HEALTHSTREAM INC 10-Q

Item 1. Financial Statements HEALTHSTREAM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) June 30, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 46,131 $ 40,333 Marketable securities 36,869 30,800 Accounts receivable, net of allowance for doubtful accounts of $ 978 and $ 781 at June 30, 2024 and December 31, 2023, respectively 31,801 34,346 Accounts receivable - unbilled 4,394 4,100 Prepaid royalties, net of amortization 9,043 10,202 Prepaid software maintenance and subscriptions 7,754 7,397 Other prepaid expenses and other current assets 3,120 3,032 Total current assets 139,112 130,210 Property and equipment, net of accumulated depreciation of $ 21,423 and $ 19,503 at June 30, 2024 and December 31, 2023, respectively 11,880 13,005 Capitalized software development, net of accumulated amortization of $ 139,063 and $ 127,009 at June 30, 2024 and December 31, 2023, respectively 41,540 40,643 Operating lease right of use assets, net 18,842 20,114 Goodwill 190,968 191,379 Customer-related intangibles, net of accumulated amortization of $ 61,107 and $ 57,095 at June 30, 2024 and December 31, 2023, respectively 50,569 54,742 Other intangible assets, net of accumulated amortization of $ 17,084 and $ 16,603 at June 30, 2024 and December 31, 2023, respectively 10,603 13,289 Deferred commissions 31,377 31,700 Non-marketable equity investments 4,053 4,134 Other assets 611 726 Total assets $ 499,555 $ 499,942 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,805 $ 7,465 Accrued expenses 15,004 22,717 Accrued royalties 4,187 4,556 Deferred revenue 86,887 83,623 Total current liabilities 111,883 118,361 Deferred tax liabilities 15,568 16,132 Deferred revenue, noncurrent 1,891 2,169 Operating lease liability, noncurrent 18,780 20,247 Other long-term liabilities 2,219 2,281 Shareholders’ equity: Common stock, no par value, 75,000 shares authorized; 30,408 and 30,298 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively 250,368 249,075 Retained earnings 100,063 92,368 Accumulated other comprehensive loss ( 1,217 ) ( 691 ) Total shareholders’ equity 349,214 340,752 Total liabilities and shareholders’ equity $ 499,555 $ 499,942 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 Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Revenues, net $ 71,556 $ 69,198 $ 144,316 $ 138,144 Operating costs and expenses: Cost of revenues (excluding depreciation and amortization) 23,738 23,567 48,355 47,424 Product development 12,076 11,031 24,107 22,711 Sales and marketing 11,405 11,307 23,179 23,035 Other general and administrative expenses 9,556 9,063 17,868 17,927 Depreciation and amortization 10,370 10,222 20,706 20,148 Total operating costs and expenses 67,145 65,190 134,215 131,245 Operating income 4,411 4,008 10,101 6,899 Other income, net 889 492 1,741 742 Income before income tax provision 5,300 4,500 11,842 7,641 Income tax provision 1,132 367 2,448 885 Net income $ 4,168 $ 4,133 $ 9,394 $ 6,756 Net income per share: Basic $ 0.14 $ 0.13 $ 0.31 $ 0.22 Diluted $ 0.14 $ 0.13 $ 0.31 $ 0.22 Weighted average shares of common stock outstanding: Basic 30,401 30,684 30,357 30,638 Diluted 30,526 30,775 30,472 30,717 Dividends declared per share $ 0.028 $ 0.025 $ 0.056 $ 0.050 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 Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Net income $ 4,168 $ 4,133 $ 9,394 $ 6,756 Other comprehensive (loss) income, net of taxes: Foreign currency translation adjustments ( 44 ) 177 ( 519 ) 144 Unrealized loss on marketable securities ( 1 ) ( 50 ) ( 7 ) ( 52 ) Total other comprehensive (loss) income ( 45 ) 127 ( 526 ) 92 Comprehensive income $ 4,123 $ 4,260 $ 8,868 $ 6,848 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) Six Months Ended June 30, 2024 Common Stock Retained Accumulated Other Comprehensive Total Shareholders’ Shares Amount Earnings Loss Equity Balance at December 31, 2023 30,298 $ 249,075 $ 92,368 $ ( 691 ) $ 340,752 Net income — — 5,227 — 5,227 Comprehensive loss — — — ( 481 ) ( 481 ) Dividends declared on common stock ($ 0.028 per share) — — ( 849 ) — ( 849 ) Stock-based compensation — 1,060 — — 1,060 Common stock issued under stock plans, net of shares withheld for employee taxes 100 ( 855 ) — — ( 855 ) Balance at March 31, 2024 30,398 $ 249,280 $ 96,746 $ ( 1,172 ) $ 344,854 Net income — — 4,168 — 4,168 Comprehensive loss — — — ( 45 ) ( 45 ) Dividends declared on common stock ($ 0.028 per share) — — ( 851 ) — ( 851 ) Stock-based compensation — 1,094 — — 1,094 Common stock issued under stock plans, net of shares withheld for employee taxes 10 ( 6 ) — — ( 6 ) Balance at June 30, 2024 30,408 $ 250,368 $ 100,063 $ ( 1,217 ) $ 349,214 Six Months Ended June 30, 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 Net income — — 4,133 — 4,133 Comprehensive income — — — 127 127 Dividends declared on common stock ($ 0.025 per share) — — ( 767 ) — ( 767 ) Stock-based compensation — 1,093 — — 1,093 Common stock issued under stock plans, net of shares withheld for employee taxes 4 ( 6 ) — — ( 6 ) Balance at June 30, 2023 30,686 $ 256,073 $ 85,435 $ ( 889 ) $ 340,619 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) Six Months Ended June 30, 2024 2023 OPERATING ACTIVITIES: Net income $ 9,394 $ 6,756 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,706 20,148 Stock-based compensation 2,154 2,038 Amortization of deferred commissions 5,956 5,464 Provision for credit losses 1,802 371 Deferred income taxes ( 542 ) ( 490 ) Loss on equity method investments 82 241 Other ( 746 ) ( 342 ) Changes in operating assets and liabilities: Accounts and unbilled receivables 449 1,460 Prepaid royalties 1,158 ( 810 ) Other prepaid expenses and other current assets ( 1,211 ) ( 2,408 ) Deferred commissions ( 5,632 ) ( 5,830 ) Other assets 116 315 Accounts payable and accrued expenses ( 8,912 ) ( 2,835 ) Accrued royalties ( 370 ) ( 207 ) Deferred revenue 2,985 1,618 Net cash provided by operating activities 27,389 25,489 INVESTING ACTIVITIES: Business combinations, net of cash acquired — ( 6,621 ) Proceeds from maturities of marketable securities 29,196 10,000 Purchases of marketable securities ( 34,526 ) ( 31,983 ) Proceeds from sale of non-marketable equity investments 765 — Payments associated with capitalized software development ( 13,552 ) ( 13,309 ) Purchases of property and equipment ( 914 ) ( 1,382 ) Net cash used in investing activities ( 19,031 ) ( 43,295 ) FINANCING ACTIVITIES: Taxes paid related to net settlement of equity awards ( 861 ) ( 797 ) Payment of cash dividends ( 1,700 ) ( 1,534 ) Net cash used in financing activities ( 2,561 ) ( 2,331 ) Effect of exchange rate changes on cash and cash equivalents 1 ( 81 ) Net increase (decrease) in cash and cash equivalents 5,798 ( 20,218 ) Cash and cash equivalents at beginning of period 40,333 46,023 Cash and cash equivalents at end of period $ 46,131 $ 25,805 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. The Company is focused on helping individuals and organizations in healthcare meet their ongoing learning, clinical development, credentialing, and scheduling needs. The Company also provides its solutions to nursing schools and nursing students. The Company is organized and operated according to its One HealthStream approach, with its hStream technology platform at the center of that approach. Increasingly, SaaS-based applications in the Company's diverse ecosystem of solutions utilize the Company's proprietary hStream technology platform to enhance the value proposition for customers by creating interoperability with and among other applications. As used in this Quarterly Report on Form 10 -Q (“Form 10 -Q”), “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 and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The Condensed Consolidated Balance Sheet at December 31, 2023 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, 2023 (included in the Company's Annual Report on Form 10 -K, filed with the Securities and Exchange Commission on February 26, 2024). 2. RECENT ACCOUNTING PRONOUNCEMENTS In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures . The new guidance requires disclosures of significant reportable segment expenses that are regularly provided to the chief operating decision maker and other segment items on an interim and annual basis. Entities with a single reportable segment will also be required to apply the disclosure requirements in ASU 2023 - 07 on an interim and annual basis. ASU 2023 - 07 will be effective for the Company for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023 - 07. In December 2023, FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures , which requires public entities to provide disclosure of disaggregated information in the entity’s tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023 - 09. 6 Table of Contents HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Subscription services $ 69,013 $ 66,506 $ 139,218 $ 132,521 Professional services 2,543 2,692 5,098 5,623 Total revenues, net $ 71,556 $ 69,198 $ 144,316 $ 138,144 For the three months ended June 30, 2024 and 2023 , the Company recognized $ 1.6 million and $ 0.2 million in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively. For the six months ended June 30, 2024 and 2023, the Company recognized $ 1.8 million and $ 0.4 million in impairment losses on receivables and contract assets arising from the Company's contracts with customers, respectively. During the three months ended June 30, 2024 and 2023 , the Company recognized revenues of $ 47.2 million and $ 43.6 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. During the six months ended June 30, 2024 and 2023, the Company recognized revenues of $ 65.2 million and $ 62.1 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. As of June 30, 2024 , approximately $ 538 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers. The Company expects to recognize revenue related to approximately 43 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter. Sales Commissions Sales commissions earned by the Company's sales employees are considered incremental and recoverable costs of obtaining a contract with a customer. The Company recorded amortization of deferred commissions of $ 3.0 million and $ 2.8 million for the three months ended June 30, 2024 and 2023 , respectively, and $ 6.0 million and $ 5.5 million for the six months ended June 30, 2024 and 2023, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income. 7 Table of Contents HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. INCOME TAXES Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income. The Company computes its interim period provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period. During the three months ended June 30, 2024 and 2023 , the Company recorded a provision for income taxes of $ 1.1 million and $ 0.4 million, respectively. During the six months ended June 30, 2024 and 2023, the Company recorded a provision for income taxes of $ 2.4 million and $ 0.9 million, respectively. The Company’s effective tax rate was 21 % and 12 % for the six months ended June 30, 2024 and 2023 , respectively. The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and recognition of discrete tax items. 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, 2024 , the Company recorded discrete tax expense of $ 14,000 , which consisted primarily of discrete tax expense of $ 0.2 million related to reserves for uncertain tax positions, partially offset by a $ 0.1 million discrete tax benefit associated with stock-based awards. 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. This tax benefit for the six months ended June 30, 2023 was partially offset by $ 0.2 million of discrete tax expense related to reserves for uncertain tax positions. 5. SHAREHOLDERS ’ EQUITY Dividends on Common Stock During the six months ended June 30, 2024, the Company's Board of Directors (“Board”) declared the following quarterly dividends under the Company's dividend policy: Dividend Payment Date Dividend Declaration Date Dividend Per Share Record Date Cash Outlay March 22, 2024 February 19, 2024 $ 0.028 March 11, 2024 $ 849,000 May 17, 2024 April 22, 2024 0.028 May 6, 2024 851,000 Total dividends $ 0.056 $ 1,700,000 Additionally, o n July 22, 2024, the Board declared a quarterly cash dividend of $ 0.028 per share, payable on August 16, 2024 to holders of record on August 5, 2024 . 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 six months ended June 30, 2024 , the Company issued 69,784 RSUs subject to service-based time vesting, with a weighted average grant date fair value of $ 26.92 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, 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 grant. 8 Table of Contents HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 in increments of 15 %, 20 %, 20 %, 20 %, and 25 % and is contingent upon continued service and achieving certain performance criteria established by the compensation committee of the Board (the “Compensation Committee”) on an annual basis based on performance in 2023, 2024, 2025, 2026, and 2027, respectively. The performance criteria for the second -year tranche, or 27,600 of these performance-based RSUs, is based on 2024 adjusted EBITDA. The measurement date for these 27,600 performance-based RSUs was established during the six months ended June 30, 2024 with a weighted average grant date fair value of $ 26.79 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 89,700 performance-based RSUs has not yet been determined and will be established on an annual basis in 2025, 2026, and 2027, as applicable; therefore, the measurement date for these remaining 89,700 performance-based RSUs cannot be determined until the performance criteria have been established. During the six months ended June 30, 2022, the Company approved the grant of 91,042 performance-based RSUs, the vesting of which occurs over a five -year period in increments of 15 %, 20 %, 20 %, 20 %, and 25 % and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis based on performance in 2022, 2023, 2024, 2025, and 2026, respectively. The performance criteria and measurement date for the third -year tranche, or 18,211 of these performance-based RSUs, is based on 2024 adjusted EBITDA and was established during the six months ended June 30, 2024 with a grant date fair value of $ 26.79 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 40,967 performance-based RSUs has not yet been determined and will be established on an annual basis in 2025 and 2026, as applicable; therefore, the measurement date for these remaining 40,967 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 June 30, Six Months Ended June 30, 2024 2023 2024 2023 Cost of revenues (excluding depreciation and amortization) $ 50 $ 50 $ 103 $ 99 Product development 202 187 399 354 Sales and marketing 140 131 276 243 Other general and administrative 702 725 1,376 1,342 Total stock-based compensation expense $ 1,094 $ 1,093 $ 2,154 $ 2,038 9 Table of Contents HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 155,000 and 225,000 for the three months ended June 30, 2024 and 2023 , respectively, and 166,000 and 246,000 for the six months ended June 30, 2024 and 2023, 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, 2024 2023 2024 2023 Numerator: Net income $ 4,168 $ 4,133 $ 9,394 $ 6,756 Denominator: Weighted-average shares outstanding 30,401 30,684 30,357 30,638 Effect of dilutive shares 125 91 115 79 Weighted-average diluted shares 30,526 30,775 30,472 30,717 Net income per share: Basic $ 0.14 $ 0.13 $ 0.31 $ 0.22 Diluted $ 0.14 $ 0.13 $ 0.31 $ 0.22 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): June 30, 2024 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Level 2: U.S. treasury securities $ 36,867 $ 4 $ ( 2 ) $ 36,869 Total $ 36,867 $ 4 $ ( 2 ) $ 36,869 December 31, 2023 Adjusted Cost Unrealized Gains Unrealized Losses Fair Value Level 2: U.S. treasury securities $ 30,791 $ 10 $ ( 1 ) $ 30,800 Total $ 30,791 $ 10 $ ( 1 ) $ 30,800 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, 2024 , the Company did not recognize any allowance for credit impairments on its available for sale 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. 10 Table of Contents HEALTHSTREAM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 8. DEBT Revolving Credit Facility On October 6, 2023, the Company entered into an Amended and Restated Revolving Credit Agreement (“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 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 Revolving Credit Facility has a maturity date of October 6, 2026. The Company's obligations under the Revolving Credit Facility are unsecured. In addition, if the Company forms or acquires any domestic subsidiaries, the loans and other obligations under the Revolving Credit Facility will be guaranteed by such domestic subsidiaries. At the Company’s election, the borrowings under the 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. The purpose of the Revolving Credit Facility is for general working capital needs, permitted acquisitions (as defined in the Amended and Restated Revolving Credit Agreement), and for stock repurchase and/or redemption transactions that the Company may authorize. 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; and • an interest coverage ratio (consolidated EBITDA/consolidated interest expense) of not less than 3.0 to 1.0. In addition, the 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. As of June 30, 2024 , 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, 2024 . 11 Table of Contents