HSTM 10-K & 10-Q changes, risk factors and insider trading

The U.S. has experienced challenging macroeconomicMacroeconomic conditions in recentthe periodsU.S. continue to be challenging in certain respects, includingdriven asby, theamong resultother ofthings, significantpersistent inflationary pressures, ongoing elevated interest rate levels, heightened geopolitical tensions, including as a result of ongoing conflicts abroad, and challengingstrained laborglobal markettrade conditions.relations. Continued global economic uncertainty, political conditions, and fiscal challenges in the U.S. and abroad, such as inflation and potential recessionary conditions, have, among other things, limited our ability to forecast future demand for our products and services, contributed to increased volatility in customer demand, and could constrain future access to capital for ourselves, our suppliers, customers, and partners. While inflationary conditions have decreased in comparison to recent periods, we believe that many of our customers have experienced increased labor, supply chain, capital, and other expenditures associated with recent inflationary pressures. Moreover, 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. In addition, if current economic conditions in the U.S. significantly deteriorate, including as a result of the impact of increased tariffs or trade restrictions, our results of operations, financial position, and/or cash flows could be materially and adversely affected.

Our operating results may vary based on the impact of changes in our industry or the economy on us or our clients. The revenue growth and potential profitability of our business depends on demand for our solutions by healthcare providers. We sell our products and services to large, mid-sized, and small organizations whose businesses fluctuate based on general economic and business conditions. As such, our operating results are impacted by the level of demand for our solutions by healthcare organizations and the impact of changes in our industry or the economy on us or our clients. For example, we have recently experienced a decrease in demand for certain of our solutions, such as health equity and belonging content, that may be viewed as a more elective type of offering by some of our customers. In addition, a portion of our revenue is attributable to the number of users of our products at each of our clients, which in turn is influenced by the employment and hiring patterns of our clients and potential clients. To the extent that economic uncertainty or weak economic conditions cause our clients and potential clients to freeze or reduce their headcount or operations, demand for our products may be negatively affected. Moreover, prior economic downturns and the current economic circumstancesconditions and uncertainty have resulted in and may continue to result in overall reductions in spending by some healthcare providers as well as pressure from some clients and potential clients for extended payment terms. If current economic conditions deteriorate, our clients and potential clients may elect to decrease their budgets for our solutions by deferring or reconsidering purchases or could file for bankruptcy, which has occurred from time to time. Such budget decreases or bankruptcy filings would limit our ability to grow our business and negatively affect our operating results.

Moreover, other economic,Economic, regulatory, policy, or other recent developments that adversely or disproportionately impact the healthcare industry may reduce spending on information technology by healthcare organizations and otherwise adversely affect our customer base.base and financial results. Healthcare organizations continue to face labor shortages, elevated wage and operating costs, and ongoing downward pressures on and uncertainty regarding reimbursement levels. Furthermore, the margins of many healthcare providers are modest, and potential decreases in reimbursement for healthcare costs – whether due to federal or state budgetary constraints, deficit and spending reduction initiatives, reduction or elimination of programs such as the 340B Drug Pricing Program, reduction of insurance coverage readily available to individuals, or changes to Medicare and/or Medicaid policy – may reduce the overall solvency of our customers or cause further deterioration in their financial or business condition. These developments could reduce our sales or adversely impact the ability of our customers to pay for our products and services.

In addition, weour may be unableability to effectively execute on our One HealthStream approach of operating and managing the Company on a consolidated, enterprise basis. Our ability to effectively execute this strategy is dependent upon various factors, including our ability to achieve anticipated operational efficiencies and to effectively implement the operational and management changes associated with this strategy without adversely impacting the services we provide. In the event that we are unable to effectively execute on this strategy or are otherwise adversely affected by our shift to this One HealthStream approach,strategy, our business and financial results may be adversely affected.

We face a wide variety of risks related to the emergence and effects of potential future epidemics, pandemics, outbreaks of infectious disease or other public health crises. Our primary customers are healthcare organizations, which are particularly vulnerable to the health and economic effects of public health conditions. The potential impact of a future public health crisis on our customers could, in turn, adversely impact our business, including in a similar or more extensive manner to how our business was adversely impacted by COVID-19. It is difficult to predict how and when a future public health crisis may evolve, and we may not be able to predict or effectively respond to any such future developments. If a new public health crisis emerges or if public health conditions in the U.S.United States significantly deteriorate, our business and financial results could be adversely affected.

Our business could also be adversely impacted by catastrophic events (particularly in areas where we have office locations and/or where we have network infrastructure), such as fires, earthquakes, hurricanes, natural disasters, social or civil unrest, military conflicts or warfare (such as the war in the Ukraine or theongoing conflictconflicts and instability in the Middle East), geographic instability, terrorist attacks, or the effects of climate change (such as drought, flooding, wildfires, increased storm severityseverity, and sea level rise).

As part of our growth strategy, we actively review possible acquisitions, joint ventures, collaborative arrangements, or strategic investments that complement or enhance our business. For example, in 2024,2025, we completed the acquisitions of TCPSVirsys12 and The Clinical Hub.MissionCare. However, we may be unable to source or complete future acquisitions, joint ventures, collaborative arrangements, or other strategic investments on acceptable terms or at all. In addition, if we finance acquisitions, joint ventures, collaborative arrangements, or other strategic initiatives by issuing equity securities, our existing shareholders may be diluted, which could affect the market price of our stock. As a result, if we fail to properly evaluate and execute acquisitions, joint ventures, collaborative arrangements, or strategic investments, our performance or prospects may be seriously harmed. Risks that we may encounter in implementing our acquisition, joint venture, collaborative arrangement, or strategic investment strategies include:

The period from our initial contact with a potential customer and such customer’s first purchase of our solutions typically ranges from three to nine months, and in some cases may be significantly longer. Sales of additional solutions to existing customers may also experience sales cycles ranging from three to nine months, or longer. The range in the sales cycle can be impacted by multiple factors, including customer size, funding uncertainty, an increasing trend towards more formal request for proposal processes and more competition within our industry, increased customer-driven security assessments, as well as formal budget timelines which impact timing of purchases by target customers. New products, including those that may compete with or replace our former product offerings, tend to have a longer and more unpredictable revenue ramp period because of varying customer adoption rates. As a result of these factors, our ability to accurately predict the timing and type of initial sales may be limited. Moreover, while the revenue we receive from particular products and services in our subscription business may be predictable during the term of the applicable contract, the performance of our subscription business may become more subject to fluctuations between quarterly periods as our solution offerings are increasingly diversified and become more sophisticated. Certain professional services contracts are subject to the customers’ involvement in the provision of the product or service. The timing and magnitude of these product and service contracts may vary widely from quarter to quarter and year to year, and thus may affect our ability to accurately forecast our financial performance. In addition, some products can require significant implementation lead times and resources and may require a higher level of change management efforts from our clients, which may also limit our ability to accurately predict our financial performance. Additionally, our ability to accurately predict our financial performance may be further limited as we expand our revenue generating model such that third parties may pay network connection fees based on sales they make.

Many of our competitors and potential competitors have longer operating histories and significantly greater financial, technical, marketing, or other resources than we do. We encounter direct competition from both large and small companies focused on providing solutions that compete with those we offer. Given the profile and growth of the healthcare industry and the ongoing need for training, simulation, scheduling, credentialing, and other information products and services, it is likely that additional competitors will continue to emerge. Additionally, mergers of or other strategic transactions by our competitors could weaken our competitive position. Moreover, our lack of market diversification resulting from our concentration on the healthcare industry may make us susceptible to losing market share to our competitors who also offer solutions, and in some cases a more robust suite of solutions, to a cross-section of industries. These companies may be able to respond more quickly than we can to new or changing opportunities, technologies, standards, or customer requirements. Additionally, the development of AI/ML and other emerging technologies is complex and uncertain and presents various risks and uncertainties, including as the result of the rapidly evolving legal, regulatory, and ethical landscape associated with the use of AI/ML, and could subject us to competitive harm, legal and regulatory risk, and increase our cybersecurity, intellectual property, and privacy risks. Further, given the evolving nature of technology, our technology enabled offerings may be disrupted by innovative or emerging technologies, such as AI/ML, blockchain, Web3, or quantum computing technologies, and such disruption could adversely impact our ability to compete. Further, most of our customer agreements are for terms ranging from one to five years, with no obligation to renew. The terms of these agreements may enable customers to more easily shift to one of our competitors following the expiration of the agreement.

For the year ended December 31, 2024,2025, approximately 96%97% of our net revenue was derived from SaaS-based subscriptions and software licensing agreements. Our product and service contracts typically range from one to five years in length, and customers are not obligated to renew their contract with us after their contract term expires; in fact, some customers have elected not to renew their contract, and thiswe riskbelieve hasis increasedheightened as thea result of current negativeconditions macroeconomicand conditions.instability impacting the healthcare industry. In addition, our customers may renew at a lower price or volume level. Our customers’ renewals may decline or fluctuate as a result of a number of factors, including but not limited to, their dissatisfaction with our service, a dissipation or cessation of their need for one or more of our products or services, pricing, or competitive product offerings. If we are unable to renew a substantial portion of the contracts that are up for renewal or maintain our pricing, our results of operations and financial condition could be adversely affected.

Moreover, as noted above, we generally have contract terms ranging from one to five years, and the fees payable under a majority of contracts were often determined without reference to any increases in the consumer price index or similar inflation-related metric over the term of such contract, although we havecommenced begun to implementimplementing such provisions in certain contracts executedentered into beginning in 2024. As such, particularly for longer term contracts, we have been, and may continue to be, adversely impacted by inflationary conditions such as those that the U.S. economy has experienced in recent periodspressures given that the fees that we are receiving during the outstanding term of such contracts will not be impacted by general price increases resulting from inflation whereas such inflationary conditions may increase the amount of labor, capital, and other expenditures we incur in connection with the operation of our business.

We may be affected by healthcarepublic reformpolicy effortsdevelopments and other changes and uncertainty in the healthcare industry that impact us and our clients.

Our clients are concentrated in the healthcare industry, which is subject to changing regulatory, economic, and political conditions. The healthcare industry has been and continues to be impacted by healthcare reform effects at the federal and state levels. Many recent changes have been aimed at reducing costs and government spending and increasingdecreasing access to health insurance. For example, the Patientfederal Protectionbudget andreconciliation Affordablelegislation Careenacted Act,on July 4, 2025, known as amended by the HealthcareOne andBig EducationBeautiful ReconciliationBill Act of 2010 (collectively, the ACAOBBBA), increasedincludes several healthcare policy changes that are expected to decrease access to health insurance coverage through a combination of public program expansion and private sector insurance reforms. However, changes in the law’s implementation, subsequent legislation and regulations, state initiatives, and other factors have affected and may continue to affect health insurance coverage and various other elements of the ACA.insurance.

In addition, the Medicare and Medicaid programs are subject to change, including as a result of thelegislation recentand changeadministrative in the presidential administration.actions. For example, somethe membersOBBBA is expected to result in Medicaid spending reductions and changes in administration of Congressstate haveMedicaid proposed measures intended to accelerate the shift from traditional Medicare to Medicare Advantage, or repealing the Affordable Care Act or eliminating some of its consumer protections.programs. Changes in governmental administration, including changes in agency structures and staffing, such as reduction or elimination of personnel and agencies, may also result in changes to established rulemaking conventions and timelines, including for regularly issued reimbursement rules, among other effects.

We continue to make changes in the pricing of our offerings so as to increase revenue and meet the needs of our customers. We cannot predict whether the current pricing of our offerings or any ongoing refinements we make will be accepted by our existing customer base or by prospective customers. If our customers and potential customers decide not to accept our current or future pricing or offerings, it could have an adverse effect on our business and results of operations. Additionally, ecosystem partners establish the price for some of the products we market and sell, and we do not have control over such price setting or customer acceptance thereof or reaction thereto.

In addition, our future success will depend on our ability to attract, train, motivate, and retain other highly skilled technical, managerial, marketing, sales, and customer support personnel. We continue to face competition for certain personnel, especially for software developers, web designers, user experience and interaction designers, and sales personnel, and we may be unable to successfully attract sufficiently qualified personnel where needed. Additionally, current competitive labor market conditions have increased, and may continue to increase, our labor costs as well as the difficulty of hiring and retaining qualified personnel where needed. We have experienced in the past, and continue to experience, difficulty hiring qualified personnel in a timely manner for certain positions, and we may not be able to fill certain positions in desired geographic areas or at all. The pool of qualified technical personnel, in particular, is limited. Moreover, recent changes in immigration regulation and enforcement in the United States under the current presidential administration, including in connection with the H-1B visa program, could decrease the pool of candidates with legal work authorizations, cause disruptions in the workforce for companies such as ours, and increase the cost, time and requirements for us to hire new personnel. Many of the companies with which we compete for experienced personnel have greater resources than we have and some of these companies may offer more lucrative compensation packages. We anticipate needing to continue to maintain or increase the size of our staff to support our anticipated growth, without compromising the quality of our offerings or customer service. Our inability to locate, attract, hire, integrate, and retain qualified personnel in sufficient numbers may reduce the quality of our services and impair our ability to grow and adversely impact our financial performance.

A significant portion of our workforce havehas been working remotely since 2020 and we expect a significant portion to continue working remotely under our hybrid workplace model. If we are unable to effectively maintain this hybrid work environment long-term, then we may experience increased attrition, a less cohesive workforce, reduced performance, and less innovation, which may adversely impact our business and financial results.

We may not be able to implement or upgrade our hardware and software technology infrastructure quicklyand enoughinitiatives to effectively meet demand for our services or our operational needs.

The performance of our information systems is critical to our business operations. An unexpected event (including but not limited to a cyber-security incident, such as a ransomware attack, denial-of-service attack, security compromise, or other attempts to misappropriate our confidential information; telecommunications failure; vandalism; fire; earthquake; public health crisis; or other catastrophic loss) at or impacting our Internet service providers’ facilities, our on-site data center facilities, or our public-cloud infrastructure providers, could cause the loss of critical data and prevent us from offering our products and services for an unknown period of time. Although we have taken measures intended to prevent potential problems that could affect our information systems, our or a third party's disaster recovery planning cannot account for all eventualities, or may not be sufficientinsufficient to mitigate against or recover from any of these events. We also may incur increased operating expenses to recover data, including ransom payments made to cyber-attackers, repair or remediate systems, equipment or facilities, and to protect ourselves from such disruptions. In addition, we may encounter challenges as a result of reliance on remote work environments. For example, the daily activities and productivity of our workforce is tied to key vendors, such as video conference services, consistently delivering their services without material disruption. Our ability to deliver information using the Internet and to operate in a remote working environment may be impaired because of infrastructure failures, service outages at third party Internet providers, malicious attacks or other factors. System downtime could negatively affect our reputation and ability to sell our products and services and may expose us to significant third-party claims. Our cyber liability and business interruption insurance may not adequately compensate us for losses that may occur.occur and may exclude certain types of claims or otherwise be insufficient to cover all losses. In addition, we rely on third parties to securely store our archived data, house our infrastructure and network systems, and connect us to the Internet. While our service providers have planned for certain contingencies, the failure by any of these third parties to provide these services satisfactorily and our inability to find suitable replacements would impair our ability to access archives and operate our systems and software, and our customers may encounter delays. Such disruptions could harm our reputation, cause customers to become dissatisfied and possibly take their business to a competing provider, and negatively impact our ability to attract new customers, which would adversely affect our financial performance.

There is no assurance that we, or the third parties with which we interact, will not experience a cybersecurity incident or data breach in the future bypassing our security measures that materially affects us, including as the result of a loss of personal data or other confidential information, or the disruption of our information systems or business. In the future, data breaches or security incidents could result from a variety of circumstances and events, including third party action or inaction, system errors or downtime, employee negligence or error, malfeasance, failures during the process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, telecommunication failures, user errors, catastrophic events, or threats from malicious persons and groups, new vulnerabilities, and advanced new attacks against information systems, including those against our vendors and customers. Moreover, because the techniques used in cybersecurity attacks change frequently and may not be immediately recognized, we may experience cybersecurity incidents that remain undetected for an extended time. Any such security incidents and data breaches involving us or third parties with which we interact could result in business and operational interruptions and delays; the loss, unauthorized access, misappropriation, acquisition, use, disclosure, or corruption of data; result in our inability to access data; damage or adversely impact our information systems; damage our reputation; adversely impact our relationship with key customers and other business relations; and otherwise adversely impact our business. In addition, data and cybersecurity incidents, particularly if a large number of individuals are affected or if the compromised information is highly sensitive, could expose us and our customers to litigation and liability under federal, state, and foreign privacy, security, and consumer protection laws and regulations, such as HIPAA and FERPA or common law theories. Such incidents could also subject us to federal and state governmental disclosure requirements, inquiries, or enforcement, result in civil monetary penalties, settlement agreements, corrective action plans, and monitoring requirements, require us to devote significant management resources to address and respond to any such cybersecurity events, interfere with the pursuit of other important business strategies, and/or cause us to incur additional expenditures, which could be material, including to investigate such events, remedy cybersecurity problems, recover lost data, and adapt systems and practices in response to such events. Moreover, there is no assurance that any remedial actions will meaningfully limit the success of future attempts to breach our information systems or the information systems of third parties with which we interact. Further, we are subject to an increasing number of cybersecurity reporting obligations in different jurisdictions that vary in their scope and application, which may create conflicting reporting obligations and inhibit our ability to quickly provide complete and reliable information about cybersecurity incidents to customers, counterparties, and regulators, as well as the public. In addition, our cyber liability and business interruption insurance may not cover or adequately compensate us for losses that may occur in connection with any cybersecurity incident.

The laws and regulations that govern our business change rapidly, are often inconsistent between jurisdictions, and in certain respects have become, and may continue to become, more complex and restrictive. Evolving areas of law that are relevant to our business include privacy and security laws, proposed encryption laws, content regulation, information security accountability regulation, sales and use tax laws, laws related to the use of AI/ML applications, and regulations and attempts to regulate activities on the Internet. For example, we are directly subject to certain requirements of the HIPAA privacy and security regulations. In addition, we are required through business associate agreements with our customers to protect the privacy and security of protected health information. Further, government laws and regulations that directly affect our customers can have an indirect impact on our business. In addition, there are a variety of other national, foreign, and international laws and regulations that apply to the collection, use, retention, protection, security, disclosure, transfer, and other processing of personal data, including, but not limited to: FERPA, the European Union’s General Data Protection Regulation (GDPR), the United Kingdom's General Data Protection Regulation (which implements the GDPR into U.K. law),Regulation, Canada's Personal Information Protection and Electronic Documents Act (PIPEDA), FERPA, Australia's Privacy Act 1988, and New Zealand's Privacy Act 2020. In addition, many states have passed consumer data privacy laws, and federal lawmakers have proposed additional legislation. The laws and regulations to which we are subject are rapidly evolving and changing and could have an adverse effect on our operations. The obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by government authorities and regulators. Further, enforcement actions under these laws are increasing. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, affect our customers’ willingness to permit us to use and store personal data and sensitive information, prevent us from selling our products or services, and/or affect our ability to invest in or jointly develop products. We may be exposed to litigation, including through private rights of action, regulatory fines, penalties, or other sanctions and damage to our reputation if the personal, confidential, or proprietary information of our customers is not handled in compliance with these laws or is otherwise mishandled or misused by us or any of our suppliers, ecosystem partners, counterparties, or other third parties, or if such third parties do not have appropriate controls in place to protect such personal, confidential, or proprietary information. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. We may also be required to develop features, enhancements, or modifications to our products to support our customers’ evolving compliance obligations. This may require us to divert development and other resources from other areas, incur significant expenditures, or, if we are unsuccessful in delivering these features, enhancements, or modifications, result in monetary damages, loss of revenue or customers, reputational harm, or other adverse impacts to our business.

TheFurther, rapidlya evolvingregulator andor uncertain regulatory and technology environmentcourt could requiredisagree uswith toour changeinterpretation howof we do business or incur additional costs. It may be difficult to predict how changes to applicablethese laws and regulations and current and future initiatives related to technology might affect our business.regulations. Different interpretations or enforcement of, or changes to, relevant laws and regulations in the future could subject our current or past practices to allegations of impropriety or illegality and could require us to alter to our operations. While we strive to adhere our practices and procedures to the laws that are applicable to our business, we may not be able to timely adapt to evolving rules and regulations, interpretations, and regulator determinations. Further, a regulator or court could disagree with our interpretation of these laws and regulations. Failure to comply with applicable legal or regulatory requirements in the U.S. or in any of the countries in which we operate could result in significant legal and financial exposure, damage to our reputation, subject us to administrative, civil, and contractual penalties (including termination of our customer agreements), adversely affect our ability to retain clients and attract new clients, or otherwise have a material adverse effect on our business operations, financial condition, and results of operations.

Despite our efforts to protect our intellectual property rights, as well as the intellectual property rights of our ecosystem partners, a third party could, without authorization, copy or otherwise misappropriate our content, information from our databases, or other intellectual property, including that of our third-party ecosystem partners. Our agreements with employees, consultants, and others who participate in development activities could be breached and result in our trade secrets becoming known. Our competitors may develop similar intellectual property, duplicate our offerings, or design around any patents or other intellectual property rights we hold. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the patents, intellectual property, or other proprietary rights of third parties, which could be time consuming and costly and have an adverse effect on our business and financial condition. Alternatively, competitors and other third parties may independently develop or create content or systems that do not infringe our intellectual property rights. We may not have adequate remedies for such breaches or protections against such competitor developments. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and effective intellectual property protection may not be available in those jurisdictions. If we are unable to safeguard our proprietary rights adequately, our competitors could offer similar services, potentially significantly harming our competitive position and decreasing our revenues.

There has been substantial litigation in the software services and healthcare technology industries regarding intellectual property assets, particularly patents.patents and increasingly with regard to the use of AI in relation to intellectual property assets. Third parties may claim infringement by us with respect to current and future products, trademarks, or other proprietary rights, and we may counterclaim against such third parties in such actions. Any such claims or counterclaims could be time-consuming, result in costly litigation, divert management’s attention, cause product release delays, require us to redesign our products, restrict our use of the intellectual property subject to such claim, or require us to enter into royalty or licensing agreements, any of which could have an adverse effect upon our business, financial condition, and operating results. Such royalty and licensing agreements may not be available on terms acceptable to us, if at all.

Our competitors may develop similar intellectual property, duplicate our offerings, or design around any patents or other intellectual property rights we hold. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the patents, intellectual property, or other proprietary rights of third parties, which could be time consuming and costly and have an adverse effect on our business and financial condition. Intellectual property infringement claims could be made against us and our ecosystem partners, especially as the number of our competitors grows. These claims, even if not meritorious, could be expensive and divert our attention from operating our company and result in a temporary inability to use the intellectual property subject to such claim. In addition, if we, our ecosystem partners, and/or our customers become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and develop comparable non-infringing intellectual property, to obtain a license, or to cease providing the content or services that contain the infringing intellectual property.property, which may result in negative publicity, harm to our reputation, or an adverse effect on our results of operations. We may be unable to develop non-infringing intellectual property or obtain a license on commercially reasonable terms, if at all.

Our payment of dividends, as well as the rate at which we pay dividends, is subject to the discretion of our board of directorsBoard and compliance with applicable legal requirements and our credit agreement, and our board of directorsBoard retains the power to modify, suspend, or cancel our dividend policy in any manner and at any time that our board may deem necessary or appropriate.

As HealthStream's business continues to evolve, we remain solely dedicated to the healthcare marketmarket, and our primary customers continue to be healthcare organizations across the continuum of care and other participants in the healthcare industry, such as nursing schools and nursing students.students, whether through our enterprise applications or our emerging career networks.

Revenues for the year ended December 31, 20242025 were $291.6$304.1 million, compared to $279.1$291.6 million for the year ended December 31, 2023,2024, an increase of 5%.4%. The contributions to growth were $12.4$13.3 million in subscription revenuesrevenues, andpartially wereoffset $0.2by a decrease of $0.9 million in professional services revenues. Subscription revenue increases resulted from growth in several products, including Competency Suite, CredentialStream, and ShiftWizard, coupled with contributions from our recent acquisitions (Virsys12 and Competency Suite,MissionCare), but were partially offset by declines in our legacy credentialing, scheduling, and qualitycontent managementprogram solutions. Operating income increaseddecreased by 33%5% to $20.2 million for 2025, compared to $21.3 million for 2024,2024. comparedNet income decreased to $16.0$18.3 million for 2023.2025, Net income increasedcompared to $20.0 million for 2024, compared to $15.2 million for 2023.2024. Earnings per share were $0.61 per share (diluted) for 2025, compared to $0.66 per share (diluted) for 2024, compared to $0.50 per share (diluted) for 2023. The Company paid $3.4 million and $3.1 million in cash dividends in 2024 and 2023, respectively. As of December 31, 2024, cash, cash equivalents, and marketable securities balances were $97.2 million, and the Company maintained full availability under its $50.0 million revolving credit facility.2024.

RECENTMACROECONOMIC AND INDUSTRY DEVELOPMENTS

Macroeconomic conditionschallenges also persist in the U.S.United have been challengingStates in recent periods in certain respects, including as the resultterms of inflationary pressures, ongoing elevated interest rate levels, which,heightened despitegeopolitical recent declines, remain elevated,tensions, and uncertainstrained geopoliticalglobal conditions.trade Inrelations. thisWhile regard,inflationary weconditions have experienceddecreased in certaincomparison to recent periods, andwe believe that many of our customers have experienced,experienced increased labor, supply chain, capital, and other expenditures associated with recent inflationary conditions.pressures. These conditions and challenges impacting the U.S.United States economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations. In addition, given our focus on customers in the healthcare industry, adverse developments impacting such customers, including downward pressure on federal and state governmental spending, may adversely impact our business and financial results.

Revenues are recognized when or as control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those goods or services. Our contracts with customers often contain promises for multiple goods and services. For these contracts, the Company accounts for the promised goods and services in its contracts as separate performance obligations if they are distinct. The contract price, which represents transaction price when the contract reflects a fixed fee arrangement, or management’s estimate of variable consideration including application of the constraint when the contract does not have a fixed fee, is allocated to the separate performance obligations on a relative standalone selling price basis. WeWhenever generally determinepossible, standalone selling pricesprice is based on observable prices, and when such observable data is not available, the standardCompany listestimates standalone selling price forusing eachan product,approach takingdesigned intoto consideration certain factors, including contract length andmaximize the numberuse of subscriptionsobservable or licenses purchased within the contract.inputs. Judgment is required in determining whether performance obligations are distinct, standalone selling prices, and the amount of variable consideration to reflect as transaction price.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and employee benefits, stock-based compensation, employee travel and lodging, facility expenses, sublease income, office expenses, fees for professional services, business development and acquisition-related costs, third party software licensing costs, provision for credit losses, and other operational expenses. Personnel costs within general and administrative expenses include individuals associated with normal corporate functions, including accounting, legal, business development, human resources, administrative, internal information systems, and executive management.

Other (Expense) Income, Net. The primary components of other (expense) income are interest expense, the income or loss attributed to equity method investments, fair value adjustments related to non-marketable equity investments, and foreign currency gains and losses, and sublease income.losses.

Revenues, net. Revenues increased approximately $12.6$12.5 million, or 5%,4%, to $304.1 million for 2025 from $291.6 million for 2024 from $279.1 million for 2023.2024. Subscription services revenues increased $12.4$13.4 million, or 5%, and professional services revenues increaseddecreased by $0.2$0.9 million, or 2%.8%. SubscriptionThis revenuesubscription increasesservices revenues increase resulted from growth in several products, including Competency Suite, CredentialStream, and ShiftWizard, coupled with contributions from our recent acquisitions (Virsys12 and Competency Suite,MissionCare), but were partially offset by declines in our legacy credentialing, scheduling, and qualitycontent managementprogram solutions. Compared to the year ended December 31, 2024, revenues for the year ended December 31, 2025 grew by $23.4 million across our portfolio of solutions, including $1.6 million from the Virsys12 and MissionCare acquisitions, but were partially offset by a $9.3 million reduction from legacy applications and a $1.6 million reduction from customer bankruptcies.

Cost of Revenues (excluding depreciation and amortization). Cost of revenues increased $2.9$9.3 million, or 3%,9%, to $107.2 million for 2025 from $97.9 million for 2024 from $95.0 million for 2023.2024. Cost of revenues as a percentage of revenues were 35% and 34% of revenues for both 20242025 and 2023.2024, respectively. The increase in expense is primarily associated with higher costs for cloud hosting, third-party software, cloud hosting,labor and benefits, royalties, partiallyand offsetstock-based bycompensation aand decreaserelated inexpenses severanceand costsemployer incurredpayroll taxes related to the stock awards granted during the three months ended December 31, 2025 in connection with the Company'scontribution previouslyof disclosedstock restructuringby underour achief singleexecutive platformofficer strategyto inenable 2023.such grants (the "CEO Stock Gift") as noted above.

Product Development. Product development expenses increased $3.4$2.1 million, or 7%,4%, to $51.0 million for 2025 from $48.9 million for 2024 from $45.5 million for 2023.2024. Product development expenses as a percentage of revenues were 17% and 16% of revenues for 2024both 2025 and 2023, respectively.2024. The increase in expense is primarily due to a charge for stock-based compensation related to the CEO Stock Gift as noted above coupled with increases in labor and benefits.

Sales and Marketing. Sales and marketing expenses increased $1.5$2.2 million, or 3%,5%, to $49.4 million for 2025 from $47.2 million for 2024 from $45.7 million for 2023.2024. Sales and marketing expenses as a percentage of revenues were 16% of revenues for both 20242025 and 2023.2024. The increase in expense is primarily due to increased labor and benefits, sales commissions, general marketing expenses, software expenses, and travel, which were partially offset by a decreasecharge infor laborstock-based andcompensation benefits.related to the CEO Stock Gift as noted above.

General and Administrative Expenses. General and administrative expenses decreased $0.6$2.3 million, or 1%,7%, to $32.8 million for 2025 from $35.1 million for 2024 from $35.7 million for 2023.2024. General and administrative expenses as a percentage of revenues were 12%11% and 13%12% of revenues for 20242025 and 2023,2024, respectively. The decrease in expense is primarily due to decreasessublease income associated with the office sublease that commenced during the second quarter of 2025 as noted above and a reduction in laborbad anddebt benefits, professional service fees, facilities costs, and telecom expenses,expense, which were partially offset by an increase in badsoftware debt expense primarily related to customer bankruptcies during the secondexpenses and fourthlabor quartersand of 2024.benefits.

Depreciation and Amortization. Depreciation and amortization increased $0.1$2.3 million, or 1%,5%, to $43.5 million for 2025 from $41.2 million for 2024 from $41.1 million for 2023.2024. The increase resulted primarily from higher amortization of capitalized software, partially offset by lower depreciation expense.software.

Income Tax Provision. The Company recorded a provision for income taxes of $4.8$4.9 million and $3.3$4.8 million for 20242025 and 2023,2024, respectively. The Company’s effective tax rate was 19%21% for 20242025 compared to 18%19% for 2023.2024. 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 research &and experimentation tax credits.

Net Income. Net income increaseddecreased $4.8$1.7 million, or 32%,8%, to $18.3 million for 2025 compared to $20.0 million for 2024 compared to $15.2 million for 2023 as a result of the factors mentioned above.2024. The increasedecrease in net income for 20242025 compared to 20232024 was primarily driven by ana increasecharge infor revenuestock-based compensation and related expenses and employer payroll taxes related to stock awards granted during the three months ended December 31, 2025 as wellnoted as from revenue increasing at a higher rate than expenses.above. Earnings per diluted share were $0.61 per share (diluted) for 2025, compared to $0.66 per share (diluted) for 2024, compared to $0.50 per share (diluted) for 2023.2024.

Adjusted EBITDA increased 9%$5.0 million, or 7%, to $71.8 million for 2025 compared to $66.8 million for 2024 compared to $61.3 million for 2023.2024. The increase resulted from the factors mentioned above. Adjusted EBITDA is a non-GAAP financial measure which we define as net income excluding the impact of the deferred revenue write-downs associated with fair value accounting for acquired businesses and before interest, income taxes, stock-based compensation,compensation expense, depreciation and amortization, impairments of long-lived assets, changes in fair value of contingent consideration, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments. See "Reconciliation of Non-GAAP Financial Measures" below for a reconciliation of this calculation to the most comparable measure under U.S. GAAP and information regarding why this non-GAAP financial measure provides useful information to investors.

In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, stock-based compensation, depreciation and amortization, impairments of long-lived assets, changes in fair value of contingent consideration, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments ("adjusted EBITDA"), is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items which may not, in any such case, fully reflect the underlying operating performance of our business. InBeginning addition,with asthe discussedpresentation below,of adjusted EBITDA for periodsthe year ended on or prior to December 31, 2023,2025, the Company has included adjustments in the definition of adjusted EBITDA excludesfor the impactimpairments of deferredlong-lived revenueassets write-downsand associatedchanges within fair value accountingof forcontingent acquiredconsideration businesses.because the Company believes that these amounts may not be reflective of the underlying operating performance of our business, and that including these adjustments is consistent with the intended purpose of adjusted EBITDA with respect to reflecting the underlying operating performance of our business and comparing the Company’s operational performance between periods. We believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operating performance and to compare the Company’s operating performance between periods. Additionally, certain short-term cash incentive bonuses and performance-based equity awards are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Net cash provided by operating activities was $63.3 million during 2025, compared to $57.7 million during 2024, comparedan to $64.0 million during 2023, a decreaseincrease of 10%. The decreaseincrease in net cash provided by operating activities is primarily due to a $6.1 millionan increase in cash receipts and lower income tax payments and higher cash disbursements at the end of 2024 as compared to the end of 2023, while cash receipts increased modestly compared to the prior year.year, but was partially offset by an increase in labor costs, cloud hosting, and third party software. Our days sales outstanding (DSO) was 4037 days and 4640 days for 20242025 and 2023,2024, respectively. The Company calculates DSO by dividing the average accounts receivable balance (excluding unbilled and other receivables) by average daily revenues for the year. 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, income tax payments, and general corporate expenses.

On October 6, 2023, the Company entered into a new revolving credit facility, which amended and replaced our prior revolving credit facility. There currently arehas no outstanding borrowings underand theexpires newon revolvingOctober credit6, facility.2026. For additional information regarding the new revolving credit facility, see Note 12 to the Consolidated Financial Statements included herein.

OurThe Company's balance sheet reflected negative working capital of $4.5 million at December 31, 2025, compared to positive working capital of $37.4 million at December 31, 2024, compared to $11.8 million at December 31, 2023.2024. The increasedecrease in working capital was primarily due to increasesdecreases in cash, cash equivalents, and marketable securities.securities to fund acquisitions and share repurchases. The Company’s primary source of liquidity was $97.2$57.0 million of cash, cash equivalents, and marketable securities as of December 31, 2024.2025. The Company also has up to $50.0 million of availabilityavailable under our Revolvingrevolving Creditcredit Facility,facility, subject to certain covenants and minimum liquidity requirements.requirements, until its expiration in October 2026.

On SeptemberMay 13,8, 2023,2025, the CompanyCompany’s announcedBoard approved a share repurchase program approved byfor the Company’s Boardcommon of Directorsstock, under which the Company was authorized to purchaserepurchase up to $10.0$25.0 million of itsoutstanding shares of common stock. Pursuant to thisthe authorization, the Company was authorized to make repurchases could be made in the open market, including under a Rule 10b5-1 plan, through privately negotiated transactions, or otherwise. UnderThis thisshare program,repurchase duringprogram 2023,provided that it would terminate on the earlier of May 31, 2026, or when the maximum dollar amount under the program was expended. During the year ended December 31, 2025, the Company repurchased 404,188905,786 shares of common stock at an aggregate fair value of $8.9$25.0 million,million under this authorization, reflecting an average price per share of $22.07$27.60 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of 2022). TheThis share repurchase program expiredended accordingin toJuly its2025 termswhen onthe Marchmaximum 31,dollar 2024,amount andunder nothis repurchasesprogram occurredwas during 2024.expended.

Pursuant to the dividend policy approved by our Board on February 20, 2023, the Board of Directors authorized the following quarterly dividend payments during 20242025:

On February 24,23, 2025,2026, as previously disclosed, our Board of Directors approved a quarterly dividend at a rate of $0.031$0.035 per share, which represented an increase of 11%12.9% compared to the quarterly dividend per share in 20242025 as set forth above. This quarterly dividend shall be payable on March 21,20, 20252026 to the holders of record of all of the issued and outstanding shares of common stock as of the close of business on March 10,9, 2025.2026.

The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our Board’s continuing determination that the policy and the declaration of dividends thereunder are in the best interests of our stockholdersshareholders and are in compliance with applicable law and our credit agreement. Our Board retains the power to modify, suspend, or cancel the dividend policy in any manner and at any time that our Board may deem necessary or appropriate.

The Company's contractual obligations arising in the normal course of business primarily consist of operating lease obligations and purchase obligations. The amounts included as contractual obligations represent the non-cancelable portion of agreements or the minimum cancellation fee. As further discussed in Note 13 to the Company's Consolidated Financial Statements, as of December 31, 2024,2025, we had operating lease obligations of approximately $24.6$20.9 million, of which $3.9 million is expected to be paid within 12 months. The Company's purchase obligations that represent non-cancelable contractual obligations primarily relate to information technology assets and our revolving credit facility, which facility is described further in Note 12 to the Company's Consolidated Financial Statements. As of December 31, 2024,2025, the Company had purchase obligations of $10.1$13.7 million, with $5.5$8.6 million expected to be paid within 12 months. The Company also has earn-out obligations related to recent acquisitions of up to $14.5 million based on the acquired business achieving specific revenue targets for up to a three-year post-acquisition period. As of December 31, 2025, the estimated fair value of this earn-out obligation was $6.0 million, which reflects the probability-weighted assessment of future performance outcomes and discounting to present value. No earn-out payments are expected to be paid within 12 months. We believe that our existing cash, cash equivalents, marketable securities, forecasted free cash generated from operations,flows, and available borrowings under our revolving credit facility through its expiration in October 2026 will be sufficient to meet anticipated working capital needs, new product development, effect any share repurchases we may elect to make, pay our quarterly cash dividends, and fund capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

In December 2023, the Financial Account Standards Board ("FASB") issued Account Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to provide disclosure of disaggregated information in the entity’s tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024. The Company isadopted currentlythis evaluatingstandard effective January 1, 2025 using a prospective method. Prior period disclosures have not been adjusted to reflect the impactnew ofdisclosure adoptingrequirements. ASUFor 2023-09;further however,information, it is not expectedrefer to haveNote a9 material impact onto the Company's financialConsolidated statements.Financial Statements.

Significant financial metrics for the firstsecond quarter of 2026 are set forth in the bullets below.

During the first quarter of 2025, we entered into an agreement to sublease a portion of our office space in the Capitol View building in Nashville, Tennessee to optimize our workforce performance to deliver positive results for customers, employees, and shareholders. HealthStream’s corporate headquarters remains in Nashville in the Capitol View building, while we continue to hire new employees both locally and nationally to support our growth. The sublease commenced in April 2025 and will expire in October 2031. We recorded sublease income, net of initial direct cost amortization, of $0.8 million and $1.6 million during the three and six months ended MarchJune 31,30, 2026.2026, respectively. In addition, we expect to record sublease income, net, of approximately $2.4$1.6 million during the last ninesix months of 2026 and $3.2 million annually thereafter for the remaining term of the sublease under the caption General and Administrative.

Macroeconomic challenges also persist in the United States in terms of inflationary pressures that have moderated fromin recentcomparison to certain earlier periods but continue to affect cost structures, ongoing elevated interest rate levels, heightened geopolitical tensions (including as a result of ongoing conflicts in the Middle East), and strained global trade relations. We believe that many of our customers have experienced increased labor, supply chain, capital, and other expenditures associated with recent inflationary pressures. These conditions and challenges impacting the United States economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

Revenues, net. Revenues increased $7.7$9.3 million, or 11%,13%, to $81.2$83.7 million for the three months ended MarchJune 31,30, 2026 from $73.5$74.4 million for the three months ended MarchJune 31,30, 2025. Subscription revenues increased by $7.6$8.0 million, or 11%, and professional services revenues increased by $0.1$1.3 million compared to the firstsecond quarter of 2025. Compared to the firstsecond quarter of 2025, revenue growth for the firstsecond quarter of 2026 was positively impacted by $5.7 million of growth across our existing portfolio of solutions and $3.4$3.1 million from our acquisitions of Virsys12 and MissionCare completed during the threefourth monthsquarter endedof December2025 31,and 2025,$7.5 butmillion wasfrom growth across our existing portfolio solutions, of which $2.0 million related to a variable consideration constraint, which has been resolved and recognized as a cumulative catch-up in accordance with ASC 606 during the second quarter of 2026, partially offset by a $1.4$1.3 million reduction from legacy applications.

Cost of Revenues (excluding Depreciation and Amortization). Cost of revenues increased $2.3$2.7 million, or 9%,10%, to $27.8$29.0 million for the three months ended MarchJune 31,30, 2026, from $25.5$26.4 million for the three months ended MarchJune 31,30, 2025. Cost of revenues as a percentage of revenues were 34% and 35% for both the three months ended MarchJune 31,30, 2026 and 2025, respectively.2025. The increase in amount is primarily associated with investmentsgrowth in several areas of our business, primarily in our platform and SaaS applications, resulting in higher labor costs, increased royalties expense, and higher third-party software andexpenses, labor costs, cloud hosting expenses, and royalties expense, coupled with increases in expenses from the Virsys12 and MissionCare acquisitions.

Product Development. Product development expenses increased $1.6$1.5 million, or 13%,12%, to $13.6 million for the three months ended MarchJune 31,30, 2026, from $12.0$12.1 million for the three months ended MarchJune 31,30, 2025. Product development expenses as a percentage of revenues were 17% and 16% for both the three months ended MarchJune 31,30, 2026 and 2025, respectively.2025. The increase in expense is primarily due to an increase in labor costs along with increases in expenses from the Virsys12 and MissionCare acquisitions.

Sales and Marketing. Sales and marketing expenses, including personnel costs, increased $0.9$1.7 million, or 7%,14%, to $13.0$13.5 million for the three months ended MarchJune 31,30, 2026, from $12.1$11.8 million for the three months ended MarchJune 31,30, 2025. Sales and marketing expenses as a percentage of revenue were 16% andfor 17% of revenues forboth the three months ended MarchJune 31,30, 2026 and 2025, respectively.2025. The increase in amount is primarily due to increased sales commissionscommissions, and higher labor costs, coupledalong with increases in expenses from the Virsys12 and MissionCare acquisitions.

General and Administrative. General and administrative expenses decreasedincreased $0.7$0.6 million, or 8%,9%, to $8.0 million for the three months ended MarchJune 31,30, 2026, from $8.7$7.4 million for the three months ended MarchJune 31,30, 2025. General and administrative expenses as a percentage of revenue were 10% andfor 12% of revenues forboth the three months ended MarchJune 31,30, 2026 and 2025, respectively.2025. The decreaseincrease in amount is primarily due to subleasehigher incomeprofessional associatedservices expenses along with the office sublease that commenced during the second quarter of 2025 as noted above, partially offset by increases in expenses from the Virsys12 and MissionCare acquisitions.

Depreciation and Amortization. Depreciation and amortization expense increased $0.6$0.4 million, or 6%,4%, to $11.4$11.3 million for the three months ended MarchJune 31,30, 2026, from $10.8$10.9 million for the three months ended MarchJune 31,30, 2025. This increase in amount is due to increased amortization associated with capitalized software coupled with increased amortization associated with the acquired intangibles from Virsys12 and MissionCare.

Interest Income. Interest income was $0.4$0.5 million and $0.9$1.0 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. This decrease is a result of lower cash balances and lower interest rates on invested funds.

Other Expense,(Expense) Income, Net. Other expense,(expense) income, net was expense of $0.1 million and income of $23,000 for both the three months ended MarchJune 31,30, 2026 and 2025.2025, respectively.

Income Tax Provision. The Company recorded a provision for income taxes of $1.9$2.0 million for the three months ended MarchJune 31,30, 2026, compared to $0.9$1.5 million for the three months ended MarchJune 31,30, 2025. The Company’s effective tax rate was 24%23% for the three months ended MarchJune 31,30, 2026, compared to 17%22% for the three months ended MarchJune 31,30, 2025. 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.

Net Income. Net income was $5.9$6.7 million and $4.3$5.4 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. EPS was $0.20$0.23 per share (diluted) and $0.14$0.18 per share (diluted) for the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Adjusted EBITDA was $20.1$20.6 million for the three months ended MarchJune 31,30, 2026, compared to $16.2$17.6 million for the three months ended MarchJune 31,30, 2025. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of adjusted EBITDA to the most directly comparable measure under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.

In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, stock-based compensation, depreciation and amortization, impairments of long-lived assets, changes in fair value of contingent consideration, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments (“adjusted EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items which may not, in any such case, fully reflect the underlying operating performance of our business. Beginning with the presentation of adjusted EBITDA for the year ended December 31, 2025, the Company has included adjustments in the definition of adjusted EBITDA for impairment of long-lived assets and changes in fair value of contingent consideration because the Company believes that these amounts may not be reflective of the underlying operational performance of our business and that including these adjustments is consistent with the intended purpose of adjusted EBITDA with respect to reflecting the underlying operating performance of our business and comparing the Company’s operational performance between periods. We believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operating performance and to compare the Company’s operating performance between periods. In addition, certain short-term cash incentive bonuses and performance-based equity awards are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Net cash provided by operating activities increased by $0.1$8.5 million to $27.1$40.6 million during the threesix months ended MarchJune 31,30, 2026. The increase in net cash provided by operating activities is primarily due to higher cash receipts from customers during the period, partially offset by higher payments for personnel related expensesexpenses, sales commissions, and salesthird-party commissions.software. Our days sales outstanding ("DSO") was 3938 days for the firstsecond quarter of 2026 compared to 3735 days for the firstsecond quarter of 2025. 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, income tax payments, and general corporate expenses, and initial direct costs related to the sublease discussed above.expenses.

Net cash used in investing activities was $6.3$18.2 million for the threesix months ended MarchJune 31,30, 2026, compared to $7.2$18.4 million for the threesix months ended MarchJune 31,30, 2025. During the threesix months ended MarchJune 31,30, 2026, the Company invested in marketable securities of $10.2$22.7 million, made payments for capitalized software development of $6.7$14.3 million, purchased strategic investments of $1.8$2.6 million, purchased property and equipment of $0.7$1.7 million, and paid a $0.3 million post-closing working capital adjustment related to the acquisition of MissionCare. These uses of cash were partially offset by $13.4$23.3 million in maturities of marketable securities. During the threesix months ended MarchJune 31,30, 2025, the Company invested in marketable securities of $9.2$26.1 million, made payments for capitalized software development of $7.8$14.5 million, purchased property and equipment of $1.1$3.4 million.million, and purchased an investment of $0.5 million. These uses of cash were partially offset by $11.3$26.1 million in maturities of marketable securities.

Net cash used in financing activities was $8.3$12.3 million for the threesix months ended MarchJune 31,30, 2026, compared to $2.0$21.1 million for the threesix months ended MarchJune 31,30, 2025. The uses of cash for the threesix months ended MarchJune 31,30, 2026 included $6.7$9.3 million for repurchases of common stock, $1.0$2.1 million for the payment of cash dividends, and $0.6 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.units, and $0.4 million for an earn-out payment related to a prior acquisition. The uses of cash for the threesix months ended MarchJune 31,30, 2025 included $18.1 million for repurchases of common stock, $1.9 million for the payment of cash dividends, and $1.1 million for the payment of employee payroll taxes in relation to the vesting of restricted share units and $0.9 million for the payment of cash dividends.units.

Our balance sheet reflects negativepositive working capital of $3.5$7.6 million at MarchJune 31,30, 2026, compared to negative working capital of $4.5 million at December 31, 2025. The change in working capital is primarily a result of an increase in cash and cash equivalents. The Company’s primary source of liquidity as of MarchJune 31,30, 2026 was $48.7$46.2 million of cash and cash equivalents and $17.8$20.6 million of marketable securities.

The Company also has a $50.0 million revolving credit facility, the availability of which is subject to certain covenants and minimum liquidity requirements. There currently are no outstanding borrowings under the revolving credit facility. The revolving credit facility expires on October 6, 2026, whichunless earlier renewed, amended, or replaced. Prior to the expiration of this facility, we intendexpect to renewevaluate our liquidity needs and financing alternatives, including whether to renew, amend, or replace the Revolving Credit Facility We can provide no assurance that any such renewal, amendment, or replacement of this facility will be available on orterms prioracceptable to itsus expiration.or at all. For additional information regarding our revolving credit facility, see Note 8 to the Condensed Consolidated Financial Statements included herein.

On February 20, 2023, we announced that our Board approved a quarterly dividend policy, under which we have paid dividends on a quarterly basis since our adoption of this policy. Under this dividend policy, the Board declared, and the Company paid, quarterly cash dividends on our common stock at the rate of $0.025 per share, $0.028 per share, and $0.031 per share during the years ended December 31, 2023, December 31, 2024, and December 31, 2025, respectively. On February 23, 2026, the Board approved a quarterly cash dividend under this policy of $0.035 per share, which was paid on March 20, 2026 to holders of record of our common stock on March 9, 2026. In addition, onOn May 4, 2026, the Board approved a quarterly cash dividend under this policy of $0.035 per share, which willwas be payablepaid on May 29, 2026 to holders of record of our common stock on May 18, 2026. On August 3, 2026, the Board approved a quarterly cash dividend under this policy of $0.035 per share, payable on August 28, 2026 to holders of record on August 17, 2026.

On November 11, 2025, the Board approved a share repurchase program under which the Company was authorized to repurchase up to $10.0 million of its outstanding shares of common stock. Pursuant to this authorization, the Company was authorized to make repurchases in the open market, including under Rule 10b5-1 plans, through privately negotiated transactions, or otherwise. The terms of this program provided that it would terminate on the earlier of February 26, 2026, or when the maximum dollar amount had been expended. During the threesix months ended MarchJune 31,30, 2026, the Company repurchased and subsequently retired 222,978 shares of common stock at an aggregate fair value of $5.0 million,million under this authorization, reflecting an average price per share of $22.42 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of 2022). This program terminated in January 2026 when the maximum dollar amount under this program was expended.

On March 13, 2026, the Company announced the adoption of a new share repurchase program approved by the Board under which the Company is authorized to repurchase up to $10.0 million of its outstanding shares of common stock. Pursuant to this authorization, the Company is authorized to make repurchases in the open market, including under Rule 10b5-1 plans, through privately negotiated transactions, or otherwise. This share repurchase program terminates on the earlier of September 12, 2026 or when the maximum dollar amount under the plan has been expended. During the threesix months ended MarchJune 31,30, 2026, the Company repurchased 119,367209,498 shares of common stock at an aggregate fair value of $2.5$4.3 million under this authorization, reflecting an average price per share of $20.94$20.51 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of 2022), and the Company continued to repurchase shares pursuant to this authorization during the second quarter of 2026, repurchasing 90,131 additional shares valued at $1.8 million through April 30, 2026.. This share repurchase program does not require the Company to acquire any amount of shares and may be suspended, modified, or discontinued at any time.

We believe that our existing cash, cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility (availablethrough throughthe date of its maturity on October 6, 2026) and any amended, renewed, or replacement credit facility that we may enter into in connection with the upcoming maturity of our current revolving credit facility as noted above, will be sufficient to meet anticipated working capital needs, new product development, pay our quarterly dividends, any share repurchases we may elect to make under any future share repurchase program, and fund capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

The Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that complement or enhance our business. It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, debt, or a combination thereof. 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 consolidated EBITDA (as defined in our credit facility) and an interest coverage ratio of consolidated EBITDA to interest expense. Therefore, the maximum borrowings against our revolving credit facility would be dependent on the covenant calculations at the time of borrowing. As of March 31,June 30, 2026, we were in compliance with all covenants under our revolving credit facility. 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 provide assurance that if we need additional financing, 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.