What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-28 compared with 2024-02-26 · 218 added, 171 removed, 613 unchanged (39% of the section changed)

13 unchanged sentences

We have audited the accompanying consolidated balance sheets of HealthStream, Inc.

(the Company) as of December 31, 2023 and December 31, 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

22 unchanged sentences

The transaction price is then allocated to the separate performance obligations on a relative standalone selling price basis.

Auditing the Company’s accounting for revenue recognition was challenging due to the judgment and effort required to analyze the Company’s contracts to determine whether promised goods and services are distinct performance obligations and to determine stand-alone selling prices used to allocate the transaction price to those performance obligations.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to identify and evaluate performance obligations and determine the stand-alone selling prices used to allocate the transaction price to those performance obligations.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to identify and evaluate performance obligations.

Among other procedures to evaluate management’s identification and determination of the distinct performance obligations, we obtained an understanding of the Company’s various product and service offerings and tested the application of the revenue recognition accounting requirements to determine which performance obligations were distinct.

To test management’s determination of relative standalone selling price for each performance obligation, we performed audit procedures that included, among others, assessing the methodology applied and testing the data underlying the Company’s calculations.

We inspected a sample of customer contracts to assess management’s treatment of significant terms and tested the amounts recognized as revenue or recorded in deferred revenue.

We inspected a sample of customer contracts to evaluate management’s assessment of distinct performance obligations within the contract based on its terms and conditions, and tested the amounts recognized as revenue or recorded in deferred revenue.

/s/ Ernst & Young LLP

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To the Shareholders and the Board of Directors of HealthStream, Inc.

Opinion on the Internal Control Over Financial Reporting

Opinion on Internal Control Over Financial Reporting

We have audited HealthStream, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

28 unchanged sentences

Marketable securities

Accounts receivable, net of allowance of $ 781 and $ 544 at December 31, 2023 and 2022, respectively

37,748 30,800

Accounts receivable, net

30,189 34,346

Accounts receivable - unbilled

4 unchanged sentences

153,122 130,210

Property and equipment, net of accumulated depreciation of $ 19,503 and $ 20,280 at December 31, 2023 and 2022, respectively

Property and equipment, net

10,741 13,005

Capitalized software development, net of accumulated amortization of $ 127,009 and $ 105,025 at December 31, 2023 and 2022, respectively

Capitalized software development, net

43,370 40,643

2 unchanged sentences

191,220 191,379

Customer-related intangibles, net of accumulated amortization of $ 57,095 and $ 48,552 at December 31, 2023 and 2022, respectively

54,742 61,269

Other intangible assets, net of accumulated amortization of $ 16,603 and $ 12,818 at December 31, 2023 and 2022, respectively

Intangibles, net

55,548 68,031

Deferred commissions

39,312 36,560

Non-marketable equity investments

$ 510,766 $ 499,942

6 unchanged sentences

10,141 13,225

Accrued compensation

Deferred revenue

10 unchanged sentences

Shareholders’ equity:

Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding

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

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Revenues, net

$ 291,646 $ 279,063 $ 266,826

Operating costs and expenses:

Cost of revenues (excluding depreciation and amortization)

97,936 95,021 91,143

Product development

48,890 45,540 44,277

Sales and marketing

Other general and administrative expenses

47,158 45,743 44,146

General and administrative expenses

35,132 35,664 36,866

Depreciation and amortization

41,243 41,076 37,945

Total operating costs and expenses

270,359 263,044 254,377

Operating income

Other income (loss), net

21,287 16,019 12,449

Interest income

3,834 2,356 444

Other (expense) income, net

( 318 ) 136 2,692

Income before income tax provision

24,803 18,511 15,585

Income tax provision

4,796 3,298 3,494

$ 20,007 $ 15,213 $ 12,091

Net income per share:

$ 0.66 $ 0.50 $ 0.39

Weighted average shares of common stock outstanding:

30,386 30,571 30,648

30,544 30,673 30,717

Dividends declared per share

$ 0.112 $ 0.100 $ —

See accompanying notes to the Consolidated Financial Statements.

3 unchanged sentences

Year Ended December 31,

$ 20,007 $ 15,213 $ 12,091

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

( 1,371 ) 283 ( 1,091 )

Unrealized gain on marketable securities

Total other comprehensive income (loss)

Total other comprehensive (loss) income

( 1,358 ) 290 ( 1,087 )

Comprehensive income

$ 18,649 $ 15,503 $ 11,004

See accompanying notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY

(In thousands)

(In thousands, except per share data)

Common Stock Retained Accumulated Other Comprehensive Total Shareholders’

Earnings (Loss)/Income Equity

Earnings Income/(Loss) Equity

Balance at December 31, 2021

1 unchanged sentence

— — 12,091 — 12,091

Comprehensive income

Comprehensive loss

— — — ( 1,087 ) ( 1,087 )

Stock donated to Company (held in treasury)

Issuance of common stock in acquisition

209 4,084 — — 4,084

8 unchanged sentences

— — 15,213 — 15,213

Comprehensive loss

Comprehensive income

— — — 290 290

Issuance of common stock in acquisition

Dividends declared on common stock ($ 0.100 per share)

— — ( 3,058 ) — ( 3,058 )

3 unchanged sentences

123 ( 934 ) — — ( 934 )

Excise tax on repurchase of common stock

— ( 47 ) — — ( 47 )

Repurchase of common stock

3 unchanged sentences

— — 20,007 — 20,007

Comprehensive income

Comprehensive loss

— — — ( 1,358 ) ( 1,358 )

5 unchanged sentences

134 ( 1,113 ) — — ( 1,113 )

Excise tax on repurchase of common stock

— ( 47 ) — — ( 47 )

Repurchase of common stock

( 404 ) ( 8,929 ) — — ( 8,929 )

Balance at December 31, 2024

6 unchanged sentences

OPERATING ACTIVITIES:

$ 20,007 $ 15,213 $ 12,091

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

Depreciation and amortization

41,243 41,076 37,945

Stock-based compensation

4,470 4,153 3,554

Amortization of deferred commissions

12,480 11,495 10,599

Provision for credit losses

2,595 1,021 385

Deferred income taxes

(Gain) loss on disposal of fixed assets

( 1,114 ) ( 1,725 ) 710

Gain on disposal of fixed assets

Loss on equity method investments

Non-cash paid time off expense

Change in fair value of non-marketable equity investments

— ( 425 ) ( 3,596 )

( 1,639 ) ( 891 ) 3

Changes in operating assets and liabilities:

Accounts and unbilled receivables

537 3,243 ( 7,770 )

Prepaid royalties

655 ( 1,131 ) 84

Other prepaid expenses and other current assets

( 1,371 ) ( 1,243 ) 2,329

Deferred commissions

( 15,451 ) ( 14,852 ) ( 14,931 )

( 258 ) 328 208

Accounts payable and accrued expenses

( 5,027 ) 4,825 3,742

Accrued royalties

633 ( 887 ) 406

Deferred revenue

( 330 ) 3,386 4,707

Net cash provided by operating activities

57,660 63,970 51,188

INVESTING ACTIVITIES:

Business combinations, net of cash acquired

Cash paid for acquisitions, net of cash acquired

( 1,299 ) ( 6,621 ) ( 3,965 )

Proceeds from maturities of marketable securities

69,150 28,250 10,625

Purchases of marketable securities

( 74,446 ) ( 50,268 ) ( 13,467 )

Proceeds from sale of fixed assets

Proceeds from sale of non-marketable equity investments

Payments to acquire non-marketable equity investments

Payments associated with capitalized software development

( 26,741 ) ( 25,806 ) ( 23,334 )

Purchases of property and equipment

( 1,401 ) ( 2,200 ) ( 1,768 )

Net cash used in investing activities

( 33,972 ) ( 56,598 ) ( 28,389 )

FINANCING ACTIVITIES:

Taxes paid related to net settlement of equity awards

Payment of debt issue costs

( 1,113 ) ( 934 ) ( 565 )

Payment of debt issuance costs

Repurchases of common stock

— ( 8,929 ) ( 23,137 )

Payment of cash dividends

( 3,403 ) ( 3,058 ) —

Net cash used in financing activities

( 4,516 ) ( 13,039 ) ( 23,702 )

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

( 36 ) ( 23 ) 21

Net increase (decrease) in cash and cash equivalents

19,136 ( 5,690 ) ( 882 )

Cash and cash equivalents at beginning of period

40,333 46,023 46,905

Cash and cash equivalents at end of period

$ 59,469 $ 40,333 $ 46,023

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid

Income taxes paid (refunded)

$ 101 $ 132 $ 99

Income taxes paid

$ 8,701 $ 2,611 $ 718

NONCASH INVESTING AND FINANCING ACTIVITIES:

Purchases of property and equipment, accrued but not paid

$ 399 $ 91 $ 727

Capitalized software development, accrued but not paid

$ 1,055 $ 961 $ 1,267

Fair value of common stock issued as consideration for business combinations

$ — $ — $ 4,084

See accompanying notes to the Consolidated Financial Statements.

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The contract price, which represents transaction price when the contract reflects a fixed fee arrangement, or management’s estimate of variable consideration including application of the constraint when the contract does not have a fixed fee, is allocated to the separate performance obligations on a relative standalone selling price basis.

The Company generally determines standalone selling prices based on the standard list price for each product, taking into consideration certain factors, including contract length and the number of subscriptions within the contract.

The Company receives payments from customers based on billing schedules established in its contracts.

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The Company’s CODM uses consolidated financial information to make operating decisions, assess financial performance, and allocate resources.

Discrete financial information to measure profitability is not prepared at any other level.

Taking these factors into account, since January 1, 2023 , the Company has a single reportable segment, such that the Company has presented historical financial information and comparable performance on a single segment basis in this Annual Report on Form 10 -K for the year ended December 31, 2023 .

Further, the CODM reviews and utilizes functional expenses (cost of revenues, product development, sales and marketing, general and administrative expenses, and depreciation and amortization) at the consolidated level to manage the Company's operations.

Other segment items included in consolidated net income are interest income, other income, net and the income tax provision, which are reflected in the Consolidated Statements of Income.

Use of Estimates

3 unchanged sentences

Cash Equivalents

The Company considers cash equivalents to be unrestricted, highly liquid investments with initial maturities of less than three months.

The Company considers cash equivalents to be unrestricted, highly liquid investments with initial maturities of less than three months at the time of purchase.

Marketable Securities

Marketable securities are classified as available for sale and are stated at fair market value, with the unrealized gains and losses, net of tax, reported in other accumulated comprehensive income (loss) on the accompanying Consolidated Balance Sheets.

Realized gains and losses and declines in market value due to credit-related factors on investments in marketable securities are included in other income, net on the accompanying Consolidated Statements of Income.

Marketable securities are classified as available for sale and are stated at fair value, with the unrealized gains and losses, net of tax, reported in other accumulated comprehensive income (loss) on the accompanying Consolidated Balance Sheets.

Realized gains and losses on investments in marketable securities are included in interest income and declines in market value due to credit-related factors on investments in marketable securities are included in other (expense) income, net on the accompanying Consolidated Statements of Income.

The cost of securities sold is based on the specific identification method.

Interest and dividends on securities classified as available for sale are included in other income, net on the accompanying Consolidated Statements of Income.

Premiums and discounts are amortized over the life of the related available for sale security as an adjustment to the yield using the effective interest method.

Interest and dividends on securities classified as available for sale are included in interest income on the accompanying Consolidated Statements of Income.

Premiums and discounts are amortized over the life of the related available for sale security as an adjustment to the yield using the effective interest method and are reflected as an operating activity within the Consolidated Statements of Cash Flows.

Deferred Commissions

Deferred commissions represent incremental costs to acquire contracts with customers, such as the sales commission payment and associated payroll taxes, which are capitalized and amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit.

Capitalized contract costs are included under the caption deferred commissions in the accompanying Consolidated Balance Sheets.

Deferred commissions represent incremental costs incurred to acquire contracts with customers, such as the sales commission payment and associated payroll taxes, which are capitalized and amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit.

Capitalized contract costs of $ 34.7 million and $ 31.7 million at December 31, 2024 and 2023, respectively, are included under the caption other assets in the accompanying Consolidated Balance Sheets, and amortization of deferred commissions is included in sales and marketing expenses in the Consolidated Statements of Income.

The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions are not commensurate with initial commissions.

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Uncollectible receivables are written-off in the period management believes it has exhausted its ability to collect payment from the customer.

Expected credit losses are recorded under the caption other general and administrative expenses in the accompanying Consolidated Statements of Income.

Expected credit losses are recorded under the caption general and administrative expenses in the accompanying Consolidated Statements of Income.

Changes in the allowance for credit losses and the amounts charged to bad debt expense for the three years ended December 31, 2024 were as follows (in thousands):

6 unchanged sentences

Capitalized Software and Content Development

Capitalized software and content development is stated on the basis of cost and is presented net of accumulated amortization.

Capitalized software and content development is stated on the basis of cost and is presented net of accumulated amortization, which was $ 151.1 million and $ 127.0 million as of December 31, 2024 and 2023, respectively.

The Company capitalizes costs incurred during the development phase for projects to develop software and content.

These assets are generally amortized using the straight-line method over three years.

The Company capitalized $ 25.5 million and $ 23.8 million during 2023 and 2022 , respectively.

Amortization of capitalized software development was $ 24.1 million, $ 22.0 million, and $ 18.9 million during 2024 , 2023 , and 2022 , respectively.

Maintenance and operating costs are expensed as incurred.

As of December 31, 2023 and 2022 , there were no capitalized software development costs for external computer software developed for resale.

Fair Value Measurements

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These models require the use of various assumptions relating to cash flow projections, growth rates, discount rates, and terminal value calculations.

There were no goodwill impairments identified or recorded for the years ended December 31, 2023 , 2022 , or 2021 .

There were no goodwill impairments identified or recorded for the years ended December 31, 2024, 2023, and 2022 .

Intangible Assets

The Company estimates fair values of intangible assets using the income and cost methods, which are based on management’s estimates and assumptions.

The Company estimates the fair value of intangible assets acquired as part of a business combination using the income and cost methods, which are based on management’s estimates and assumptions.

As of December 31, 2024 , intangible assets include customer relationships, internally developed technologies, non-competition agreements, and trade names.

Intangible assets that are considered to have definite useful lives are being amortized on a straight-line basis over periods ranging between two and eighteen years.

Intangible assets that are considered to have definite useful lives are being amortized on a straight-line basis over periods ranging between one and eighteen years.

The weighted average amortization period for definite lived intangible assets as of December 31, 2024 was 11.8 years.

Intangible assets considered to have indefinite useful lives are evaluated for impairment at least annually during the fourth quarter, and all intangible assets are reviewed for impairment whenever events or changes in facts or circumstances indicate that the carrying amount of the assets may not be recoverable.

There were no intangible asset impairments identified or recorded for the years ended December 31, 2023 , 2022 , or 2021 .

There were no intangible asset impairments identified or recorded for the years ended December 31, 2024, 2023, and 2022 .

Long-Lived Assets

Long-lived assets to be held for use are reviewed for events or changes in facts and circumstances, both internally and externally, which may indicate that an impairment of long-lived assets held for use is present.

Purchases of long-lived assets (including capitalized software and content development costs) totaled $ 27.3 million, $ 25.9 million, and $ 23.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company measures any impairment using observable market values or discounted future cash flows from the related long-lived assets.

1 unchanged sentence

Management periodically evaluates whether the carrying value of long-lived assets, including intangible assets, property and equipment, capitalized software development, deferred commissions, and other assets will be recoverable.

There were no long-lived asset impairments identified or recorded for the years ended December 31, 2023 , 2022 , or 2021 .

There were no significant long-lived asset impairments recorded for the years ended December 31, 2024, 2023, and 2022 .

Non-Marketable Equity Investments

3 unchanged sentences

The fair value of non-marketable equity investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

The proportionate share of income or loss from equity method investments and any changes in fair value of investments accounted for using the measurement alternative are recorded under the caption other income, net in the accompanying Consolidated Statements of Income.

The proportionate share of income or loss from equity method investments and any changes in fair value of investments accounted for using the measurement alternative are recorded under the caption other (expense) income, net in the accompanying Consolidated Statements of Income.

The aggregate carrying amount of non-marketable equity investments accounted for using the measurement alternative for equity investments that do not have readily determinable fair values was $ 1.5 million for both the years ended December 31, 2024 and 2023, which the Company evaluates for impairment at each reporting period, and are classified in other assets on the Consolidated Balance Sheets.

There have been no adjustments recorded due to changes in the fair value of the non-marketable equity investments the Company held as of December 31, 2024 and 2023.

Financial Instruments

The Company has various financial instruments, including cash and cash equivalents, accounts receivable, accounts receivable-unbilled, accounts payable, and accrued liabilities.

The Company has various financial instruments, including cash, cash equivalents, accounts receivable, accounts receivable-unbilled, accounts payable, and accrued liabilities.

The carrying amounts of these financial instruments approximate fair value because of the short-term maturity or short-term nature of such instruments.

The Company also has marketable securities, which are recorded at approximate fair value based on quoted market prices or alternative pricing sources (see Note 4 – Marketable Securities) and non-marketable equity investments, which are recorded under the equity method or under the measurement alternative (see Note 15 - Non-Marketable Equity Investments).

The Company also has marketable securities, which are recorded at fair value based on quoted market prices or alternative pricing sources (see Note 4 – Marketable Securities) and non-marketable equity investments, which are recorded under the equity method or under the measurement alternative (see Note 1 - Non-Marketable Equity Investments).

The Company expenses the costs of advertising as incurred.

Advertising expense for the years ended December 31, 2024, 2023, and 2022 was $ 1.9 million, $ 1.5 million, and $ 1.9 million, respectively, and is included under the caption sales and marketing expense in the accompanying Consolidated Statements of Income.

Shipping and Handling Costs

Shipping and handling costs that are associated with delivering products and services are included under the caption cost of revenues (excluding depreciation and amortization) in the accompanying Consolidated Statements of Income.

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.

Management evaluates all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed.

3 unchanged sentences

Management reviews the realizability of its deferred tax assets each reporting period to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the realizability of deferred tax assets.

As of December 31, 2023 , the Company had established a valuation allowance of $ 2.0 million for the portion of its net deferred tax assets that are not more likely than not expected to be realized.

The Company accounts for income tax uncertainties using a more-likely-than- not recognition threshold based on the technical merits of the tax position taken.

Tax positions that meet the more-likely-than- not recognition threshold are measured in order to determine the tax benefit to be recognized in the financial statements.

The Company recognizes interest accrued and penalties related to uncertain tax positions in the caption income tax provision in the accompanying Consolidated Statements of Income.

Earnings per Share

5 unchanged sentences

Concentrations of Credit Risk and Significant Customers

The Company’s credit risks relate primarily to cash and cash equivalents, marketable securities, and accounts receivable.

The Company’s credit risks relate primarily to cash, cash equivalents, marketable securities, accounts receivable, and accounts receivable - unbilled.

The Company places its temporary excess cash in high quality, short-term money market instruments.

4 unchanged sentences

An allowance for credit losses is maintained for potentially uncollectible accounts receivable.

The Company did not have any single customer representing over 10% of net revenues or accounts receivable during or as of the years ended December 31, 2023 , 2022 , or 2021 , respectively.

The Company did not have any single customer representing over 10% of net revenues or accounts receivable during or as of the years ended December 31, 2024, 2023, and 2022 , respectively.

Stock-Based Compensation

2 unchanged sentences

The Company uses the Black Scholes option pricing model for calculating the fair value of option awards issued under its stock-based compensation plans.

The Company measures compensation cost of restricted share units based on the closing fair market value of the Company’s stock on the date of grant.

The Company measures compensation cost of restricted share units based on the closing fair value of the Company’s stock on the date of grant.

Stock-based compensation cost is measured at the grant date, based on the fair value of the award that is ultimately expected to vest, and is recognized as an expense over the requisite service period.

The Company, at times, has granted performance restricted stock unit awards to executive officers and other members of senior management, which include a performance condition.

Stock-based compensation expense related to awards with a performance condition are measured based on the grant date closing stock price, and the expense related to these awards is recognized based on the requisite service period elapsed, as well as the probability of achievement of the performance condition as of the end of our reporting period.

The Company recognizes tax benefits or deficiencies from stock-based compensation if an excess tax benefit or deficiency is realized.

Excess tax benefits and deficiencies are reflected in the Consolidated Statements of Income as a component of the provision for income taxes when realized.

The Company has several non-cancelable agreements to lease office space.

The Company has three non-cancelable agreements to lease office space.

For leases with a lease term greater than 12 months, the Company recognizes a right-of-use ("ROU") asset and a lease liability on the balance sheet at the lease commencement date.

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Gains and losses from these translations are recognized as cumulative translation adjustments included in accumulated other comprehensive income in the Consolidated Balance Sheets.

Recently Issued Accounting Pronouncements Not Yet Adopted

Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the Company's functional currency are included within other (expense) income, net on the Consolidated Statements of Income.

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

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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.

The ASU will be effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption of the ASU is permitted and should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of adopting ASU 2023 - 07 and expects to adopt this ASU for the year ending December 31, 2024.

The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company adopted this standard effective January 1, 2024 using a retrospective method.

For further information, refer to the Business Segments section of this Note 1 - Summary of Significant Accounting Policies.

In December 2023, the 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.

The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting this ASU.

The ASU is effective for fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact of adopting the standard;

however, it is not expected to have a material impact on the Company's financial statements.

In November 2024, the FASB issued ASU 2024 - 04, " Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures:

Disaggregation of Income Statement Expenses ," which requires disclosure of disaggregated information about specific categories underlying certain income statement expense line items in the footnotes to the financial statements for both annual and interim periods.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact of the adoption of this standard.

SHAREHOLDERS ’ EQUITY

6 unchanged sentences

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

During the year ended December 31, 2023 , the Board declared the following quarterly dividends under the Dividend Policy:

Dividend Payment Date

Dividend Declaration Date

Dividend Per Share

April 28, 2023

February 20, 2023

April 17, 2023

June 23, 2023

April 24, 2023

June 12, 2023

September 29, 2023 July 24, 2023 0.025 September 18, 2023 767,000

December 22, 2023

October 23, 2023

December 11, 2023

Total dividends

During the years ended December 31, 2024 and 2023 , the Board declared quarterly dividends under the Dividend Policy totaling $ 0.112 and $ 0.100 per share for the year, respectively, for a cash outlay of $ 3.4 million and $ 3.1 million, respectively.

Additionally, on February 24, 2025, the Board approved the Company’s first quarter 2025 cash dividend of $0.031 per share, payable on March 21, 2025 to holders of record on March 10, 2025 .

9 unchanged sentences

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.

The share repurchase program expired according to its term on March 31, 2024.

During the year ended December 31, 2023, the Company repurchased 404,188 shares at an aggregate fair value of $ 8.9 million, reflecting an average price per share of $ 22.07 (excluding the cost of broker commissions).

EARNINGS PER SHARE

No repurchases occurred during 2024.

Repurchased shares of common stock in all years presented herein have been retired.

NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three years ended December 31, 2024 (in thousands, except per share amounts):

Year Ended December 31,

$ 20,007 $ 15,213 $ 12,091

Weighted-average shares outstanding

30,386 30,571 30,648

Effect of dilutive shares

Weighted-average diluted shares

30,544 30,673 30,717

Net income per share:

$ 0.66 $ 0.50 $ 0.39

Potentially dilutive shares representing 169,000 , 252,000 , and 183,000 shares of common stock for the years ended December 31, 2024, 2023, and 2022 , respectively, were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.

5 unchanged sentences

Unrealized Losses

government debt securities

treasury debt securities

$ 37,726 $ 24 $ ( 2 ) $ 37,748

4 unchanged sentences

Unrealized Losses

government debt securities

treasury debt securities

$ 30,791 $ 10 $ ( 1 ) $ 30,800

3 unchanged sentences

All investments in marketable securities are classified as current assets on the Consolidated Balance Sheets because the underlying securities mature within one year from the balance sheet date.

REVENUE RECOGNITION AND SALES COMMISSIONS

REVENUE RECOGNITION

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.

3 unchanged sentences

Subscription services

$ 280,316 $ 267,935 $ 253,960

Professional services

11,330 11,128 12,866

Total revenues, net

For the years ended December 31, 2023 , 2022 , and 2021 , the Company recognized $ 1.0 million, $ 0.4 million, and $ 0.7 million, respectively, in impairment losses on receivables and contract assets arising from contracts with customers.

$ 291,646 $ 279,063 $ 266,826

During the years ended December 31, 2024, 2023, and 2022 , the Company recognized revenues of $ 84.3 million, $ 79.6 million, and $ 71.4 million, respectively, from amounts included in deferred revenue at the beginning of the respective period.

As of December 31, 2024 , $ 621 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

The Company expects to recognize revenue on approximately 42 % of these remaining performance obligations over the 12 months ending December 31, 2024, 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 $ 11.5 million, $ 10.6 million, and $ 9.2 million for the years ended December 31, 2023 , 2022 , and 2021 , respectively, which is included in sales and marketing expenses in the accompanying Consolidated Statements of Income.

The Company expects to recognize revenue on approximately 40 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

PROPERTY AND EQUIPMENT

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Balance at January 1, 2024

Post-closing adjustment for eeds

Acquisition of TCPS

Acquisition of The Clinical Hub

Effect of exchange rate changes

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Balance at January 1, 2023

Acquisition of CloudCME

Acquisition of eeds

Post-closing adjustment for ANSOS

Post-closing adjustment for ComplyALIGN

Post-closing adjustment for Rievent

Post-closing adjustment for eeds

Effect of exchange rate changes

Balance at December 31, 2023

Intangible assets other than goodwill that are considered to have finite useful lives include customer-related intangibles consisting of customer relationships, which are amortized over their estimated useful lives ranging from eight to eighteen years, and other intangible assets consisting of developed technology, non-competition agreements, and trade names, which are amortized over their estimated useful lives ranging from two to ten years.

The Company also previously recorded an indefinite lived intangible for a trade name valued at $ 0.7 million.

However, in January 2023, the Company reassessed the future expected use of the indefinite lived trade name such that beginning in 2023, it is being amortized over a ten year remaining useful life and is therefore included in the future annual amortization expense table below.

Amortization of intangible assets was $ 13.4 million, $ 14.9 million, and $ 14.5 million for the years ended December 31, 2024, 2023, and 2022 , respectively.

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BUSINESS COMBINATIONS

, the Company acquired the remaining ownership interest (representing approximately

82 % of the outstanding equity interests) of CloudCME, LLC ("CloudCME"), a Nashville-based healthcare technology company offering a SaaS-based application for managing all aspects of continuing education ("CME/CE") within a healthcare organization, for approximately

$ 4.0 million in cash and

$ 4.1 million in shares of HealthStream's common stock issued through a private placement at closing.

During the year ended December 31, 2024, the Company completed business combinations of Total Clinical Placement System (d/b/a TCPS) ("TCPS") and The Clinical Hub, Inc.

(d/b/a The Clinical Hub) ("The Clinical Hub") for total purchase consideration of $ 1.3 million in cash paid at closing, with up to an additional $ 0.6 million in cash payable by the Company based on agreed upon metrics of the acquirees during certain periods following closing.

Both TCPS and The Clinical Hub are clinical rotation management companies offering a process that streamlines the managing and placement of students into clinical rotations that include scheduling, onboarding, tracking, and ensuring proper compliance and credentials are in place for students, schools, and healthcare organizations, further enlarging the Company's footprint among nursing and allied healthcare students as they prepare for careers in healthcare.

The acquisitions are not considered material to the Company's financial statements, either individually or in the aggregate.

The Company accounted for the acquisitions as business combinations and, as of December 31, 2024, has preliminarily allocated the purchase consideration for each based on management’s estimates of fair value.

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 CME/CE management application for healthcare organizations, for approximately $ 6.6 million in cash.

The purchase price was included in accrued liabilities in the Company's Consolidated Balance Sheet as of December 31, 2022 and was paid in January 2023.

Of the purchase price paid at closing, $ 0.6 million is being held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company.

Acquisition-related transaction costs were $ 0.1 million.

The acquisition is not considered material to the Company’s financial statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

Net assets acquired were $ 6.6 million.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of $ 4.7 million, goodwill of $ 2.3 million was established.

The results of operations for eeds are included in the Company’s Consolidated Financial Statements from the date of acquisition.

On May 18, 2022 , the Company acquired the remaining ownership interest (representing approximately 82 % of the outstanding equity interests) of CloudCME, LLC ("CloudCME"), a Nashville-based healthcare technology company offering a SaaS-based application for managing all aspects of continuing education ("CME/CE") within a healthcare organization, for approximately $ 4.0 million in cash and $ 4.1 million in shares of HealthStream's common stock issued through a private placement at closing.

The Company previously held a minority interest in CloudCME of approximately 18 %.

Acquisition-related transaction costs were

$ 0.1 million.

The acquisition is

not considered material to the Company’s financial statements.

Acquisition-related transaction costs were $ 0.1 million.

The acquisition is not considered material to the Company’s financial statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

Net assets acquired were

$ 9.6 million.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of

$ 3.8 million, goodwill of

$ 6.8 million was established.

Net assets acquired were $ 9.6 million.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of $ 3.8 million, goodwill of $ 6.8 million was established.

The results of operations for CloudCME are included in the Company’s Consolidated Financial Statements from the date of acquisition.

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 CME/CE management application 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.

The purchase price was included in accrued liabilities in the Company's Consolidated Balance Sheet as of

December 31, 2022 and was paid in

January 2023.

Of the purchase price paid at closing,

$ 0.6 million is being held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company.

Acquisition-related transaction costs were

$ 0.1 million.

The acquisition is

not considered material to the Company’s financial statements.

The Company accounted for the acquisition as a business combination and has allocated the purchase consideration based on management’s estimates of fair value.

Net assets acquired were

$ 6.6 million.

Based on the fair value of assets acquired and liabilities assumed, including intangible assets of

$ 4.7 million, goodwill of

$ 2.3 million was established.

The results of operations for eeds are included in the Company’s Consolidated Financial Statements from the date of acquisition.

Components of earnings before income taxes are as follows (in thousands):

Components of income before income taxes are as follows (in thousands):

Year Ended December 31,

United States

Earnings before income taxes

$ 25,201 $ 18,472 $ 15,777

( 398 ) 39 ( 192 )

Income before income tax provision

$ 24,803 $ 18,511 $ 15,585

The provision for income taxes is comprised of the following (in thousands):

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Current federal

$ 4,712 $ 4,066 $ 1,972

Current state

1,184 942 923

Current foreign

14 15 ( 110 )

Deferred federal

( 827 ) ( 1,493 ) 495

Deferred state

( 223 ) ( 214 ) 239

Deferred foreign

( 64 ) ( 18 ) ( 25 )

Provision for income taxes

$ 4,796 $ 3,298 $ 3,494

A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying Consolidated Statements of Income is as follows (in thousands):

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Federal tax provision at the statutory rate

$ 5,187 $ 3,887 $ 3,274

State income tax provision, net of federal benefit

( 1,284 ) ( 1,197 ) ( 1,227 )

Change in valuation allowance

Adjustments for prior year taxes

( 36 ) ( 19 ) ( 261 )

Changes in uncertain tax positions

7 ( 71 ) ( 85 )

Provision for income taxes

$ 4,796 $ 3,298 $ 3,494

Management periodically assesses the realizability of its deferred tax assets, and to the extent that a recovery is not likely, a valuation allowance is established to reduce the deferred tax asset to the amount estimated to be recoverable.

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The Company is subject to income taxation at the federal, foreign, and various state levels.

The Company is under examination by the Internal Revenue Service for the 2018 tax year, and it has agreed to finalization of this examination and does not expect the adjustment to exceed the uncertain tax position previously recorded.

The Company is no longer subject to U.S.

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Balance at beginning of year

$ 1,160 $ 1,036

Additions for tax positions in current year

Reductions for tax positions of prior years

( 173 ) ( 174 )

Reductions for payments for tax positions of prior years

Balance at end of year

Upon reaching the final determination of the 2018 IRS examination, which resulted in a reduction to the research & development tax credit for 2018, the Company evaluated its research & development credit realizability for all open tax years.

Taking into consideration the subjectivity of this credit qualification, the Company increased the reserve for uncertain tax positions by $ 0.1 million during the current year.

The Company recognized $ 43,000 and $ 31,000 for interest and penalties related to unrecognized tax benefits within the provision for income taxes during the years ended December 31, 2023 and 2022 , respectively.

$ 1,140 $ 1,160

Unrecognized tax benefits included tax positions of $ 1.1 million and $ 1.1 million for the years ended December 31, 2024 and 2023 , respectively, that if recognized would impact the Company’s effective tax rate.

Deferred federal and state income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred tax assets and deferred tax liabilities are as follows (in thousands):

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Accrued liabilities

Capitalized software development

Lease liability

3 unchanged sentences

Total deferred tax assets

13,880 12,684

Valuation allowance

( 1,900 ) ( 1,992 )

Deferred tax assets, net of valuation allowance

11,980 10,692

Deferred tax liabilities:

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Prepaid assets

11,156 10,285

Capitalized software development

Property and equipment

Basis difference on investments

Total deferred tax liabilities

26,576 26,577

Net deferred tax liabilities

The Company realized $ 0.1 million of excess tax deductions related to stock-based awards during the year ended December 31, 2023 , which was reflected in the statement of income as a component of the provision for income taxes.

$ 14,596 $ 15,885

STOCK-BASED COMPENSATION

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Outstanding at end of period

90 $ 20.34 $ 1,031

Exercisable at end of period

The aggregate intrinsic value for stock options in the table above represents the total difference between the Company’s closing stock price on December 29, 2023 ( the last trading day of the year) of $ 27.03 per share and the option exercise price, multiplied by the number of in-the money options as of December 31, 2023 .

90 $ 20.34 $ 1,031

The weighted average remaining contractual term of options outstanding at December 31, 2024 was 6 years.

4 unchanged sentences

Outstanding at beginning of period

( 175 ) 22.95

Outstanding at end of period

571 $ 24.54 $ 15,424

The aggregate fair value of RSUs that vested during the year ended December 31, 2024 and 2023 , as of the respective vesting dates, was $ 4.0 million and $ 3.8 million, respectively.

A portion of RSUs that vested in 2023 and 2022 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities.

The total shares withheld for taxes during 2023 and 2022 were 36,000 and 28,000 , respectively, and were based on the value of the RSUs on their respective settlement dates as determined by the Company’s closing stock price.

Total payments related to RSUs for the employees’ tax obligations to taxing authorities were $ 0.9 million in 2023 , $ 0.6 million in 2022 , and $ 0.5 million in 2021 , and are reflected as a financing activity within the Consolidated Statements of Cash Flows.

Stock-Based Compensation

2 unchanged sentences

Cost of revenues (excluding depreciation and amortization)

$ 94 $ 183 $ 155

Product development

Sales and marketing

Other general and administrative

General and administrative

3,102 2,793 2,552

Total stock-based compensation expense

$ 4,470 $ 4,153 $ 3,554

The Company amortizes the fair value of all stock-based awards, net of estimated forfeitures, on a straight-line basis over the requisite service period, which generally is the vesting period.

As of December 31, 2024 , total unrecognized compensation expense related to non-vested stock options and RSUs was $ 6.7 million, net of estimated forfeitures, with a weighted average expense recognition period remaining of 2.5 years.

The Company realized $ 0.1 million of excess tax deductions related to stock-based awards during the year ended December 31, 2023 , which was reflected in the Consolidated Statement of Income as a component of the provision for income taxes.

During December 2021, the Company’s Chief Executive Officer, Robert A.

Frist, Jr., contributed 86,494 of his personally owned shares of HealthStream, Inc.

common stock (valued at $ 2.25 million) to the Company, without any consideration paid to him, for the benefit of the Company’s employees.

In connection therewith, effective December 29, 2021 the Company approved the award of 86,494 fully vested shares of common stock to over 1,000 employees of the Company under the HealthStream, Inc.

2016 Omnibus Incentive Plan.

These shares were issued in December 2021.

As required by ASC Topic 718, Compensation – Stock Compensation , ("ASC 718" ) the Company recognized $ 2.25 million of stock-based compensation expense for these stock awards during the three months ended December 31, 2021 based on the closing fair market value of the Company’s stock on the date of the Company’s approval of these grants.

Total payments related to the employees’ tax obligations to taxing authorities for these stock awards were $ 0.7 million and are reflected as a financing activity within the Consolidated Statement of Cash Flows for 2021.

In addition, the employer taxes and expenses associated with these grants were $ 0.2 million and were recorded as an expense during December 2021.

Frist contributed an additional 7,113 of his personally owned shares to cover these costs.

The receipt of shares from Mr.

Frist in connection with the withholding of shares as set forth above are presented on the Company’s Statement of Shareholders’ Equity in a similar manner as a share repurchase (i.e., reduction of outstanding shares).

EMPLOYEE BENEFIT PLAN

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There were no balances outstanding on the Revolving Credit Facility as of December 31, 2024 and there were no borrowings under the Revolving Credit Facility during the year ended December 31, 2024 .

The Company’s operating lease expense as presented in other general and administrative expense in the Consolidated Statements of Income was $ 4.6 million, $ 4.3 million, and $ 5.5 million for the twelve months ended December 31, 2023 , 2022 , and 2021 , respectively.

The Company’s operating lease expense as presented in general and administrative expense in the Consolidated Statements of Income was $ 4.3 million, $ 4.6 million, and $ 4.3 million for the twelve months ended December 31, 2024, 2023, and 2022 , respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 4.3 million and $ 4.4 million for the years ended December 31, 2024 and 2023 , respectively.

As of December 31, 2023 , the weighted-average remaining lease term was 7.3 years, and the weighted-average incremental borrowing rate was 6 %.

As of December 31, 2024 and 2023, the weighted-average remaining lease term was 6.6 years and 7.3 years, respectively, and the weighted-average incremental borrowing rate was 6 %.

As of December 31, 2024 , the Company did not have any leases that had not yet commenced.

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Total lease liabilities

The Company subleases certain of its office space included above under non-cancellable leases and is due to receive future minimum rental payments of approximately $ 0.2 million and $ 37,000 for the years ended December 31, 2024 and 2025, respectively.

In connection with its business, the Company is from time to time involved in various legal actions.

1 unchanged sentence

However, in the opinion of the Company’s management, matters currently pending or threatened against the Company are not expected to have a material adverse effect on the financial position or results of operations of the Company.

NON-MARKETABLE EQUITY INVESTMENTS

The aggregate carrying amount of non-marketable equity investments accounted for using the measurement alternative for equity investments that do not have readily determinable fair values was $ 1.5 million for both the years ended December 31, 2023 and 2022 , which the Company evaluates for impairment at each reporting period.

There have been no adjustments recorded due to changes in the fair value of the non-marketable equity investments the Company held as of December 31, 2023 and 2022.

The Company accrues for loss contingencies when it is both probable that the Company will incur the loss and when the amount of the loss can be reasonably estimated.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data