HEALTHSTREAM INC 10-Q

Item 1. Financial Statements   HEALTHSTREAM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands)       March 31,     December 31,       2022     2021   ASSETS                 Current assets:                 Cash and cash equivalents   $ 43,370     $ 46,905   Marketable securities     2,008       5,041   Accounts receivable, net of allowance for doubtful accounts of $ 541 and $ 853 at March 31, 2022 and December 31, 2021, respectively     35,739       30,308   Accounts receivable - unbilled     5,049       4,612   Prepaid royalties, net of amortization     11,188       9,155   Other prepaid expenses and other current assets     9,872       10,824   Total current assets     107,226       106,845                     Property and equipment, net of accumulated depreciation of $ 19,270 and $ 17,999 at March 31, 2022 and December 31, 2021, respectively     17,070       17,950   Capitalized software development, net of accumulated amortization of $ 90,537 and $ 86,097 at March 31, 2022 and December 31, 2021, respectively     34,131       32,412   Operating lease right of use assets, net     24,589       25,168   Goodwill     182,785       182,501   Customer-related intangibles, net of accumulated amortization of $ 47,847 and $ 45,615 at March 31, 2022 and December 31, 2021, respectively     66,661       68,803   Other intangible assets, net of accumulated amortization of $ 18,140 and $ 16,752 at March 31, 2022 and December 31, 2021, respectively     19,016       20,402   Deferred tax assets     601       601   Deferred commissions     24,142       24,012   Non-marketable equity investments     6,767       7,043   Other assets     938       1,016   Total assets   $ 483,926     $ 486,753                     LIABILITIES AND SHAREHOLDERS’ EQUITY                 Current liabilities:                 Accounts payable and accrued expenses   $ 17,770     $ 21,497   Accrued royalties     6,914       5,037   Deferred revenue     89,878       73,816   Total current liabilities     114,562       100,350                     Deferred tax liabilities     18,841       18,146   Deferred revenue, noncurrent     990       1,583   Operating lease liability, noncurrent     25,496       26,178   Other long term liabilities     1,465       1,477   Commitments and contingencies                                       Shareholders’ equity:                 Common stock, no par value, 75,000 shares authorized; 30,518 and 31,327 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively     251,179       270,791   Retained earnings     71,015       68,122   Accumulated other comprehensive income     378       106   Total shareholders’ equity     322,572       339,019   Total liabilities and shareholders’ equity   $ 483,926     $ 486,753     See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.     1 Table of Contents     HEALTHSTREAM, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)       Three Months Ended       March 31, 2022     March 31, 2021   Revenues, net   $ 65,367     $ 63,468   Operating costs and expenses:                 Cost of revenues (excluding depreciation and amortization)     21,998       22,748   Product development     10,412       9,525   Sales and marketing     10,417       9,019   Other general and administrative expenses     9,183       9,723   Depreciation and amortization     9,322       9,153   Total operating costs and expenses     61,332       60,168                     Operating income     4,035       3,300                     Other loss, net     ( 276 )     ( 87 )                   Income before income tax provision     3,759       3,213   Income tax provision     866       922   Net income   $ 2,893     $ 2,291                     Net income per share:                 Basic   $ 0.09     $ 0.07   Diluted   $ 0.09     $ 0.07                     Weighted average shares of common stock outstanding:                 Basic     30,955       31,504   Diluted     30,976       31,526     See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.   2 Table of Contents     HEALTHSTREAM, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands)       Three Months Ended       March 31, 2022     March 31, 2021   Net income   $ 2,893     $ 2,291                     Other comprehensive income, net of taxes:                 Foreign currency translation adjustments     278       230   Unrealized (loss) gain on marketable securities     ( 6 )     4   Total other comprehensive income     272       234   Comprehensive income   $ 3,165     $ 2,525     See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.   3 Table of Contents     HEALTHSTREAM, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (In thousands)       Three Months Ended March 31, 2022       Common Stock     Retained     Accumulated Other Comprehensive     Total Shareholders’       Shares     Amount     Earnings     Income     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 )     —       —       ( 498 ) Repurchase of common stock     ( 892 )     ( 19,889 )     —       —       ( 19,888 ) Balance at March 31, 2022     30,518     $ 251,179     $ 71,015     $ 378     $ 322,572         Three Months Ended March 31, 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     See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.   4 Table of Contents     HEALTHSTREAM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)       Three Months Ended March 31,       2022     2021   OPERATING ACTIVITIES:                 Net income   $ 2,893     $ 2,291   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation and amortization     9,322       9,153   Stock-based compensation     774       616   Amortization of deferred commissions     2,484       2,133   Provision for credit losses     6       142   Deferred income taxes     684       486   Loss on non-marketable equity investments     276       54   Non-cash paid time off expense     —       ( 1,011 ) Other     26       15   Changes in operating assets and liabilities:                 Accounts and unbilled receivables     ( 5,874 )     7,379   Prepaid royalties     ( 2,033 )     ( 2,215 ) Other prepaid expenses and other current assets     952       2,521   Deferred commissions     ( 2,614 )     ( 3,602 ) Other assets     79       ( 76 ) Accounts payable and accrued expenses     ( 3,653 )     ( 5,339 ) Accrued royalties     1,877       ( 305 ) Deferred revenue     15,456       6,862   Net cash provided by operating activities     20,655       19,104                     INVESTING ACTIVITIES:                 Business combinations, net of cash acquired     ( 22 )     ( 731 ) Proceeds from maturities of marketable securities     5,025       4,500   Purchases of marketable securities     ( 2,024 )     ( 5,205 ) Payments to acquire non-marketable equity investments     —       ( 1,000 ) Payments associated with capitalized software development     ( 6,305 )     ( 5,326 ) Purchases of property and equipment     ( 636 )     ( 1,898 ) Net cash used in investing activities     ( 3,962 )     ( 9,660 )                   FINANCING ACTIVITIES:                 Taxes paid related to net settlement of equity awards     ( 497 )     ( 399 ) Repurchases of common stock     ( 19,726 )     —   Payment of cash dividends     —       ( 12 ) Net cash used in financing activities     ( 20,223 )     ( 411 )                   Effect of exchange rate changes on cash and cash equivalents     ( 5 )     ( 251 ) Net (decrease) increase in cash and cash equivalents     ( 3,535 )     8,782   Cash and cash equivalents at beginning of period     46,905       36,566   Cash and cash equivalents at end of period   $ 43,370     $ 45,348                       See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.   5 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   1.   BASIS OF PRESENTATION   The accompanying unaudited 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 and Article 10 of Regulation 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 months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.   The Condensed Consolidated Balance Sheet at December  31,   2021  was derived from the audited Consolidated Financial Statements at that date 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 and Notes thereto for the year ended December  31,   2021  (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 28, 2022).   2. RECENT ACCOUNTING PRONOUNCEMENTS   Accounting Standards Recently Adopted   In  October 2021,  the Financial Accounting Standards Board issued Accounting Standards Update ("ASU")  2021 - 08 ,   Business Combinations (Topic   805 ): 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 be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification ("ASC") 606 ,   Revenue from Contracts with Customers , as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The standard will be 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 adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will  not  impact contract assets or liabilities from business combinations that occurred prior to the adoption date.   3. REVENUE RECOGNITION AND SALES COMMISSIONS   Revenue Recognition   Revenues are recognized when 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.   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 following table represents revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.       Three Months Ended March 31, 2022       Workforce Solutions     Provider Solutions     Consolidated   Subscription services   $ 50,553     $ 11,522     $ 62,075   Professional services     1,486       1,806       3,292   Total revenues, net   $ 52,039     $ 13,328     $ 65,367         Three Months Ended March 31, 2021       Workforce Solutions     Provider Solutions     Consolidated   Subscription services   $ 49,770     $ 10,597     $ 60,367   Professional services     1,477       1,624       3,101   Total revenues, net   $ 51,247     $ 12,221     $ 63,468       6 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   For the three months ended March 31, 2022 and 2021 , the Company recognized $ 6,000  and $ 0.1  million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.   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  March 31, 2022 and 2021 , we recognized revenues of approximately $ 34.6  million and $ 33.6  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. As of March 31, 2022 , approximately $ 444  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 recorded amortization of deferred commissions of approximately $ 2.5  million and $ 2.1  million for the three  months ended March 31, 2022 and 2021 , respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.   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 both the three  months ended March 31, 2022 and 2021 , the Company recorded a provision for income taxes of approximately $ 0.9  million. The Company’s effective tax rate was 23 % and 29 % for the three months ended March 31, 2022 and 2021 , respectively. 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 three months ended March 31, 2022 , the Company recorded discrete tax expense of $ 0.1  million, which consisted primarily of tax deficiencies associated with stock-based awards. During the three months ended March 31, 2021 , the Company recorded discrete tax expense a $ 0.1  million related primarily to a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period.    5.   SHAREHOLDERS ’ EQUITY   Stock-Based Compensation   The Company has stock awards outstanding under its 2016 Omnibus Incentive Plan. The Company accounts for its stock-based compensation plan using the fair-value based method for costs related to share-based payments, including restricted share units (“RSUs”) and stock options. During the three months ended March 31, 2022 , the Company approved the grant of  135,352  RSUs subject to service-based time vesting, of which 35,161 of these RSUs were conditioned upon and subject to shareholder approval of our 2022 Omnibus Incentive Plan to be submitted to the Company's shareholders for approval at the annual meeting of the Company's shareholders to be held on May 26, 2022. Of these, the 100,191 RSUs that were not conditioned on shareholder approval of our 2022 Omnibus Incentive Plan were granted with a weighted average grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company’s stock on the date of grant. Applicable accounting standards require that the 35,161 RSUs conditioned upon approval of our 2022 Omnibus Incentive Plan not be valued unless and until the condition is met (that is, at such time that the 2022 Omnibus Incentive Plan is approved by shareholders at the annual meeting of the Company’s shareholders on May 26, 2022). During the three months ended March 31, 2021 , the Company issued 121,551  RSUs subject to service-based time vesting with a weighted average grant date fair value of $ 23.16  per share, measured based on the closing fair market value of the Company’s stock on the date of grant.   During the three months ended June 30, 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 in increments of 10 %, 15 %, 20 %, 25 %, and 30 % based on performance in 2018, 2019, 2020, 2021, and 2022, respectively. The performance criteria for the final  21,000 of these performance-based RSUs is based on 2022 performance. The measurement date for these 21,000 performance-based RSUs was established during the three months ended March 31, 2022 with a grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established.    7 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   During the three months ended March  31, 2022, the Company approved the grant of 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, of which 17,224 performance-based RSUs were conditioned upon and subject to shareholder approval of our 2022 Omnibus Incentive Plan to be submitted to the Company’s shareholders for approval at the annual meeting of the Company’s shareholders on May 26, 2022. Of the total amount of performance-based RSUs approved by the Company, the performance criteria for  13,654  of these performance-based RSUs is based on 2022 performance. The measurement date for the  11,070 of these performance-based RSUs that are not conditioned on approval of the 2022 Omnibus Incentive Plan at the annual meeting of shareholders on May 26, 2022 was established during the three months ended March 31, 2022 with a grant date fair value of $ 20.32  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established. Applicable accounting standards require that the 17,224 performance-based RSUs conditioned upon approval of our 2022 Omnibus Incentive Plan (including 2,584 of these performance-based RSUs for which performance criteria will be based on 2022 performance) not be valued unless and until the condition is met (that is, at such time that the 2022 Omnibus Incentive Plan is approved by shareholders at the annual meeting of the Company’s shareholders on May 26, 2022). The performance criteria for the remaining 77,388  performance-based RSUs with performance not based on 2022 performance 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.   Total stock-based compensation expense recognized in the Condensed Consolidated Statements of Income is as follows (in thousands):       Three Months Ended March 31,       2022     2021   Cost of revenues (excluding depreciation and amortization)   $ 38     $ 20   Product development     125       102   Sales and marketing     83       65   Other general and administrative     528       429   Total stock based compensation expense   $ 774     $ 616     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 three months ended March 31, 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 will terminate on the earlier of March 13, 2023, or when the maximum dollar amount has been expended. During the three months ended March 31, 2022, the Company repurchased 242,647  shares pursuant to this share repurchase program at an aggregate fair value of $ 5.0  million, based on an average price per share of $ 20.52  (excluding the cost of broker commissions).   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 218,000  and 148,000  for the three  months ended March 31, 2022 and 2021 , respectively.   The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):       Three Months Ended March 31,       2022     2021   Numerator:                 Net income   $ 2,893     $ 2,291   Denominator:                 Weighted-average shares outstanding     30,955       31,504   Effect of dilutive shares     21       22   Weighted-average diluted shares     30,976       31,526                     Net income per share:                 Basic   $ 0.09     $ 0.07   Diluted   $ 0.09     $ 0.07     8 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   7. MARKETABLE SECURITIES   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):       March 31, 2022       Adjusted Cost     Unrealized Gains     Unrealized Losses     Fair Value   Level 2:                                 Corporate debt securities   $ 2,016     $ —     $ ( 8 )   $ 2,008   Total   $ 2,016     $ —     $ ( 8 )   $ 2,008         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     The carrying amounts reported in the 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 March 31, 2022 , the Company did not recognize any allowance for credit impairments on its available for sale debt securities. All investments in marketable securities are classified as current assets on the Condensed Consolidated Balance Sheets because the underlying securities mature within one year from the balance sheet date.     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 (Workforce Solutions) and provider credentialing, privileging, call center, and enrollment products and services (Provider Solutions).   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 (in thousands).       Three Months Ended March 31,   Revenues, net:   2022     2021   Workforce Solutions   $ 52,039     $ 51,247   Provider Solutions     13,328       12,221   Total revenues, net   $ 65,367     $ 63,468   Operating income:                 Workforce Solutions   $ 9,385     $ 9,224   Provider Solutions     2,311       1,858   Unallocated     ( 7,661 )     ( 7,782 ) Total operating income   $ 4,035     $ 3,300     Segment assets *   March 31, 2022     December 31, 2021   Workforce Solutions   $ 266,882     $ 258,864   Provider Solutions     133,867       137,008   Unallocated     83,177       90,881   Total assets   $ 483,926     $ 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, 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 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   9. DEBT   Revolving Credit Facility   On October 28, 2020, the Company entered into a Third Amendment to Revolving Credit Agreement (Revolving Credit Facility), amending the Revolving Credit Facility dated as of November 24, 2014 with Truist Bank, successor by merger to SunTrust Bank (Truist), extending the maturity date to October 28, 2023. Under the Revolving Credit Facility, the Company may borrow up to $ 65.0 million, which includes a $ 5.0 million swing line sub-facility and a $ 5.0 million letter of credit 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.   At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either ( 1 ) a rate per annum equal to the highest of Truist’s prime rate or 0.5 % in excess of the Federal Funds Rate or 1.0 % in excess of one -month LIBOR (the Base Rate), plus an applicable margin, or ( 2 ) the one, two, three, or six -month per annum LIBOR for deposits in the applicable currency (the 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 1.75 %. The applicable margin for Base Rate loans depends on the Company’s funded debt leverage ratio and varies from 0.50 % to 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 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 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   • an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0.   As of March 31, 2022 , the Company was in compliance with all covenants. There were no balances outstanding on the Revolving Credit Facility as of or during the three months ended March 31, 2022 .   10 Table of Contents