022 and 2021, respectively. Earnings per share (EPS) was $0.31 per share (diluted) and $0.20 per share (diluted) for the nine months ended September 30, 2022 and 2021, respectively. Net income and EPS were positively influenced by ~~business segment is as follows (in thousands):~~the gains from previously held investments mentioned above.

   Nine Months Ended September 30,
   Percentage
   2017 2016 Change
Revenues by Business Segment:

Workforce Solutions
   $ 132,561 $ 124,489 6 %
Patient Experience Solutions
   25,274 25,862 -2 %
Provider Solutions
   27,069 16,886 60 %


Total revenues, net
   $ 184,904 $ 167,237 11 %


% of Revenues

Workforce Solutions
   72 % 74 %
Patient Experience Solutions
   14 % 16 %
Provider Solutions
   14 % 10 %
~~Revenues for HealthStream Workforce Solutions, which are primarily subscription-based, increased approximately $8.1~~Adjusted EBITDA decreased $0.8 million ~~or 6%,~~ to ~~$132.6~~$39.8 million for the nine months ended September 30, ~~2017 from $124.5~~2022, compared to $40.6 million for the nine months ended September 30, ~~2016. Revenues in 2017 were positively influenced by growth in courseware subscriptions and our enterprise applications, but were partially offset by an expected decline inICD-10~~ ~~readiness revenues. Revenues fromICD-10~~ ~~readiness products declined by $6.5 million to $905,000 in the first nine months of 2017 compared to $7.4 million in the first nine months of 2016.~~
Revenues for HealthStream Patient Experience Solutions decreased approximately $589,000, or 2%, to $25.3 million for the nine months ended September 30, 2017 from $25.9 million for the nine months ended September 30, 2016. Revenues from Patient Insights™ surveys, our survey research product that generates recurring revenues, decreased approximately $22,000 compared to the first nine months of 2016. Revenues from other products, including surveys conducted on annual or~~bi-annual~~ ~~cycles and consulting/coaching services, collectively decreased $567,000, or 10%, compared to the first nine months of 2016 due to fewer engagements compared to the prior year period.~~
Revenues for HealthStream Provider Solutions increased approximately $10.2 million, or 60%, to $27.1 million for the nine months ended September 30, 2017 from $16.9 million for the nine months ended September 30, 2016. Approximately $7.0 million of the increase resulted from the MAI acquisition, which was consummated on August 8, 2016. Revenues from other provider solutions products increased $3.2 million over the first nine months of 2016.
~~Cost of Revenues (excluding depreciation and amortization).~~Cost of revenues increased approximately $9.0 million, or 13%, to $79.4 million for the nine months ended September 30, 2017 from $70.4 million for the nine months ended September 30, 2016. Cost of revenues as a percentage of revenues was approximately 43% and 42% for the nine months ended September 30, 2017 and 2016, respectively.
Cost of revenues for HealthStream Workforce Solutions increased approximately $7.0 million to $56.2 million and approximated 42% and 40% of revenues for HealthStream Workforce Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount and as a percentage of revenue is primarily associated with increased royalties paid by us resulting from growth in courseware subscription revenues and additions to personnel. Cost of revenues for HealthStream Patient Experience Solutions decreased approximately $2.1 million to $14.5 million and approximated 57% and 64% of revenues for HealthStream Patient Experience Solutions for the nine months ended September 30, 2017 and 2016, respectively. The2021. This decrease in both amount and as a percentage of revenue is primarily due to reductions in personnel costs and lower costs associated with declines in phone based survey volume compared to the prior year period. Cost of revenues for HealthStream Provider Solutions increased approximately $4.1 million to $8.7 million and approximated 32% and 27% of revenues for HealthStream Provider Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount and as a percentage of revenue is primarily the result of the MAI acquisition and additions to personnel.
~~Product Development.~~ Product development expenses decreased approximately $894,000, or 4%, to $20.6 million for the nine months ended September 30, 2017 from $21.5 million for the nine months ended September 30, 2016. Product development expenses as a percentage of revenues were approximately 11% and 13% of revenues for the nine months ended September 30, 2017 and 2016, respectively.
Product development expenses for HealthStream Workforce Solutions decreased approximately $741,000 to $14.6 million and approximated 11% and 12% of revenues for HealthStream Workforce Solutions for the nine months ended September 30, 2017 and 2016, respectively. The decrease in amount and as a percentage of revenues is primarily due to lower outsourced labor expenses. Product development expenses for HealthStream Patient Experience Solutions decreased approximately $877,000 to $2.7 million and approximated 11% and 14% of revenues for HealthStream Patient Experience Solutions for the nine months ended September 30, 2017 and 2016, respectively. The decrease in both amount and as a percentage of revenue is primarily due to higher labor capitalization for internal software development. Product development expenses for HealthStream Provider Solutions increased approximately $724,000 to $3.3 million and approximated 12% and 15% of revenues for HealthStream Provider Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount is primarily associated with the MAI acquisition and additions to personnel over the prior year period.
~~Sales and Marketing.~~ Sales and marketing expenses, including personnel costs, increased approximately $3.3 million, or 12%, to $31.1 million for the nine months ended September 30, 2017 from $27.8 million for the nine months ended September 30, 2016. Sales and marketing expenses were approximately 17% of revenues for both the nine months ended September 30, 2017 and 2016.
Sales and marketing expenses for HealthStream Workforce Solutions increased approximately $2.1 million to $22.5 million and approximated 17% and 16% of revenues for HealthStream Workforce Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount and as a percentage of revenues is primarily due to additions to personnel and higher sales commissions compared to the prior year period. Sales and marketing expenses for HealthStream Patient Experience Solutions increased approximately $275,000 to $3.3 million and approximated 13% and 12% of revenues for HealthStream Patient Experience Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in both amount and as a percentage of revenues is primarily due to higher sales commissions and increased marketing spending compared to the prior year period. Sales and marketing expenses for HealthStream Provider Solutions increased approximately $702,000 to $4.3 million and approximated 16% and 21% of revenues for HealthStream Provider Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount is primarily associated with the MAI acquisition and higher sales commissions.
~~Other General and Administrative Expenses.~~ Other general and administrative expenses increased approximately $227,000, or 1%, to $25.6 million for the nine months ended September 30, 2017 from $25.4 million for the nine months ended September 30, 2016. Other general and administrative expenses as a percentage of revenues were approximately 14% and 15% of revenues for the nine months ended September 30, 2017 and 2016, respectively.
Other general and administrative expenses for HealthStream Workforce Solutions increased approximately $1.6��million to $6.1 million and approximated 5% and 4% of revenues for HealthStream Workforce Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount is primarily due to higher facility costs and increases in technology infrastructure investments and other general expenses. Other general and administrative expenses for HealthStream Patient Experience Solutions decreased approximately $30,000 to $2.1 million and approximated 8% of revenues for HealthStream Patient Experience Solutions for both the nine months ended September 30, 2017 and 2016. Other general and administrative expenses for HealthStream Provider Solutions increased approximately $1.2 million to $3.8 million and approximated 14% and 16% of revenues for HealthStream Provider Solutions for the nine months ended September 30, 2017 and 2016, respectively. The increase in amount is primarily associated with the MAI acquisition and higher bad debt expense compared to the prior year period. The unallocated corporate portion of other general and administrative expenses decreased approximately $2.5 million to $13.6 million compared to the first nine months of 2016 primarily due to lower professional service expenses as a result of the implementation of a new financial systems platform and the MAI transaction during the prior year period and reductions of other general expenses.
Compared to the nine months September 30, 2016, the Company experienced an increase in bad debt during the nine months ended September 30, 2017, which may be attributable in part to ongoing macro-economic conditions that create challenges for our client base and could further impact bad debt expense in future periods.
~~Depreciation and Amortization.~~Depreciation and amortization increased approximately $3.5 million, or 22%, to $19.5 million for the nine months ended September 30, 2017 from $16.0 million for the nine months ended September 30, 2016. The increase primarily resulted from amortization of capitalized software development and intangible assets from the MAI acquisition.
~~Other Income (Expense), Net~~~~. Other income (expense), net was income of approximately $468,000 for the nine months ended September 30, 2017 compared to income of $465,000 for the nine months ended September 30, 2016.~~
~~Income Tax Provision.~~The Company recorded a provision for income taxes of approximately $3.1 million for the nine months ended September 30, 2017 compared to $2.5 million for the nine months ended September 30, 2016. The Company’s effective tax rate was approximately 34% for the nine months ended September 30, 2017 compared to approximately 38% for the nine months ended September 30, 2016. The decrease in the effective tax rate was primarily influenced by excess tax benefits from stock-based awards as well as lower state taxes.
~~Net Income.~~ Net income increased approximately $2.0 million, or 49%, to $6.1 million for the nine months ended September 30, 2017 compared to $4.1 million for the nine months ended September 30, 2016. Earnings per diluted share were $0.19 per share and $0.13 per share for the nine months ended September 30, 2017 and 2016, respectively.
Adjusted EBITDA (which we define as net income before interest, income taxes, stock based compensation, and depreciation and amortization) increased approximately $5.8 million, or 24%, to $29.5 million for the nine months ended September 30, 2017 compared to $23.7 million for the nine months ended September 30, 2016. This increase resulted from the factors mentioned above. See ~~Reconciliation~~“Reconciliation ofNon-GAAP Financial ~~Measures~~Measures” below for our reconciliation of ~~this calculation~~Adjusted EBITDA to ~~measures~~the most directly comparable measure under US GAAP.
~~Other Developments~~
16
Table of Contents
As previously announced, Laerdal Medical A/S, a Norwegian company (“Laerdal”), provided notice that, upon the December 31, 2018 expiration of our existing agreements with Laerdal regarding the HeartCode and Resuscitation Quality Improvement (“RQI”) products, Laerdal does not intend to continue these existing agreements or enter into new agreements with
HealthStream in relation to such products. Our Joint Marketing and Licensing Agreements with Laerdal for HeartCode and for RQI, respectively, remain unaltered and continue in effect through December 31, 2018. Up to that expiration date, we retain the right to offer HeartCode and RQI licenses that extend through December 31, 2020. We retain exclusivity of RQI sales to our existing customer network through the agreement expiration date of December 31, 2018 and are prohibited from selling substantially similar products to HeartCode and RQI during that time.
Revenues associated with the sales of HeartCode and RQI products have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin. We are actively engaged in efforts to broaden the scope and utilization of our simulation-related offerings to include a range of clinical competencies that extend beyond resuscitation, and integrate with our platform in ways that HeartCode and RQI never have. We intend to bring to market a broadened scope of simulation-based offerings, including— following the December 31, 2018 expiration date of our agreements with Laerdal—resuscitation programs. We believe these efforts have the potential to give rise to additional and higher margin opportunities than currently exist under the Laerdal agreements for HeartCode and RQI, and will likely feature solutions with a lower price point than our current offerings. However, there is no assurance that we will be successful in these efforts, and to the extent that new simulation-based or other solutions do not generate revenue and/or earnings following the December 31, 2018 expiration date in a manner that supplants the impact of these agreements with Laerdal, our revenue and results of operations following this expiration date may be adversely affected.
Reconciliation ofNon-GAAP Financial Measures
This ~~report contains certainnon-GAAP~~ ~~financial measures, includingnon-GAAP~~ ~~net income,non-GAAP~~ ~~operating income, and~~Quarterly Report on Form 10-Q presents adjusted EBITDA, which ~~are~~is a non-GAAP financial measure used by management in analyzing ~~its~~our financial results and ongoing operational performance. ~~Thesenon-GAAP~~ ~~financial measures should not be considered as a substitute for, or superior to, measures of financial performance which are prepared in accordance with US GAAP and may be different fromnon-GAAP~~ ~~financial measures used by other companies.~~
In order to better assess the Company’s financial results, management believes that net income excluding the impact of the deferred revenue write-downs associated with fair value accounting for acquired businesses (as discussed in greater detail below) and before interest, income taxes, stock-based compensation, depreciation and amortization, changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments, and the de-recognition of non-cash expense resulting from the paid time off expense reduction in the first quarter of 2021 (“adjusted ~~EBITDA~~EBITDA”) is ~~an appropriate~~a useful measure for evaluating the operating performance of the Company ~~and provides useful information to investors~~ because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash ~~and~~ and/or non-operating ~~items.~~ items which may not, in any such case, fully reflect the underlying operating performance of our business. We also believe that adjusted EBITDA is ~~also used by~~useful to many investors ~~and securities analysts~~ to assess the Company’s ~~results from current operations. Adjusted EBITDA is anon-GAAP~~ ~~financial measure~~ongoing operating performance and ~~should not be considered as a measure~~to compare the Company’s operating performance between periods. Additionally, short-term cash incentive bonuses and certain performance-based equity awards are based on the achievement of ~~financial performance under US GAAP. Because~~ adjusted EBITDA ~~is not a measurement determined~~(as defined in ~~accordance with US GAAP, it is susceptible to varying calculations. Accordingly,~~applicable bonus and equity grant documentation) targets.
As noted above, the definition of adjusted EBITDA ~~as presented, may not be comparable to other similarly titled measures of other companies.~~
~~The Company understands that although adjusted EBITDA is frequently used by investors and securities analysts in their evaluation of companies, this measure has limitations as~~includes an ~~analytical tool and you should not consider it in isolation or as a substitute~~adjustment for ~~an analysis~~the impact of the ~~Company’s results as reported under US GAAP.~~
~~In recent years, including the August 2016 acquisition of MAI,~~deferred revenue write-downs associated with fair value accounting for acquired businesses. Prior to the Company ~~has acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements,~~early adopting ASU 2021-08 effective January 1, 2022, following the completion of any ~~such~~ acquisition by the Company, ~~may~~the Company was required to record ~~a write-down of~~the acquired deferred revenue toat fair value as defined in ~~GAAP. If~~GAAP, which typically resulted in a write-down of the acquired deferred revenue. When the Company iswas required to record a write-down of deferred revenue, it ~~may result~~resulted in lower recognized revenue, operating income, and net income in subsequent periods.
~~In connection therewith, this report presents belownon-GAAP~~ ~~operating income andnon-GAAP~~ ~~net income, which in each case reflects the corresponding GAAP figures adjusted to exclude the impact of the deferred revenue write-down associated with fair value accounting~~ Revenue for ~~acquired businesses as referenced above. Management believes that the presentation of thesenon-GAAP~~ financial measures assists investors in understanding the Company’s performance between periods by excluding the impact of this deferred revenue write-down and provides a useful measure of the ongoing performance of the Company. As is typical for our business offerings, revenue for theany such acquired business iswas deferred and was typically recognized over aone-to-two year period following the completion of any particular acquisition, so our GAAP revenues ~~(and, thus, our GAAP operating income and net income)~~ for thisone-to-two year period ~~will~~would not reflect the full amount of revenues that would have been reported if the acquired deferred revenue was not written down to fair value. Management believes that including an adjustment in the definition of adjusted EBITDA for the impact of the deferred write-downs associated with fair value accounting for businesses acquired prior to the January 1, 2022 effective date of the Company's adoption of ASU 2021-08 provides useful information to investors because the deferred revenue write-down recognized in periods after an acquisition may, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance and thus adjusting for this amount may assist in comparing the Company’s results of operations between periods. Following the adoption of ASU 2021-08, contracts acquired in an acquisition completed on or after January 1, 2022 will be measured as if the Company had originated the contract (rather than the contract being measured at fair value) such that, for such acquisitions, the Company will no longer record deferred revenue write-downs associated with acquired businesses (for acquisitions completed prior to January 1, 2022, the Company will continue to record deferred revenue write-downs associated with fair value accounting for periods on and after January 1, 2022 consistent with past practice). At the current time, the Company intends to continue to include an adjustment in the definition of adjusted EBITDA for the impact of deferred revenue write-downs from business acquired prior to January 1, 2022 given the ongoing impact of such deferred revenue on our financial results.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure of financial performance under GAAP. Because adjusted EBITDA is not a measurement determined in accordance with GAAP, adjusted EBITDA is susceptible to varying calculations. Accordingly, adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies and has limitations as analytical tools.
A reconciliation of ~~thesenon-GAAP~~ ~~financial measures~~adjusted EBITDA to the ~~corresponding~~most directly comparable GAAP ~~measures~~measure is set forth ~~below.~~
below (in thousands).
   Three Months Ended
September 30,    Nine Months Ended
September 30,
Three Months Ended September 30,

Nine Months Ended September 30,

   2017    2016    2017    2016
2022

2021

2022

2021

GAAP net income
   $ 2,504    $ 1,162    $ 6,056    $ 4,066 $ 3,666 $ 1,500 $ 9,642 $ 6,232
Deferred revenue write-down
46 805 223 3,657
Interest income
   (221 )    (153 )    (583 )    (418 ) (124 ) (24 ) (155 ) (64 )
Interest expense
   35    26    98    76 33 33 99 99
Income tax provision
   1,651    461    3,083    2,487 1,259 186 2,675 2,033
Stock based compensation expense
   440    512    1,358    1,516
Stock-based compensation expense
918 861 2,609 2,260
Depreciation and amortization
   6,570    5,755    19,488    15,976 9,592 9,141 28,334 27,443








Change in fair value of non-marketable equity investments
(2,653 ) — (3,596 ) —
Non-cash paid time off expense
— — — (1,011 )
Adjusted EBITDA
   $ 10,979    $ 7,763    $ 29,500    $ 23,703 $ 12,737 $ 12,502 $ 39,831 $ 40,649








GAAP operating income
   $ 3,982    $ 1,286    $ 8,671    $ 6,088
Adjustment for deferred revenue write-down
   146    1,183    1,539    2,577








Non-GAAP operating income
   $ 4,128    $ 2,469    $ 10,210    $ 8,665








GAAP net income
   $ 2,504    $ 1,162    $ 6,056    $ 4,066
Adjustment for deferred revenue write-down, net of tax
   88    847    1,020    1,598








Non-GAAP net income
   $ 2,592    $ 2,009    $ 7,076    $ 5,664








17
Table of Contents
Liquidity and Capital Resources
Net cash provided by operating activities increased by ~~$20.7~~$6.7 million to ~~$35.7~~$43.1 million during the nine months ended September 30, ~~2017~~2022, from ~~$15.0~~$36.4 million during the nine months ended September 30, ~~2016. The number of~~2021. This increase was primarily due to higher cash collections and lower royalties paid by us compared to the prior year period, which was partially offset by increased labor costs. Our days sales outstanding ~~(“DSO”~~("DSO") was 5538 days for the third quarter of ~~2017~~2022 compared to 7040 days for the third quarter of 2016. The decrease in DSO primarily relates to lower accounts receivable balances resulting from improved collections in the Workforce Development Solutions segment as compared to the prior year period.2021. The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter. The Company’s primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, and general corporate expenses.
Net cash used in investing activities was ~~approximately $24.7 million and $57.6~~$18.0 million for the nine months ended September 30, ~~2017 and 2016, respectively.~~2022, compared to $17.0 million for the nine months ended September 30, 2021. During the nine months ended September 30, ~~2017,~~2022, the Company ~~purchased $5.3~~spent $3.9 million to acquire the remaining ownership interest in CloudCME on a net cash basis and spent $62,000 related to post-closing adjustments for prior acquisitions for a net cash outflow of ~~property and equipment, spent $9.2~~$4.0 million for business combinations, invested in marketable securities of $5.6 million, made payments for capitalized software development ~~acquired $500,000 in equity investments,~~of $17.4 million, and ~~invested $79.3 million in marketable securities.~~purchased property and equipment of $1.6 million. These uses of cash were partially offset by $7.0 million in maturities of marketable securities and $3.5 million in proceeds from the sales of ~~$69.6 million.~~non-marketable equity investments. During the nine months ended September 30, ~~2016,~~2021, the Company ~~utilized $53.1~~spent $2.0 million ~~(net of~~to acquire ComplyALIGN and on a net cash ~~acquired) for acquisitions, purchased $82.8~~basis received $1.3 million of proceeds upon settling post-closing adjustments related to ANSOS and ShiftWizard acquisitions for a net cash outflow of $0.7 million for business combinations, invested in marketable securities ~~purchased $3.9~~of $5.2 million, made payments for capitalized software development of $16.6 million, purchased property and equipment of $2.6 million, and ~~spent $7.1~~invested $1.8 million ~~for capitalized software development.~~in non-marketable equity investments. These uses of cash were partially offset by $9.9 million in maturities of marketable ~~securities of $88.2 million and the sale of long-lived assets of $975,000.~~securities.

Net cash ~~(used in) provided by~~used in financing activities was approximately ~~($88,000) and $444,000~~$23.7 million for the nine months ended September 30, ~~2017 and 2016, respectively. The sources of cash from financing activities~~2022, compared to $0.5 million for the nine months ended September 30, ~~2017 resulted from the exercise~~2021. The uses of ~~employee stock options. The sources of~~ cash ~~from financing activities~~ for the nine months ended September 30, ~~2016 resulted from $661,000~~2022 included $23.1 million for repurchases of ~~excess tax benefits from equity awards~~common stock and ~~$94,000 of proceeds from the exercise of employee stock options. The uses of cash~~$0.5 million for ~~both 2017 and 2016 resulted from~~ the payment of employee payroll taxes in relation to the vesting of ~~RSUs.~~restricted share units. The ~~Companynet-share~~ ~~settled~~uses of cash for the nine months ended September 30, 2021 primarily included $0.5 million for the payment of employee ~~RSUs by withholding shares with value equivalent~~payroll taxes in relation to the ~~employee’s minimum statutory obligation for the applicable income and other employment taxes.~~vesting of restricted share units.
Our balance sheet reflects negative working capital of $1.0 million at September 30, 2022, compared to positive working capital of ~~$94.5 million at September 30, 2017 compared to $82.5~~$6.5 million at December 31, ~~2016.~~2021. The decrease in working capital is primarily a result of the use of cash to fund the acquisition of CloudCME, repurchases of common stock and an increase in deferred revenue. The Company’s primary source of liquidity ~~is $123.4~~as of September 30, 2022 was $48.3 million of cash and cash equivalents and $3.6 million of marketable securities. The Company also has a ~~$50.0~~$65.0 million revolving credit facility, all of which was available for additional borrowing at September 30, ~~2017.~~2022. The revolving credit facility expires on October 28, 2023, unless earlier renewed or amended.
On November ~~24, 2017, and we plan~~30, 2021, the Company's Board of Directors authorized a share repurchase program to ~~renew~~repurchase up to $20.0 million of the ~~facility~~Company's outstanding shares of common stock. The share repurchase program concluded on ~~similar terms as~~March 8, 2022, when the ~~current facility.~~maximum dollar amount authorized under the program was expended. Under this program, the Company repurchased a total of 853,023 shares in open market purchases at an aggregate value of $20.0 million, reflecting an average price per share of $23.45 (excluding the cost of broker commissions). During the nine months ended September 30, 2022, the Company repurchased 649,739 shares pursuant to this share repurchase program at an aggregate fair value of $14.9 million, based on an average price per share of $22.92 (excluding the cost of broker commissions).
On March 14, 2022, the Company's Board of Directors approved an expansion of the Company's share repurchase program by authorizing the repurchase of up to an additional $10.0 million of the Company's outstanding shares of common stock. The share repurchase program is scheduled to terminate on the earlier of March 13, 2023, or when the maximum dollar amount has been expended. During the nine months ended September 30, 2022, the Company repurchased 402,050 shares pursuant to this share repurchase program at an aggregate fair value of $8.1 million, based on an average price per share of $20.19 (excluding the cost of broker commissions).
We believe that our existing cash and cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development, and capital expenditures for at least the next 12 ~~months.~~months and for the foreseeable future thereafter.
~~The~~
In addition, the Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that ~~provide complementary products and services.~~complement or enhance our business. It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, or a combination of both. The issuance of our stock as consideration for an acquisition or to raise additional capital could have a dilutive effect on earnings per share and could adversely affect our stock price. Our revolving credit facility contains financial covenants and
availability calculations designed to set a maximum leverage ratio of outstanding debt to adjusted EBITDA and an interest coverage ratio of adjusted EBITDA to interest expense. Therefore, the maximum borrowings against our revolving credit facility would be dependent on the covenant ~~values~~calculations at the time of borrowing. As of September 30, ~~2017,~~2022, we were in ~~material~~ compliance with all covenants. There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot assure you that if we need additional financing that it will be available on terms favorable to us, or at all. Failure to generate sufficient cash flow from operations or raise additional capital when required in sufficient amounts and on terms acceptable to us could harm our business, financial condition, and results of operations.

~~Item 3.~~ ~~Quantitative and Qualitative Disclosures about Market Risk~~
18
Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in interest ~~rates.~~rates, foreign currency risk, and investment risk. We do not have any ~~foreign currency exchange rate risk or~~ commodity price risk.
Interest Rate Risk
As of September 30, ~~2017~~2022, and during the ~~nine~~three months then ended, the Company had no outstanding debt. We may become subject to interest rate market risk associated with any future borrowings under our revolving credit facility. The interest rate under the revolving credit facility varies depending on the interest rate option selected by the Company plus a margin determined in accordance with a pricing grid. We are also exposed to market risk with respect to our cash and investment balances, which approximated ~~$123.4~~$51.8 million at September 30, ~~2017.~~2022. Assuming a hypothetical 10% decrease in interest rates for invested balances, interest income from cash and investments would decrease on an annualized basis by approximately ~~$134,000.~~$66,000.
Foreign Currency Risk
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the US dollar, including Canadian dollar, New Zealand dollar, and Australian dollar. Increases or decreases in our foreign-denominated revenue from movements in foreign exchange rates are often partially offset by the corresponding increases or decreases in our foreign-denominated operating expenses.
To the extent that our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to assess our approach to managing this risk. In addition, currency fluctuations or a weakening US dollar can increase the costs of our international operations. To date, we have not entered into any foreign currency hedging contracts although we may do so in the future.
Investment Risk
The Company’s investment policy and strategy is focused on investing in highly rated securities with the objective of minimizing the potential risk of principal loss. The Company’s policy limits the amount of credit exposure to any single issuer and sets limits on the average portfolio maturity.
We have an investment portfolio that includes strategic investments in privately held companies, which primarily include early-stage companies. We primarily invest in healthcare technology companies that we believe can help expand our ecosystem. We may continue to make these types of strategic investments as opportunities arise that we find attractive. We may experience additional volatility to our Consolidated Financial Statements due to changes in market prices, observable price changes, and impairments to our strategic investments. These changes could be material based on market conditions and events.
The above market risk discussion and the estimated amounts presented areforward-looking statements of market risk assuming the occurrence of certain adverse market conditions. Actual results in the future may differ materially from those projected as a result of actual developments in the market.

~~Item 4.~~ ~~Controls and Procedures~~
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
HealthStream’s chief executive officer and principal financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, the chief executive officer and principal financial officer have concluded that HealthStream’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and the information required to be disclosed in the reports the Company files or submits under the Exchange Act was accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in HealthStream’s internal control over financial reporting that occurred during the third quarter of ~~2017~~2022 that has materially affected, or that is reasonably likely to materially affect, HealthStream’s internal control over financial reporting.
19
Table of Contents
PART II- ‑ OTHER INFORMATION

Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in the 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 14, 2022, the Company announced an expansion of the share repurchase program authorized by the Company’s Board of Directors under which the Company may purchase up to an additional $10.0 million of its common stock. Pursuant to this authorization, repurchases may be made in the open market, including under a Rule 105b-1 plan, through privately negotiated transactions, or otherwise. Under this program, during the first nine months of 2022 the Company repurchased 402,050 shares at an aggregate fair value of $8.1 million, reflecting an average price per share of $20.19 (excluding the cost of broker commissions). In addition, any future repurchases under the authorization will be subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors. The share repurchase program is scheduled to terminate on the earlier of March 13, 2023 or when the maximum dollar amount has been expended.
The table below sets forth activity under the stock repurchase plan for the three months ended September 30, 2022.

Period

(a) Total number of shares (or units) purchased

(b) Average price paid per share (or unit)(1)

(c) Total number of shares (or units) purchased as part of publicly announced plans or programs

(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

Month #1 (July 1 - July 31)
— $ — — $ 1,880,642
Month #2 (August 1 - August 31)
— — — 1,880,642
Month #3 (September 1 - September 30)
— — — 1,880,642
Total
— $ — — $ 1,880,642
~~Item 6.~~ ~~Exhibits~~
⁽¹⁾
The weighted average price paid per share of common stock does not include the cost of broker commissions.
20
Table of Contents
Item 6. Exhibits
(a)
Exhibits

~~(a)~~
31.1
~~Exhibits~~
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1 INS
Inline XBRL Instance Document – The instant document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.1 SCH
Inline XBRL Taxonomy Extension Schema
101.1 CAL
Inline XBRL Taxonomy Extension Calculation Linkbase
101.1 DEF
Inline XBRL Taxonomy Extension Definition Linkbase
101.1 LAB
Inline XBRL Taxonomy Extension Label Linkbase
101.1 PRE
Inline XBRL Taxonomy Extension Presentation Linkbase
104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL

21
~~31.1 – Certification~~Table of ~~the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~Contents
~~31.2 – Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~32.1 – Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~32.2 – Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
~~101.1 INS – XBRL Instance Document~~
~~101.1 SCH – XBRL Taxonomy Extension Schema~~
~~101.1 CAL – XBRL Taxonomy Extension Calculation Linkbase~~
~~101.1 DEF – XBRL Taxonomy Extension Definition Linkbase~~
~~101.1 LAB – XBRL Taxonomy Extension Label Linkbase~~
~~101.1 PRE – XBRL Taxonomy Extension Presentation Linkbase~~
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HEALTHSTREAM, INC.
~~HEALTHSTREAM, INC.~~
October ~~30, 2017~~27, 2022
By:

/s/ G~~ERARD~~ ~~M. HAYDEN, J~~R.Scott A. Roberts

~~Gerard M. Hayden, Jr.~~
~~Chief Financial Officer~~Scott A. Roberts
Chief Financial Officer

22


	Common Stock					Retained		Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount			Earnings		Loss			Equity
Balance at December 31, 2016		31,748	$	280,813		$	5,346	$	(51	)	$	286,108
Cumulative effect of accounting change		—		—			2,192		—			2,192
Net income		—		—			6,056		—			6,056
Comprehensive income		—		—			—		31			31
Stock based compensation		—		1,358			—		—			1,358
Common stock issued under stock plans, net of shares withheld for employee taxes		148		(88	)		—		—			(88	)

Balance at September 30, 2017		31,896	$	282,083		$	13,594	$	(20	)	$	295,657

	*Three Months Ended September 30, 2022*						*Nine Months Ended September 30, 2022*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*		*Consolidated*
Subscription services	$	52,347	$	11,720	$	64,067	$	153,871	$	34,742	$	188,613
Professional services		1,716		1,502		3,218		4,705		4,972		9,677
Total revenues, net	$	54,063	$	13,222	$	67,285	$	158,576	$	39,714	$	198,290

	*Three Months Ended September 30, 2021*						*Nine Months Ended September 30, 2021*
Business Segments	*Workforce Solutions*		*Provider Solutions*		*Consolidated*		*Workforce Solutions*		*Provider Solutions*		*Consolidated*
Subscription services	$	49,729	$	10,973	$	60,702	$	150,239	$	32,475	$	182,714
Professional services		1,426		1,963		3,389		4,320		5,340		9,660
Total revenues, net	$	51,155	$	12,936	$	64,091	$	154,559	$	37,815	$	192,374

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2022*		*2021*		*2022*		*2021*
Cost of revenues (excluding depreciation and amortization)	$	44	$	31	$	126	$	82
Product development		151		111		428		329
Sales and marketing		98		76		283		217
Other general and administrative		625		644		1,772		1,632
Total stock-based compensation expense	$	918	$	862	$	2,609	$	2,260

	*September 30, 2022*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
Corporate debt securities	$	998	$	—	$	—		$	998
U.S. government debt securities		2,591		—		(2	)		2,589
Total	$	3,589	$	—	$	(2	)	$	3,587

	*December 31, 2021*
	*Adjusted Cost*		*Unrealized Gains*		*Unrealized Losses*			*Fair Value*
Level 2:
Corporate debt securities	$	5,043	$	—	$	(2	)	$	5,041
Total	$	5,043	$	—	$	(2	)	$	5,041


	September 30, 2017
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	56,968	$	2	$	(23	)	$	56,947
Government-sponsored enterprise debt securities		5,995		1		—			5,996

Total	$	62,963	$	3	$	(23	)	$	62,943


	December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	44,486	$	—	$	(50	)	$	44,436
Government-sponsored enterprise debt securities		9,105		1		(2	)		9,104

Total	$	53,591	$	1	$	(52	)	$	53,540


Cash paid at closing	$	44,120
Cash held in escrow		3,880

Total consideration paid	$	48,000


Accounts receivable, net	$	2,406
Prepaid royalties and other prepaid assets		187
Property and equipment		75
Deferred tax assets		1,377
Goodwill		21,000
Intangible assets		27,400
Accounts payable and accrued liabilities		(776	)
Deferred revenue		(3,669	)

Net assets acquired	$	48,000


	Fair value		Useful life
Customer relationships	$	21,400		13 years
Developed technology		5,400		5 years
Trade name		600		6 years

Total intangible assets subject to amortization	$	27,400


	September 30, 2017		December 31, 2016
Segment assets *					*September 30, 2022*		*December 31, 2021*
Workforce Solutions	$	88,349	$	96,323	$	260,779	$	258,864
Patient Experience Solutions		33,238		35,988
Provider Solutions		151,403		155,011		131,720		137,008
Unallocated		130,850		108,678		88,698		90,881

Total assets	$	403,840	$	396,000	$	481,197	$	486,753


	Three Months Ended September 30,
	2017			2016			Percentage Change			Three Months Ended September 30,
Revenues by Business Segment:										2022			2021			Percentage Change
Workforce Solutions	$	44,603		$	43,015			4	%	$	54,063		$	51,155			6	%
Patient Experience Solutions		8,810			8,931			-1	%
Provider Solutions		10,140			6,421			58	%		13,222			12,936			2	%

Total revenues, net	$	63,553		$	58,367			9	%	$	67,285		$	64,091			5	%

% of Revenues
Workforce Solutions		70	%		74	%					80	%		80	%
Patient Experience Solutions		14	%		15	%
Provider Solutions		16	%		11	%					20	%		20	%


	Nine Months Ended September 30,
							Percentage
	2017			2016			Change
Revenues by Business Segment:
Workforce Solutions	$	132,561		$	124,489			6	%
Patient Experience Solutions		25,274			25,862			-2	%
Provider Solutions		27,069			16,886			60	%

Total revenues, net	$	184,904		$	167,237			11	%

% of Revenues
Workforce Solutions		72	%		74	%
Patient Experience Solutions		14	%		16	%
Provider Solutions		14	%		10	%

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)(1)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
Month #1 (July 1 - July 31)		—	$	—		—	$	1,880,642
Month #2 (August 1 - August 31)		—		—		—		1,880,642
Month #3 (September 1 - September 30)		—		—		—		1,880,642
Total		—	$	—		—	$	1,880,642

~~(a)~~ 31.1	~~Exhibits~~ Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1 INS	Inline XBRL Instance Document – The instant document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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101.1 DEF	Inline XBRL Taxonomy Extension Definition Linkbase
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101.1 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, has been formatted in Inline XBRL

				HEALTHSTREAM, INC.
		~~HEALTHSTREAM, INC.~~

October ~~30, 2017~~27, 2022		By:	/s/ G~~ERARD~~ ~~M. HAYDEN, J~~R.Scott A. Roberts
			~~Gerard M. Hayden, Jr.~~ ~~Chief Financial Officer~~Scott A. Roberts
	Chief Financial Officer