HEALTHSTREAM INC 10-Q

Item 1. Financial Statements   HEALTHSTREAM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands)       March 31,     December 31,       2023     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 48,836     $ 46,023   Marketable securities     9,818       7,885   Accounts receivable, net of allowance for doubtful accounts of $ 616 and $ 544 at March 31, 2023 and December 31, 2022, respectively     41,556       36,730   Accounts receivable - unbilled     5,732       5,980   Prepaid royalties, net of amortization     10,959       9,071   Other prepaid expenses and other current assets     8,207       8,688   Total current assets     125,108       114,377                     Property and equipment, net of accumulated depreciation of $ 21,326 and $ 20,280 at March 31, 2023 and December 31, 2022, respectively     14,689       15,483   Capitalized software development, net of accumulated amortization of $ 110,182 and $ 105,025 at March 31, 2023 and December 31, 2022, respectively     38,460       37,118   Operating lease right of use assets, net     22,136       22,759   Goodwill     191,102       192,398   Customer-related intangibles, net of accumulated amortization of $ 50,679 and $ 48,552 at March 31, 2023 and December 31, 2022, respectively     61,080       61,269   Other intangible assets, net of accumulated amortization of $ 14,346 and $ 12,818 at March 31, 2023 and December 31, 2022, respectively     18,026       20,284   Deferred tax assets     383       383   Deferred commissions     27,122       28,344   Non-marketable equity investments     4,391       4,518   Other assets     662       808   Total assets   $ 503,159     $ 497,741                     LIABILITIES AND SHAREHOLDERS’ EQUITY                 Current liabilities:                 Accounts payable and accrued expenses   $ 20,122     $ 32,301   Accrued royalties     6,533       5,443   Deferred revenue     94,349       79,469   Total current liabilities     121,004       117,213                     Deferred tax liabilities     18,787       17,996   Deferred revenue, noncurrent     2,562       2,937   Operating lease liability, noncurrent     22,572       23,321   Other long-term liabilities     2,195       2,210   Commitments and contingencies                                        Shareholders’ equity:                 Common stock, no par value, 75,000 shares authorized; 30,682 and 30,579 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively     254,986       254,832   Retained earnings     82,069       80,213   Accumulated other comprehensive loss     ( 1,016 )     ( 981 ) Total shareholders’ equity     336,039       334,064   Total liabilities and shareholders’ equity   $ 503,159     $ 497,741     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, 2023     March 31, 2022   Revenues, net   $ 68,946     $ 65,367   Operating costs and expenses:                 Cost of revenues (excluding depreciation and amortization)     23,856       21,998   Product development     11,680       10,412   Sales and marketing     11,728       10,417   Other general and administrative expenses     8,865       9,183   Depreciation and amortization     9,926       9,322   Total operating costs and expenses     66,055       61,332                     Operating income     2,891       4,035                     Other income (loss), net     250       ( 276 )                   Income before income tax provision     3,141       3,759   Income tax provision     518       866   Net income   $ 2,623     $ 2,893                     Net income per share:                 Basic   $ 0.09     $ 0.09   Diluted   $ 0.09     $ 0.09                     Weighted average shares of common stock outstanding:                 Basic     30,591       30,955   Diluted     30,659       30,976   Dividends declared per share   $ 0.025     $ —     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, 2023     March 31, 2022   Net income   $ 2,623     $ 2,893                     Other comprehensive income, net of taxes:                 Foreign currency translation adjustments     ( 33 )     278   Unrealized loss on marketable securities     ( 2 )     ( 6 ) Total other comprehensive (loss) income     ( 35 )     272   Comprehensive income   $ 2,588     $ 3,165     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, except per share data)       Three Months Ended March 31, 2023       Common Stock     Retained     Accumulated Other Comprehensive     Total Shareholders’       Shares     Amount     Earnings     Loss     Equity   Balance at December 31, 2022     30,579     $ 254,832     $ 80,213     $ ( 981 )   $ 334,064   Net income     —       —       2,623       —       2,623   Comprehensive loss     —       —       —       ( 35 )     ( 35 ) Dividends declared on common stock ($ 0.025 per share)     —       —       ( 767 )     —       ( 767 ) Stock-based compensation     —       945       —       —       945   Common stock issued under stock plans, net of shares withheld for employee taxes     103       ( 791 )     —       —       ( 791 ) Balance at March 31, 2023     30,682     $ 254,986     $ 82,069     $ ( 1,016 )   $ 336,039         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 )     —       —       ( 497 ) Repurchase of common stock     ( 892 )     ( 19,889 )     —       —       ( 19,889 ) Balance at March 31, 2022     30,518     $ 251,179     $ 71,015     $ 378     $ 322,572     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,       2023     2022   OPERATING ACTIVITIES:                 Net income   $ 2,623     $ 2,893   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation and amortization     9,926       9,322   Stock-based compensation     945       774   Amortization of deferred commissions     2,712       2,484   Provision for credit losses     209       6   Deferred income taxes     800       684   Loss on non-marketable equity investments     127       276   Other     ( 85 )     26   Changes in operating assets and liabilities:                 Accounts and unbilled receivables     ( 4,787 )     ( 5,874 ) Prepaid royalties     ( 1,889 )     ( 2,033 ) Other prepaid expenses and other current assets     482       952   Deferred commissions     ( 1,490 )     ( 2,614 ) Other assets     147       79   Accounts payable and accrued expenses     ( 4,773 )     ( 3,653 ) Accrued royalties     1,090       1,877   Deferred revenue     14,504       15,456   Net cash provided by operating activities     20,541       20,655                     INVESTING ACTIVITIES:                 Business combinations, net of cash acquired     ( 6,621 )     ( 22 ) Proceeds from maturities of marketable securities     1,000       5,025   Purchases of marketable securities     ( 2,850 )     ( 2,024 ) Payments associated with capitalized software development     ( 7,566 )     ( 6,305 ) Purchases of property and equipment     ( 879 )     ( 636 ) Net cash used in investing activities     ( 16,916 )     ( 3,962 )                   FINANCING ACTIVITIES:                 Taxes paid related to net settlement of equity awards     ( 791 )     ( 497 ) Repurchases of common stock     —       ( 19,726 ) Net cash used in financing activities     ( 791 )     ( 20,223 )                   Effect of exchange rate changes on cash and cash equivalents     ( 21 )     ( 5 ) Net increase (decrease) in cash and cash equivalents     2,813       ( 3,535 ) Cash and cash equivalents at beginning of period     46,023       46,905   Cash and cash equivalents at end of period   $ 48,836     $ 43,370     See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.   5 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   1.   OVERVIEW AND   BASIS OF PRESENTATION   Company Overview   HealthStream provides primarily Software-as-a-Service (SaaS) based applications for healthcare organizations—all designed to improve business and clinical outcomes by supporting the people who deliver patient care. We are focused on helping healthcare organizations meet their ongoing clinical development, talent management, training, education, assessment, competency management, safety and compliance, scheduling, and provider credentialing, privileging, and enrollment needs. The Company is organized and operated according to our One HealthStream approach, with our hStream technology platform at the center of that approach. Increasingly, SaaS based applications in our diverse ecosystem of solutions utilize our proprietary hStream technology platform to enhance their value proposition by creating interoperability with and among other applications. As used in this Report, “HealthStream,” “Company,” “we,” “us,” and “our” mean HealthStream, Inc. and its subsidiaries unless the context indicates otherwise.   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, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.   The Condensed Consolidated Balance Sheet at December  31,   2022  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,   2022  (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 28, 2023).   Consolidated Segment Information   Our business is managed and organized around a single platform strategy, also referred to as our One HealthStream approach. At the center of this single platform strategy is our hStream technology platform. By facilitating interoperability among our applications, as well as third party applications, we believe that our hStream technology platform is allowing stand-alone applications to leverage each other to more efficiently and effectively empower our customers to manage their business and improve their outcomes.   As indicated in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022, filed on February 28, 2023, the Company has reached an inflection point in its efforts to operate according to its single platform strategy, also known as our One HealthStream approach. As of January 1, 2023, the Company’s business is now organized and managed around a consolidated, enterprise approach, including with regard to technology, operations, accounting, internal reporting (including the nature of information reviewed by our key decision maker), organization structure, compensation, performance assessment, and resource allocation.   As the result of these developments, the Company determined that Workforce Solutions and Provider Solutions were no longer separate operating segments or separate reportable segments as of January 1, 2023, such that the Company would no longer present two reportable segments for periods beginning on and after this date. As such, beginning January 1, 2023, the Company has a single reportable segment, such that the Company is presenting historical financial information on a single segment basis beginning with this Quarterly Report on Form 10 -Q for the three months ended March 31, 2023. For purposes of reporting historical 2022 results in this Quarterly Report on Form 10 -Q, we are reporting comparable performance on a consolidated basis unless otherwise indicated.   2. 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   6 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   The following table represents revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.       Three Months Ended March 31,       2023     2022   Subscription services   $ 66,015     $ 62,075   Professional services     2,931       3,292   Total revenues, net   $ 68,946     $ 65,367     For the three months ended March 31, 2023 and 2022 , the Company recognized $ 0.2  million and $ 6,000 , respectively, in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.   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, 2023 and 2022 , we recognized revenues of approximately $ 39.1  million and $ 34.6  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. As of March 31, 2023 , approximately $ 504  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. The Company recorded amortization of deferred commissions of approximately $ 2.7  million and $ 2.5  million for the three  months ended March 31, 2023 and 2022 , respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.   3. INCOME TAXES   Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income.   The Company computes its interim period provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. During the three  months ended March 31, 2023 and 2022 , the Company recorded a provision for income taxes of approximately $ 0.5  million and $ 0.9 million, respectively. The Company’s effective tax rate was 16 % and 23 % for the three months ended March 31, 2023 and 2022 , 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, 2023 , the Company recorded discrete tax benefits of $ 53,000 , which consisted primarily of a $ 133,000  tax benefit associated with stock-based awards. This tax benefit was partially offset by $ 80,000 of discrete tax expense related to reserves for uncertain tax positions. 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.    4.   SHAREHOLDERS ’ EQUITY   Dividends on Common Stock   On February 20, 2023, the Company's Board of Directors ("Board") approved a dividend policy under which the Board declared the initial quarterly dividend in the amount of $ 0.025  per share, which will be payable on April 28, 2023 to the holders of record of all of the issued and outstanding shares of common stock as of the close of business on April 17, 2023 . This marks the first quarterly cash dividend policy adopted by the Company.   On April 24, 2023, the Board approved the Company's  second quarterly cash dividend of $ 0.025 per share, payable on June 23, 2023 to holders of record on June 12, 2023 .   7 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   Stock-Based Compensation   The Company has stock awards outstanding under its 2016 Omnibus Incentive Plan and  2022 Omnibus Incentive Plan. The Company accounts for its stock-based compensation plans 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, 2023 , the Company issued 45,907  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date of the grant. 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 the 2022  Omnibus Incentive Plan submitted to the Company's shareholders for approval at the annual meeting of the Company's shareholders held on  May 26, 2022 .  Of these, the  100,191  RSUs that were  not  conditioned on shareholder approval of the 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 required that the  35,161  RSUs conditioned upon approval of the 2022  Omnibus Incentive Plan  not  be valued until the condition was met (that is, at such time that the  2022  Omnibus Incentive Plan was approved by shareholders at the annual meeting of the Company’s shareholders on  May 26, 2022) .   During the  three months ended March 31, 2023 , the Company granted 138,000  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 15 %, 20 %, 20 %, 20 %, and 25 % based on performance in 2023, 2024, 2025, 2026, and 2027, respectively. The performance criteria for the first -year tranche, or 20,700  of these performance-based RSUs, is based on 2023  adjusted EBITDA. The measurement date for these 20,700  performance-based RSUs was established during the  three months ended March 31, 2023 with a weighted average grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established. The performance criteria for the remaining 117,300 performance-based RSUs has not yet been determined and will be established on an annual basis in 2024, 2025, 2026, and 2027, as applicable; therefore, the measurement date for these remaining 117,300 performance-based RSUs cannot be determined until the performance criteria have been established.    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. The performance criteria and measurement date for the second -year tranche, or 18,210  of these performance-based RSUs, is based on 2023  adjusted EBITDA and was established during the three months ended March 31, 2023  with a grant date fair value of $ 26.25  per share, measured based on the closing fair market value of the Company's stock on the date the performance criteria was established. The performance criteria for the remaining 59,178  performance-based RSUs has not yet been determined and will be established on an annual basis in 2024, 2025, and 2026, as applicable; therefore, the measurement date for these remaining 59,178  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,       2023     2022   Cost of revenues (excluding depreciation and amortization)   $ 48     $ 38   Product development     167       125   Sales and marketing     113       83   Other general and administrative     617       528   Total stock-based compensation expense   $ 945     $ 774     Share Repurchase Plan   On March 14, 2022, the Company's Board approved an expansion of the Company's share repurchase program initially authorized by the Board on November 1, 2021 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 expired on  March 13, 2023. Under this program, the Company repurchased a total of 402,050  shares at an aggregate fair value of $ 8.1  million, reflecting an average price per share of $ 20.19  (excluding the cost of broker commissions). No repurchases occurred during the three months ended March 31, 2023.   5.   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 268,000  and 218,000  for the three  months ended March 31, 2023 and 2022 , respectively.   8 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   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,       2023     2022   Numerator:                 Net income   $ 2,623     $ 2,893   Denominator:                 Weighted-average shares outstanding     30,591       30,955   Effect of dilutive shares     68       21   Weighted-average diluted shares     30,659       30,976                     Net income per share:                 Basic   $ 0.09     $ 0.09   Diluted   $ 0.09     $ 0.09       6. 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, 2023       Adjusted Cost     Unrealized Gains     Unrealized Losses     Fair Value   Level 2:                                 U.S. treasury securities   $ 9,818     $ 2     $ ( 2 )   $ 9,818   Total   $ 9,818     $ 2     $ ( 2 )   $ 9,818         December 31, 2022       Adjusted Cost     Unrealized Gains     Unrealized Losses     Fair Value   Level 2:                                 U.S. treasury securities   $ 7,882     $ 3     $ —     $ 7,885   Total   $ 7,882     $ 3     $ —     $ 7,885     The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs. As of March 31, 2023 , 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.   7.   BUSINESS COMBINATIONS   On  December 31, 2022 ,  the Company acquired substantially all of the assets of Electronic Education Documentation System, LLC (d/b/a eeds) ("eeds"), an Asheville, North Carolina-based healthcare technology company offering a SaaS-based continuing education (CME/CE) management system for healthcare organizations, for approximately $ 6.6  million in cash, reflecting customary purchase price adjustments made to the purchase price paid of $ 7.0  million. After the filing of the Company’s Annual Report on Form 10 -K for the year ended December 31, 2022  on February 28, 2023, the Company received an updated valuation report for the acquisition from a third -party valuation firm. Based on the results of that valuation report, the Company has estimated the fair value of the customer relationships, developed technology, non-compete, and trade name intangible assets to be $ 2.6  million, $ 1.9 million, $ 0.2 million, and $ 0.1 million, respectively. As a result, the fair value of the customer relationships and non-compete intangible assets were increased by $ 2.0 million and $ 0.1 million during the three months ended March 31, 2023, respectively, while the developed technology and trade name intangible assets were decreased by $ 0.8 million and $ 20,000 during the three months ended March 31, 2023, respectively, due to this new information, with a corresponding decrease to goodwill of $ 1.3 million for the net change in the fair value of identifiable intangible assets.   9 Table of Contents   HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)   8. 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, 2023 , 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, 2023 .   10 Table of Contents