What changed in this filing

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Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 141 added, 143 removed, 359 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

4 unchanged sentences

27,691  

Accounts receivable, net of allowance for doubtful accounts of $ 625 and $ 544 at June 30, 2023 and December 31, 2022, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 710 and $ 544 at September 30, 2023 and December 31, 2022, respectively

30,195  

2 unchanged sentences

Prepaid royalties, net of amortization

Other prepaid expenses and other current assets

10,755  

Other prepaid expenses and other current assets

Total current assets

1 unchanged sentence

114,377  

Property and equipment, net of accumulated depreciation of $ 22,364 and $ 20,280 at June 30, 2023 and December 31, 2022, respectively

Property and equipment, net of accumulated depreciation of $ 23,441 and $ 20,280 at September 30, 2023 and December 31, 2022, respectively

13,536  

15,483  

Capitalized software development, net of accumulated amortization of $ 115,618 and $ 105,025 at June 30, 2023 and December 31, 2022, respectively

Capitalized software development, net of accumulated amortization of $ 121,235 and $ 105,025 at September 30, 2023 and December 31, 2022, respectively

39,711  

5 unchanged sentences

192,398  

Customer-related intangibles, net of accumulated amortization of $ 52,807 and $ 48,552 at June 30, 2023 and December 31, 2022, respectively

Customer-related intangibles, net of accumulated amortization of $ 54,919 and $ 48,552 at September 30, 2023 and December 31, 2022, respectively

56,715  

61,269  

Other intangible assets, net of accumulated amortization of $ 15,936 and $ 12,818 at June 30, 2023 and December 31, 2022, respectively

Other intangible assets, net of accumulated amortization of $ 17,138 and $ 12,818 at September 30, 2023 and December 31, 2022, respectively

14,861  

9 unchanged sentences

Current liabilities:

Accounts payable and accrued expenses

Accounts payable

$ 3,519  

$ 7,290  

Accrued expenses

20,980  

25,011  

Accrued royalties

13 unchanged sentences

Other long-term liabilities

Commitments and contingencies

Shareholders’

Common stock, no par value, 75,000 shares authorized;

30,686 and 30,579 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

30,590 and 30,579 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

254,950  

16 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Revenues, net

18 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Other comprehensive income (loss), net of taxes:

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Other comprehensive loss, net of taxes:

Foreign currency translation adjustments

Unrealized (loss) gain on marketable securities

Total other comprehensive income (loss)

Unrealized gain (loss) on marketable securities

Total other comprehensive loss

Comprehensive income

3 unchanged sentences

(In thousands, except per share data)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Accumulated Other Comprehensive

30 unchanged sentences

$ 340,619  

Six Months Ended June 30, 2022

Comprehensive loss

( 350 )  

Dividends declared on common stock ($ 0.025 per share)

( 767 )  

Stock-based compensation

Common stock issued under stock plans, net of shares withheld for employee taxes

( 20 )  

Repurchase of common stock

( 99 )  

( 2,141 )  

Balance at September 30, 2023

30,590  

$ 254,950  

$ 88,535  

$ ( 1,239 )  

$ 342,246  

Nine Months Ended September 30, 2022

Accumulated Other Comprehensive

32 unchanged sentences

$ 326,732  

Comprehensive loss

( 1,014 )  

Stock-based compensation

Common stock issued under stock plans, net of shares withheld for employee taxes

( 20 )  

Balance at September 30, 2022

30,573  

$ 253,934  

$ 77,764  

$ ( 1,416 )  

$ 330,282  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

$ 6,756  

$ 5,976  

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

20,148  

18,742  

Stock-based compensation

2 unchanged sentences

Deferred income taxes

( 490 )  

Gain on sale of fixed assets

1 unchanged sentence

Change in fair value of non-marketable equity investments

( 342 )  

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid royalties

( 810 )  

Other prepaid expenses and other current assets

( 2,408 )  

Deferred commissions

( 5,830 )  

Accounts payable and accrued expenses

( 2,835 )  

Accrued royalties

( 207 )  

Deferred revenue

Net cash provided by operating activities

25,489  

27,981  

INVESTING ACTIVITIES:

Business combinations, net of cash acquired

( 6,621 )  

Proceeds from maturities of marketable securities

10,000  

Purchases of marketable securities

( 31,983 )  

Payments associated with capitalized software development

( 13,309 )  

Proceeds from sale of fixed assets

Proceeds from sale of non-marketable equity investments

Purchases of property and equipment

( 1,382 )  

Net cash used in investing activities

( 43,295 )  

FINANCING ACTIVITIES:

Taxes paid related to net settlement of equity awards

( 797 )  

Repurchases of common stock

Payment of cash dividends

( 1,534 )  

Net cash used in financing activities

( 2,331 )  

Effect of exchange rate changes on cash and cash equivalents

( 81 )  

Net decrease in cash and cash equivalents

( 20,218 )  

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

46,023  

46,905  

Cash and cash equivalents at end of period

$ 25,805  

$ 37,216  

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

4 unchanged sentences

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.

HealthStream primarily provides 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.

14 unchanged sentences

Operating results for the 

three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

three and nine months ended September 30, 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 

6 unchanged sentences

January 1, 2023, the Company’s business has been 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, since January 1, 2023, the Company has had a single reportable segment, such that the Company is presenting historical financial information on a single segment basis in this Quarterly Report on Form 10 -Q for the three and six months ended June 30, 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.

3 unchanged sentences

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

5 unchanged sentences

Sales taxes are excluded from revenues.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Subscription services

10 unchanged sentences

For the 

three months ended June 30, 2023 and 2022 , the Company recognized 

three months ended September 30, 2023 and 2022 , the Company recognized a charge of 

$ 0.3  million and a reduction of 

$ 44,000  in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively.

For the 

nine months ended September 30, 2023 and 2022 , the Company recognized 

$ 0.7  million and 

$ 0.4 million in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively.

For both the 

six months ended June 30, 2023 and 2022 , the Company recognized 

$ 0.4  million in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.

$ 0.4  million 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 

June 30, 2023 and 2022 , we recognized revenues of approximately $ 43.6  million and $ 40.0  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the six months ended June 30, 2023 and 2022, we recognized revenues of approximately $ 62.1  million and $ 56.0  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of June 30, 2023 , approximately $ 511  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

September 30, 2023 and 2022 , we recognized revenues of approximately $ 42.2  million and $ 39.9  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

During the nine months ended September 30, 2023 and 2022, we recognized revenues of approximately $ 76.0  million and $ 67.9  million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of September 30, 2023 , approximately $ 511  million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 

1 unchanged sentence

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 $ 2.8  million and $ 2.5  million for the three  months ended June 30, 2023 and 2022 , and $ 5.5 million and $ 5.0 million for the six months ended June 30, 2023 and 2022, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

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 $ 3.0  million and $ 2.8  million for the three  months ended September 30, 2023 and 2022 , and $ 8.5 million and $ 7.8 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 June 30, 2023 and 2022 , the Company recorded a provision for income taxes of approximately $ 0.4  million and $ 0.5 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recorded a provision for income taxes of $ 0.9 million and $ 1.4  million, respectively.

The Company’s effective tax rate was 12 % and 19 % for the six months ended June 30, 2023 and 2022 , respectively.

During the three  months ended September 30, 2023 and 2022 , the Company recorded a provision for income taxes of approximately $ 1.6  million and $ 1.3 million, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded a provision for income taxes of $ 2.5 million and $ 2.7  million, respectively.

The Company’s effective tax rate was 19 % and 22 % for the nine months ended September 30, 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 six months ended June 30, 2023 , the Company recorded discrete tax benefits of $ 0.5  million, which consisted primarily of tax benefits associated with changes in state apportionment rules in Tennessee upon the enactment of the Tennessee Works Tax Act, in the amount of $ 0.6  million, and stock-based awards, in the amount of $ 0.1 million, partially offset by $ 0.2 million of discrete tax expense related to reserves for uncertain tax positions.

During the six months ended June 30, 2022 , the Company recorded discrete tax benefits of $ 0.1  million, which consisted primarily of a $ 0.2 million tax benefit associated with a nontaxable gain of $ 0.9 million recognized from the change in fair value of our previously held minority interest in CloudCME, LLC.

This tax benefit was partially offset by $ 0.1 million of excess tax deficiencies associated with stock-based awards. 

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the nine months ended September 30, 2023 , the Company recorded discrete tax benefits of $ 0.1  million, which consisted primarily of tax benefits associated with changes in state apportionment rules in Tennessee upon the enactment of the Tennessee Works Tax Act, in the amount of $ 0.6  million and stock-based awards in the amount of $ 0.1 million, partially offset by $ 0.3  million of discrete tax expense related to reserves for uncertain tax positions and $ 0.3 million of discrete tax expense associated with the Company merging VerityStream, Inc.

("VerityStream") into HealthStream.

During the nine months ended September 30, 2022 , the Company recorded discrete tax benefits of $ 16,000 , which consisted primarily of a $ 0.3  million tax benefit associated with a nontaxable gain of $ 0.9 million recognized from the change in fair value of our previously held minority interest in CloudCME, LLC ("CloudCME") as well as a $ 0.1 million tax benefit for changes in estimated tax credits.

This tax benefit was partially offset by $ 0.3 million of tax expense related to uncertain tax positions and $ 0.1  million of excess tax deficiencies associated with stock-based awards. 

SHAREHOLDERS ’

1 unchanged sentence

On February 20, 2023, the Company's Board of Directors ("Board") approved a dividend policy, marking the first quarterly cash dividend policy adopted by the Company ("Dividend Policy").

During the six months ended June 30, 2023, the Board declared the following quarterly dividends under the Dividend Policy:

During the nine months ended September 30, 2023, the Board declared the following quarterly dividends under the Dividend Policy:

Dividend Payment Date Dividend Declaration Date  

9 unchanged sentences

767,000  

September 29, 2023 July 24, 2023  

September 18, 2023  

767,000  

Total dividends  

1 unchanged sentence

$ 2,301,000  

Additionally, o n July 24, 2023, the Board approved the Company’s third quarterly cash dividend of $ 0.025 per share, payable on September 

29, 2023 to holders of record on September 18, 2023 . 

Additionally, o n October 23, 2023, the Board approved the Company’s fourth quarterly cash dividend of $ 0.025 per share, payable on December 22, 2023 to holders of record on December 11, 2023 . 

Stock-Based Compensation

2 unchanged sentences

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 six months ended June 30, 2023 , the Company issued 72,923  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 25.36  per share, measured based on the closing fair market value of the Company's stock on the date of the grant. During the six months ended June 30, 2022 , the Company approved the grant of 137,055  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 20.27  per share, measured based on the closing fair market value of the Company’s stock on the date of grant. 

During the nine months ended September 30, 2023 , the Company issued 128,942  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 23.61  per share, measured based on the closing fair market value of the Company's stock on the date of the grant. During the nine months ended September 30, 2022 , the Company issued 

140,473  RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 20.31  per share, measured based on the closing fair market value of the Company’s stock on the date of grant. 

During the 

six months ended June 30, 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.

nine months ended September 30, 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.

2 unchanged sentences

therefore, the measurement date for these remaining 117,300 performance-based RSUs cannot be determined until the performance criteria have been established.

During the six months ended 

June 30, 2022, 

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the nine months ended 

September 30, 2022, 

the Company granted 

18 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues (excluding depreciation and amortization)

6 unchanged sentences

$ 2,609  

Share Repurchase Plan

On September 13, 2023, the Company announced that the Board authorized a share repurchase program to repurchase up to $ 10.0 million of the Company's outstanding shares of common stock.

The share repurchase program is scheduled to terminate on the earlier of March 31, 2024, or when the maximum dollar amount has been expended.

During the three months ended September 30, 2023, the Company repurchased 99,090  shares at an aggregate fair value of $ 2.1  million, reflecting an average price per share of $ 21.60  (excluding the cost of broker commissions).

The Company's Condensed Consolidated Balance Sheet as of September 30, 2023 included $ 0.5 million of the share repurchases in accrued expenses with the remaining $ 1.6 million paid in cash during the three months ended September 30, 2023.

HEALTHSTREAM, INC.

5 unchanged sentences

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 225,000  and 228,000  for the three  months ended June 30, 2023 and 2022 , respectively, and 

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 340,000  and 205,000  for the three  months ended September 30, 2023 and 2022 , respectively, and 

278,000 and 

223,000 for the six months ended June 30, 2023 and 2022, respectively.

217,000 for the nine months ended September 30, 2023 and 2022, respectively.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Three Months Ended June 30,

Six Months Ended June 30,

$ 4,133  

$ 3,083  

$ 6,756  

$ 5,976  

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted-average shares outstanding

30,684  

30,491  

30,638  

30,723  

Effect of dilutive shares

Weighted-average diluted shares

30,775  

30,512  

30,717  

30,744  

Net income per share:

$ 0.13  

$ 0.10  

$ 0.22  

$ 0.19  

$ 0.13  

$ 0.10  

$ 0.22  

$ 0.19  

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):

June 30, 2023

September 30, 2023

Adjusted Cost

2 unchanged sentences

treasury securities

$ 30,207  

$ ( 51 )  

$ 30,158  

$ 30,207  

$ ( 51 )  

$ 30,158  

December 31, 2022

3 unchanged sentences

treasury securities

$ 7,882  

$ 7,885  

$ 7,882  

$ 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 June 30, 2023 , the Company did not recognize any allowance for credit impairments on its available for sale debt securities.

As of September 30, 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.

3 unchanged sentences

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 six months ended June 30, 2023, respectively, while the developed technology and trade name intangible assets were decreased by $ 0.8 million and $ 20,000 during the six months ended June 30, 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.

During the nine months ended September 30, 2023, the Company made adjustments to customer relationships, developed technology, non-compete, and trade name intangibles based on updated information obtained since the preliminary estimates were made.

As a result, the Company recorded a measurement period adjustment which increased customer relationships and non-compete intangible assets by $ 2.0 million and $ 0.1 million, respectively, while the developed technology and trade name intangible assets were decreased by $ 0.8 million and $ 20,000 , respectively, resulting in a decrease to goodwill of $ 1.3 million for the net change in the fair value of identifiable intangible assets.

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.

As of June 30, 2023, the LIBOR interest rate benchmark has been phased out, triggering a Benchmark Transition Event as defined by the Company's Revolving Credit Facility.

Accordingly, should the Company elect to borrow from its Revolving Credit Facility, LIBOR will be replaced with the Benchmark Replacement (as defined by the Revolving Credit Facility) for purposes of calculating an interest rate and the Revolving Credit Facility will be amended to reflect the same;

until such Benchmark Replacement is implemented, loans requested by the Company under the Revolving Credit Facility must be made as Base Rate loans, as described above.

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:

As described in Note 9 to these Condensed Consolidated Financial Statements, the Revolving Credit Facility was amended by a new revolving credit facility entered into by the Company on October 6, 2023, which replaced the Revolving Credit Facility.

Under the Revolving Credit Facility, the Company was permitted to borrow up to $ 65.0 million, which included a $ 5.0 million swingline sub-facility and a $ 5.0 million letter of credit sub-facility, as well as an accordion feature that allowed 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 would 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 would depend on the Company’s funded debt leverage ratio and would vary from 1.50 % to 1.75 %.

The applicable margin for Base Rate loans would depend on the Company’s funded debt leverage ratio and would vary from 0.50 % to 0.75 %.

Commitment fees and letter of credit fees were also payable under the Revolving Credit Facility.

Principal would be payable in full at maturity on October 28, 2023, and there were no scheduled principal payments prior to maturity.

The Company was 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 were guaranteed by each of the Company’s subsidiaries.

The Revolving Credit Facility contained certain covenants that, among other things, restricted 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 required 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;

an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0.

As of June 30, 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 and six months ended June 30, 2023 .

As of September 30, 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 and nine months ended September 30, 2023 .

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SUBSEQUENT EVENT

On October 6, 2023, the Company entered into an Amended and Restated Revolving Credit Agreement ("New Revolving Credit Facility"), amending the Revolving Credit Facility dated as of November 24, 2014, as amended, with certain lenders party thereto from time to time, and Truist, as Administrative Agent for the lenders. Under the New Revolving Credit Facility, the Company may borrow up to $ 50.0 million, which includes a $ 5.0 million swingline 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.

The New Revolving Credit Facility has a maturity date of October 6, 2026.

The Company's obligations under the New Revolving Credit Facility are unsecured.

In addition, if the Company forms or acquires any domestic subsidiaries, the loans and other obligations under the New Revolving Credit Facility will be guaranteed by such domestic subsidiaries.

At the Company’s election, the borrowings under the New Revolving Credit Facility, other than the swingline loans, bear interest at either ( 1 ) 

a base rate defined as the highest of (a) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, or (b) the Federal Funds Rate, as in effect from time to time, plus one -half of one percent ( 0.50 %) per annum (any changes in such rates to be effective as of the date of any change in such rate), plus in each case an applicable margin that varies with the company’s funded debt leverage ratio;

or ( 2 ) a term secured overnight financing rate (“SOFR”) defined as the greater of (a)(i) the forward-looking term rate based on SOFR determined as of the reference time for such interest period with a term equivalent to such interest period plus (ii) a term SOFR adjustment equal to 0.10 % per annum and (b) zero, plus, in each case, an applicable margin that varies with the Company’s consolidated total leverage ratio.

The Company’s borrowings under the swingline loans bear interest at the base rate plus the applicable margin. 

The initial applicable margin for base rate loans is 0.50 % and the initial applicable margin SOFR loans is 1.50 %.

The applicable margins will be adjusted quarterly, in each case two ( 2 ) business days after the Administrative Agent's receipt of the Company's quarterly financial statements. 

The Company is also required to pay a commitment fee accruing on the unused revolving commitment, which fee initially is 20 basis points per annum and a letter of credit fee, accruing at a rate per annum equal to the applicable margin for SOFR loans then in effect on the daily average amount of such lender’s letter of credit exposure.

Principal is payable in full at maturity on October 6, 2026, and there are no scheduled principal payments prior to maturity. Interest on base rate loans and swingline loans is payable quarterly in arrears, and interest on SOFR loans is payable at the end of each interest period, and in the case of interest periods longer than three months, on each day which occurs every three months after the initial date of such interest period.

In addition, the New Revolving Credit Facility requires the Company to meet certain financial tests, including, without limitation:

a funded debt leverage ratio of not greater than 3.0 to 1.0;

an interest coverage ratio of not less than 3.0 to 1.0.

In addition, the New Revolving Credit Facility contains certain customary affirmative and negative 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements