What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-10-24 · 85 added, 145 removed, 86 unchanged (73% of the section changed)

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Further, the Company’s internal structure and executive leadership are likewise shaped by the organizing principle of a single platform, including with regard to technology, operations, accounting, internal reporting (including the nature of information reviewed by our key decision makers), organizational structure, compensation, performance assessment, and resource allocation.

Significant financial metrics for the third quarter of 2024 are set forth in the bullets below.

Revenues of $73.1 million in the third quarter of 2024, up 3.9% from $70.3 million in the third quarter of 2023

Operating income of $6.5 million in the third quarter of 2024, up 33.6% from $4.9 million in the third quarter of 2023

Net income of $5.7 million in the third quarter of 2024, up 48.0% from $3.9 million in the third quarter of 2023

Earnings per share (“EPS”) of $0.19 per share (diluted) in the third quarter of 2024, up from $0.13 per share (diluted) in the third quarter of 2023

Adjusted EBITDA 1 of $17.7 million in the third quarter of 2024, up 9.0% from $16.2 million in the third quarter of 2023

Significant financial metrics for the first quarter of 2025 are set forth in the bullets below.

Revenues of $73.5 million in the first quarter of 2025, up 1.0% from $72.8 million in the first quarter of 2024

Operating income of $4.4 million in the first quarter of 2025, down 23.1% from $5.7 million in the first quarter of 2024

Net income of $4.3 million in the first quarter of 2025, down 17.1% from $5.2 million in the first quarter of 2024

Earnings per share (“EPS”) of $0.14 per share (diluted) in the first quarter of 2025, down from $0.17 per share (diluted) in the first quarter of 2024

Adjusted EBITDA 1 of $16.2 million in the first quarter of 2025, down 5.0% from $17.1 million in the first quarter of 2024

Adjusted EBITDA is a non-GAAP financial measure.

A reconciliation of adjusted EBITDA to net income and disclosure regarding why we believe adjusted EBITDA provides useful information to investors is included later in this Form 10-Q.

During the first quarter of 2025, we entered into an agreement to sublease a portion of our office space in the Capitol View building in Nashville, Tennessee to optimize our workforce performance to deliver positive results for customers, employees, and shareholders.

HealthStream’s corporate headquarters will remain in Nashville in the Capitol View building, while the Company will continue hiring new employees both locally and nationally to support its growth.

The sublease commenced in April 2025 and will expire in October 2031.

The Company expects to record sublease income, net of initial direct costs, of approximately $2.3 million during the remainder of 2025 and $3.2 million annually thereafter for the remaining term of the lease, as a reduction to lease expense under the caption General and Administrative.

Recent Developments

Macroeconomic conditions in the U.S.

continue to be challenging in various respects, including as the result of inflationary pressures, interest rate levels, which, despite recent declines, remain elevated, and uncertain geopolitical conditions.

In this regard, we have experienced in certain recent periods, and believe that many of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with inflationary conditions.

These conditions impacting the U.S.

that directly or indirectly impact the healthcare industry are challenging in certain respects and may become more challenging based on recent and contemplated changes to various policies and regulations.

While healthcare costs continue to grow, government cuts or reimbursement rate reductions to funding for programs and organizations such as Federally Qualified Health Centers and academic medical institutions, the impact of tariffs on goods and services utilized by healthcare provider organizations, as well as uncertainty surrounding potential policy, regulatory, and economic shifts continue to be challenging for our healthcare customers.

We believe that these macroeconomic challenges and uncertainties, particularly among healthcare provider organizations with patient populations more dependent on government-funded reimbursement, are causing some delays in purchasing and non-renewals of existing products and services, particularly in relation to elective or non-mandatory products and services.

Additionally, challenges persist in terms of inflationary pressures, ongoing elevated interest rate levels, declining consumer sentiment, and heightened geopolitical tensions, including various ongoing and threatened conflicts abroad and strained global trade relations.

We have experienced in certain recent periods, and believe that many of our customers have experienced, increased labor, supply chain, capital, and other expenditures and budgetary pressures associated with such conditions and challenges.

These conditions and challenges impacting the U.S.

economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations.

While the COVID-19 pandemic continues to cause some level of uncertainty, the impact of the pandemic itself on public health and economic conditions has significantly lessened and normalized to the point of reaching an endemic stage.

As our business is focused on providing solutions to healthcare organizations, we continue to closely monitor any developments related to COVID-19 or other public health related events and remain prepared to modify our operating approaches to address COVID 19-related developments or other public health related events as they may arise.

Additionally, given our focus on customers in the healthcare industry, adverse developments impacting the healthcare industry may adversely impact our business and financial results.

In this regard, and as mentioned above, potential reductions in federal and state healthcare spending and reimbursements, including proposed cuts to Medicare and Medicaid, and reductions in insurance coverage to individuals, whether through changes to the Affordable Care Act (“ACA”) or otherwise, as a result of recent political developments or other factors, may adversely impact our business and financial results, although we are unable to fully assess the impact to which we may be impacted by any such developments.

Key Financial Metrics

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Revenues, net .

Revenues, net, reflect income generated by the sales of goods and services related to our operations and, for businesses acquired prior to the adoption of ASU 2021-08 on January 1, 2022, reflects deferred revenue write-downs associated with fair value accounting for such acquired businesses.

Revenues, net, were $73.1 million and $217.4 million for the three and nine months ended September 30, 2024, respectively, compared to $70.3 million and $208.5 million for the three and nine months ended September 30, 2023, respectively.

Revenues, net, reflect income generated by the sales of goods and services related to our operations.

Revenues, net, were $73.5 million for the three months ended March 31, 2025, compared to $72.8 million for the three months ended March 31, 2024.

Management utilizes revenue in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of the growth and success of our products.

Net income represents revenues, net, less all expenses.

Net income was $5.7 million and $15.1 million for the three and nine months ended September 30, 2024, respectively, compared to $3.9 million and $10.6 million for the three and nine months ended September 30, 2023.

Net income was $4.3 million for the three months ended March 31, 2025, compared to $5.2 million for the three months ended March 31, 2024.

Management utilizes net income in connection with managing our business, including with regard to our capital deployment strategies.

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We also believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operations.

Additionally, certain short-term cash incentive bonuses and performance-based equity award grants are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Adjusted EBITDA was $17.7 million and $50.6 million for the three and nine months ended September 30, 2024, respectively, compared to $16.2 million and $45.3 million for the three and nine months ended September 30, 2023, respectively.

Additionally, certain short-term cash incentive bonuses and performance-based equity award grants are based, in whole or in part, on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Adjusted EBITDA was $16.2 million for the three months ended March 31, 2025, compared to $17.1 million for the three months ended March 31, 2024.

Capital Expenditures .

Capital expenditures represent cash payments incurred for purchases of property and equipment and during the development phase for projects to develop software and content.

Capital expenditures were $6.8 million and $21.3 million for the three and nine months ended September 30, 2024, respectively, compared to $6.7 million and $21.4 million for the three and nine months ended September 30, 2023, respectively.

Capital expenditures were $8.8 million for the three months ended March 31, 2025, respectively, compared to $7.8 million for the three months ended March 31, 2024.

Management utilizes this metric in connection with managing the allocation of capitalized expenditures in which the Company invests related to the development of its products and believes that this metric is a key indicator of investment in products relative to their current and expected performance.

Critical Accounting Policies and Estimates

The Company’s Condensed Consolidated Financial Statements are prepared in accordance with US GAAP.

These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our Condensed Consolidated Financial Statements.

We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made.

These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenues and expenses during the periods presented and related disclosures.

To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our Condensed Consolidated Financial Statements will be affected.

The accounting policies and estimates that we believe are the most critical in fully understanding and evaluating our reported financial results include the following:

Revenue recognition

Accounting for income taxes

In many cases, the accounting treatment of a particular transaction is specifically dictated by US GAAP and does not require management’s judgment in its application.

There are also areas where management’s judgment in selecting among available alternatives would not produce a materially different result.

See Notes to the Consolidated Financial Statements in our 2024 Form 10-K and the Notes to the Condensed Consolidated Financial Statements herein which contain additional information regarding our accounting policies and other disclosures required by US GAAP.

There have been no changes in our critical accounting policies and estimates from those reported in our 2024 Form 10-K.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Revenues, net.

Revenues increased $2.8 million, or 4%, to $73.1 million for the three months ended September 30, 2024 from $70.3 million for the three months ended September 30, 2023.

Subscription revenues increased $2.5 million, or 4%, and professional services revenues increased by $0.3 million, or 11%, compared to the third quarter of 2023.

The increase in professional services revenues is primarily due to a one-time payment as a result of a customer acquisition.

A comparison of revenues by revenue source is as follows (in thousands):

Three Months Ended September 30,

Percentage Change

Subscription services

Professional services

Total revenues, net

% of Revenues

Subscription services

Professional services

Cost of Revenues (excluding Depreciation and Amortization).

Cost of revenues increased $0.9 million, or 4%, to $24.5 million for the three months ended September 30, 2024, from $23.6 million for the three months ended September 30, 2023.

Cost of revenues as a percentage of revenues were 33% and 34% for the three months ended September 30, 2024 and 2023, respectively.

The increase in expense is primarily associated with higher costs for software and cloud hosting as well as an increase in labor costs and royalties.

Product Development.

Product development expenses increased $1.2 million, or 11%, to $12.1 million for the three months ended September 30, 2024, from $10.9 million for the three months ended September 30, 2023.

Product development expenses as a percentage of revenues were 17% and 15% for the three months ended September 30, 2024 and 2023, respectively.

The increase is primarily due to an increase in labor costs, partially offset by an increase in capitalized labor associated with software development activities.

Sales and Marketing.

Sales and marketing expenses, including personnel costs, increased $0.2 million, or 2%, to $11.5 million for the three months ended September 30, 2024, from $11.3 million for the three months ended September 30, 2023.

Sales and marketing expenses were 16% of revenues for both the three months ended September 30, 2024 and 2023.

The increase in expense is primarily due to increases in commissions and software expense, which were partially offset by a decrease in labor costs.

Other General and Administrative Expenses.

Other general and administrative expenses decreased $0.8 million, or 9%, to $8.5 million for the three months ended September 30, 2024, from $9.3 million for the three months ended September 30, 2023.

Other general and administrative expenses were 12% and 13% of revenues for the three months ended September 30, 2024 and 2023, respectively.

The decrease is primarily due to a $0.4 million recovery of sales taxes from prior software expense payments, partially offset by increased share-based compensation.

Depreciation and Amortization.

Depreciation and amortization expense decreased $0.3 million, or 3%, to $10.1 million for the three months ended September 30, 2024, from $10.4 million for the three months ended September 30, 2023.

This decrease is primarily a result of a decrease in amortization associated with capitalized software resulting from the recovery of sales taxes from prior capitalized payments related to contract labor associated with software development activities.

Other Income, Net .

Other income, net was $1.0 million for the three months ended September 30, 2024, compared to $0.6 million for the three months ended September 30, 2023.

The increase is primarily the result of an increase in interest income earned on cash and investments during the three months ended September 30, 2024.

Income Tax Provision.

The Company recorded a provision for income taxes of $1.8 million for the three months ended September 30, 2024, compared to $1.6 million for the three months ended September 30, 2023.

The Company’s effective tax rate was 23% for the three months ended September 30, 2024, compared to 29% for the three months ended September 30, 2023.

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.

During the three months ended September 30, 2024, the Company recorded discrete tax expense of $88,000, which consisted primarily of discrete tax expense related to reserves for uncertain tax positions.

During the three months ended September 30, 2023, the Company recorded discrete tax expense of $0.5 million, which consisted primarily of tax expense in the amount of $0.3 million resulting from the impact of merging VerityStream into HealthStream and $0.1 million related to reserves for uncertain tax positions.

Net income was $5.7 million and $3.9 million for the three months ended September 30, 2024 and 2023, respectively.

EPS was $0.19 per share (diluted) and $0.13 per share (diluted) for the three months ended September 30, 2024 and 2023, respectively.

Adjusted EBITDA was $17.7 million for the three months ended September 30, 2024, compared to $16.2 million for the three months ended September 30, 2023.

See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of adjusted EBITDA to the most directly comparable measure under US GAAP and disclosure regarding why we believe adjusted EBITDA provides useful information to investors.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Revenues, net.

Revenues increased $8.9 million, or 4%, to $217.4 million for the nine months ended September 30, 2024 from $208.5 million for the nine months ended September 30, 2023.

Subscription revenues increased $9.1 million, or 5%, but were partially offset by $0.2 million of declines from professional services revenues.

Revenues increased $0.7 million, or 1%, to $73.5 million for the three months ended March 31, 2025 from $72.8 million for the three months ended March 31, 2024.

Subscription revenues increased $0.6 million, or 1%, and professional services revenues increased by $0.1 million compared to the first quarter of 2024.

Compared to the three months ended March 31, 2024, revenues for the three months ended March 31, 2025 were negatively impacted by several factors, including a $1.7 million reduction from attrition in legacy applications, a $0.9 million reduction in perpetual license sales, and a $0.6 million reduction from customer bankruptcies that occurred in 2024.

These reductions to revenue were more than offset by $3.9 million of revenue growth across our portfolio of solutions.

A comparison of revenues by revenue source is as follows (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Percentage Change

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Cost of Revenues (excluding Depreciation and Amortization).

Cost of revenues increased $1.8 million, or 3%, to $72.8 million for the nine months ended September 30, 2024, from $71.0 million for the nine months ended September 30, 2023.

Cost of revenues as a percentage of revenues were 33% and 34% the nine months ended September 30, 2024 and 2023, respectively.

The increase in expense is primarily associated with higher software expenses and cloud hosting costs, partially offset by lower labor costs.

Labor costs recognized during the nine months ended September 30, 2023 included severance costs incurred in connection with the Company's previously disclosed restructuring under a single platform strategy.

Cost of revenues increased $0.9 million, or 4%, to $25.5 million for the three months ended March 31, 2025, from $24.6 million for the three months ended March 31, 2024.

Cost of revenues as a percentage of revenues were 35% and 34% for the three months ended March 31, 2025 and 2024, respectively.

The increase in amount is primarily associated with investments in several areas of our business, primarily in our platform and SaaS applications, resulting in higher costs for software and cloud hosting as well as an increase in labor costs, partially offset by a decrease in royalties.

Product Development.

Product development expenses increased $2.6 million, or 8%, to $36.2 million for the nine months ended September 30, 2024, from $33.6 million for the nine months ended September 30, 2023.

Product development expenses as a percentage of revenues were 17% and 16% for the nine months ended September 30, 2024 and 2023, respectively.

The increase is primarily due to an increase in labor costs, partially offset by an increase in capitalized labor associated with software development activities.

Product development expenses was $12.0 million for both the three months ended March 31, 2025 and 2024.

Product development expenses as a percentage of revenues were 16% and 17% for the three months ended March 31, 2025 and 2024, respectively.

Sales and Marketing.

Sales and marketing expenses, including personnel costs, increased $0.4 million, or 1%, to $34.7 million for the nine months ended September 30, 2024, from $34.3 million for the nine months ended September 30, 2023.

Sales and marketing expenses were 16% of revenues for both the nine months ended September 30, 2024 and 2023.

The increase in expense is primarily due to increases in general marketing expenses, commissions, and travel expenses, which were partially offset by a decrease in labor costs.

Other General and Administrative Expenses.

Other general and administrative expenses decreased $0.9 million, or 3%, to $26.3 million for the nine months ended September 30, 2024, from $27.2 million for the nine months ended September 30, 2023.

Other general and administrative expenses were 12% and 13% of revenues for the nine months ended September 30, 2024 and 2023, respectively.

The decrease is primarily due to lower labor costs, professional service fees, and a $0.4 million recovery of sales taxes from prior software expense payments, which were partially offset by an increase in bad debt expense of $1.4 million, which was primarily associated with a single-customer bankruptcy.

Sales and marketing expenses, including personnel costs, increased $0.3 million, or 3%, to $12.1 million for the three months ended March 31, 2025, from $11.8 million for the three months ended March 31, 2024.

Sales and marketing expenses were 17% and 16% of revenues for the three months ended March 31, 2025 and 2024.

The increase in amount is primarily due to higher labor costs and sales commissions.

General and Administrative.

General and administrative expenses increased $0.4 million, or 4%, to $8.7 million for the three months ended March 31, 2025, from $8.3 million for the three months ended March 31, 2024.

General and administrative expenses were 12% and 11% of revenues for the three months ended March 31, 2025 and 2024, respectively.

The increase in amount is primarily due to an increase in labor costs and software expenses, partially offset by a decrease in facilities costs associated with satellite offices.

Depreciation and Amortization.

Depreciation and amortization expense increased $0.2 million, or 1%, to $30.8 million for the nine months ended September 30, 2024, from $30.6 million for the nine months ended September 30, 2023.

This increase is primarily a result of an increase in amortization associated with capitalized software.

Other Income, Net .

Other income, net was $2.7 million for the nine months ended September 30, 2024, compared to $1.3 million for the nine months ended September 30, 2023.

The increase is primarily the result of an increase in interest income earned on cash and investments during the nine months ended September 30, 2024.

Depreciation and amortization expense increased $0.5 million, or 4%, to $10.8 million for the three months ended March 31, 2025, from $10.3 million for the three months ended March 31, 2024.

This increase in amount is primarily a result of an increase in amortization associated with capitalized software.

Interest Income .

Interest income was $0.9 million for both the three months ended March 31, 2025 and 2024.

Other Expense, Net .

Other expense, net was $0.1 million for both the three months ended March 31, 2025 and 2024.

Income Tax Provision.

The Company recorded a provision for income taxes of $4.2 million for the nine months ended September 30, 2024, compared to $2.5 million for the nine months ended September 30, 2023.

The Company’s effective tax rate was 22% for the nine months ended September 30, 2024, compared to 19% for the nine months ended September 30, 2023.

The Company recorded a provision for income taxes of $0.9 million for the three months ended March 31, 2025, compared to $1.3 million for the three months ended March 31, 2024.

The Company’s effective tax rate was 17% for the three months ended March 31, 2025, compared to 20% for the three months ended March 31, 2024.

During the nine months ended September 30, 2024, the Company recorded discrete tax expense of $0.1 million, 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 nine months ended September 30, 2023, the Company recorded discrete tax benefits of $0.1 million, which consisted primarily of tax benefits in the amount of $0.6 million resulting from changes in state apportionment rules in Tennessee upon the enactment of the Tennessee Works Tax Act and stock-based awards in the amount of $0.1 million.

This tax benefit was partially offset by $0.3 million of discrete tax expense related to reserves for uncertain tax positions and $0.3 million of discrete tax expenses related to the impact of merging VerityStream into HealthStream.

Net income was $15.1 million and $10.6 million for the nine months ended September 30, 2024 and 2023, respectively.

EPS was $0.50 per share (diluted) and $0.35 per share (diluted) for the nine months ended September 30, 2024 and 2023, respectively.

Adjusted EBITDA was $50.6 million for the nine months ended September 30, 2024, compared to $45.3 million for the nine months ended September 30, 2023.

Net income was $4.3 million and $5.2 million for the three months ended March 31, 2025 and 2024, respectively.

EPS was $0.14 per share (diluted) and $0.17 per share (diluted) for the three months ended March 31, 2025 and 2024, respectively.

Adjusted EBITDA was $16.2 million for the three months ended March 31, 2025, compared to $17.1 million for the three months ended March 31, 2024.

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In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, stock-based compensation, depreciation and amortization, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments (“adjusted EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items which may not, in any such case, fully reflect the underlying operating performance of our business.

In addition, as discussed below, for periods ended on or prior to December 31, 2023, adjusted EBITDA excludes the impact of deferred revenue write-downs associated with fair value accounting for acquired businesses.

We believe that adjusted EBITDA is useful to investors to assess the Company’s ongoing operating performance and to compare the Company’s operating performance between periods.

Additionally, certain short-term cash incentive bonuses and performance-based equity awards are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

As previously disclosed, prior to the Company early adopting ASU 2021-08 effective January 1, 2022, following the completion of any acquisition by the Company, the Company was required to record the acquired deferred revenue at fair value as defined in GAAP, which typically resulted in a write-down of the acquired deferred revenue.

In connection therewith, management determined that including an adjustment in the definition of adjusted EBITDA for the impact of the deferred revenue write-downs associated with fair value accounting for businesses acquired prior to the January 1, 2022 effective date of the Company's adoption of ASU 2021-08 (the “Pre-2022 Acquisitions”) provided useful information to investors because the deferred revenue write-down recognized in periods after any such Pre-2022 Acquisitions could, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance.

Following the adoption of ASU 2021-08, contracts acquired in an acquisition completed on or after January 1, 2022 have been measured as if the Company had originated the contract (rather than the contract being measured at fair value) such that, for such acquisitions, the Company no longer records deferred revenue write-downs associated with acquired businesses.

With respect to periods ended on or prior to December 31, 2023, the Company has included an adjustment in the calculation of adjusted EBITDA for the impact of deferred revenue write-downs associated with the Pre-2022 Acquisitions consistent with this prior accounting standard, given the ongoing impact of such deferred revenue on the Company's financial results under GAAP over this time period.

With respect to periods beginning on and after January 1, 2024, the Company no longer recognizes any deferred revenue write-downs associated with the Pre-2022 Acquisitions under GAAP, and accordingly such deferred revenue write-downs are not an adjustment in connection with the calculation of adjusted EBITDA for periods on and after January 1, 2024.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure of financial performance under GAAP.

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A reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, net income, is set forth below (in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

GAAP net income

Deferred revenue write-down

Interest income

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Depreciation and amortization

Change in fair value of non-marketable equity investments

Adjusted EBITDA

Liquidity and Capital Resources

Net cash provided by operating activities decreased by $3.7 million to $46.5 million during the nine months ended September 30, 2024, from $50.2 million during the nine months ended September 30, 2023.

The decrease in net cash provided by operating activities is primarily due to a $3.6 million increase in income tax payments, while cash receipts increased modestly compared to the prior year.

Our days sales outstanding (“DSO”) was 37 days for the third quarter of 2024 compared to 43 days for the third quarter of 2023.

Net cash provided by operating activities increased by $6.2 million to $27.1 million during the three months ended March 31, 2025, from $20.9 million during the three months ended March 31, 2024.

The increase in net cash provided by operating activities is primarily due to strong cash receipts from customers during the quarter, resulting in a reduction to our days sales outstanding ("DSO").

Our DSO was 37 days for the first quarter of 2025 compared to 46 days for the first quarter of 2024.

The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter.

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The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, income tax payments, and general corporate expenses.

Net cash used in investing activities was $25.9 million for the nine months ended September 30, 2024, compared to $47.2 million for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, the Company invested in marketable securities of $51.5 million, made payments for capitalized software development of $20.1 million, and purchased property and equipment of $1.2 million.

Net cash used in investing activities was $7.2 million for the three months ended March 31, 2025, compared to $7.1 million for the three months ended March 31, 2024.

During the three months ended March 31, 2025, the Company invested in marketable securities of $9.2 million, made payments for capitalized software development of $7.8 million, purchased property and equipment of $1.1 million, and purchased an investment of $0.5 million.

These uses of cash were partially offset by $11.3 million in maturities of marketable securities.

During the three months ended March 31, 2024, the Company invested in marketable securities of $14.1 million, made payments for capitalized software development of $7.0 million, and purchased property and equipment of $0.7 million.

These uses of cash were partially offset by $14.0 million in maturities of marketable securities and $0.8 million received upon the settlement and release of escrowed proceeds related to a prior sale of a non-marketable equity investment.

During the nine months ended September 30, 2023, the Company spent $6.6 million for the acquisition of substantially all of the assets of Electronic Education Documentation System, LLC (“eeds”) (note:

the eeds acquisition was consummated on December 31, 2022, but was funded in January 2023 such that the purchase price for eeds impacted net cash used in investing activities during the nine months ended September 30, 2023), invested in marketable securities of $38.2 million, made payments for capitalized software development of $19.6 million, and purchased property and equipment of $1.9 million.

These uses of cash were partially offset by $19.0 million in maturities of marketable securities and $45,000 in proceeds from the sales of non-marketable equity investments.

Net cash used in financing activities was $3.5 million for the nine months ended September 30, 2024, compared to $4.8 million for the nine months ended September 30, 2023.

The uses of cash for the nine months ended September 30, 2024 included $2.6 million for the payment of cash dividends and $0.9 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

The uses of cash for the nine months ended September 30, 2023 included $2.3 million for the payment of cash dividends, $1.6 million for repurchases of common stock (note:

share repurchases totaled $2.1 million during the nine months ended September 30, 2023, with $1.6 million paid in cash and $0.5 million included in accrued expenses in the Company's Condensed Consolidated Balance Sheet as of September 30, 2023), and $0.8 million for the payment of employee payroll taxes in relation to the vesting of restricted share units.

Our balance sheet reflects working capital of $35.1 million at September 30, 2024, compared to $11.8 million at December 31, 2023.

Net cash used in financing activities was $2.0 million for the three months ended March 31, 2025, compared to $1.7 million for the three months ended March 31, 2024.

The uses of cash for the three months ended March 31, 2025 included $1.1 million for the payment of employee payroll taxes in relation to the vesting of restricted share units and $0.9 million for the payment of cash dividends.

The uses of cash for the three months ended March 31, 2024 included $0.9 million for the payment of employee payroll taxes in related to the vesting of restricted share units and $0.8 million for the payment of cash dividends.

Our balance sheet reflects working capital of $43.9 million at March 31, 2025, compared to $37.4 million at December 31, 2024.

The increase in working capital is primarily a result of an increase in cash and cash equivalents.

The Company’s primary source of liquidity as of September 30, 2024 was $57.5 million of cash and cash equivalents and $37.4 million of marketable securities.

The Company also has a $50.0 million revolving credit facility.

The Company’s primary source of liquidity as of March 31, 2025 was $77.3 million of cash and cash equivalents and $36.0 million of marketable securities.

The Company also has a $50.0 million revolving credit facility, the availability of which is subject to certain covenants and minimum liquidity requirements.

There currently are no outstanding borrowings under the revolving credit facility.

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For additional information regarding our revolving credit facility, see Note 8 to the Condensed Consolidated Financial Statements included herein.

On September 13, 2023, the Company announced a share repurchase program approved by the Company's Board under which the Company was authorized to purchase up to $10.0 million of the Company's outstanding shares of common stock.

The share repurchase program expired according to its terms on March 31, 2024, and no repurchases occurred during the three months ended March 31, 2024.

During the term of this program, the Company repurchased a total of 404,188 shares under this program at an aggregate fair value of $8.9 million, based on an average price per share of $22.07 (excluding the cost of broker commissions).

We may elect in the future to adopt a new share repurchase program.

On February 20, 2023, we announced that our Board approved a quarterly dividend policy.

Under this dividend policy, our Board declared, and the Company paid, quarterly cash dividends on our common stock at the rate of $0.025 per share during the year ended December 31, 2023.

On February 19, 2024, our Board approved a quarterly dividend under this dividend policy at a rate of $0.028 per share, which was paid on March 22, 2024 to the holders of record of our common stock on March 11, 2024.

On April 22, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which was paid on May 17, 2024 to holders of record of our common stock on May 6, 2024.

On July 22, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which was paid on August 16, 2024 to holders of record of our common stock on August 5, 2024.

On October 21, 2024, the Board approved a quarterly cash dividend of $0.028 per share, which will be payable on November 15, 2024 to holders of record of our common stock on November 4, 2024.

On February 20, 2023, we announced that our Board approved a quarterly dividend policy, under which we have paid dividends on a quarterly basis since our adoption of this policy.

On February 24, 2025, the Board approved a quarterly cash dividend under this policy of $0.031 per share, which was paid on March 21, 2025 to holders of record of our common stock on March 10, 2025.

In addition, on May 5, 2025, the Board approved a quarterly cash dividend under this policy of $0.031 per share, which will be payable on May 30, 2025 to holders of record of our common stock on May 19, 2025.

T he dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our Board’s continuing determination that the policy and the declaration and payment of dividends thereunder are in the best interests of our shareholders and are in compliance with applicable law and our credit agreement.

Our Board retains the power to modify, suspend, or cancel the dividend policy and quarterly dividends thereunder in any manner and at any time that our Board may deem necessary or appropriate.

We believe that our existing cash and cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development, dividend payments, any repurchases of shares we may elect to make under any future share repurchase program, and capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

In addition, the Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that complement or enhance our business.

It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, or a combination of both.

On September 13, 2023, the Company announced a share repurchase program authorized by the Company’s Board of Directors under which the Company was authorized to purchase up to $10.0 million of its common stock.

Pursuant to this authorization, repurchases could be made in the open market, including under a Rule 10b5-1 plan, through privately negotiated transactions, or otherwise.

Under this program, during 2023, the Company repurchased 404,188 shares of common stock at an aggregate fair value of $8.9 million, reflecting an average price per share of $22.07 (excluding the cost of broker commissions).

The share repurchase program expired according to its terms on March 31, 2024, and no repurchases occurred under such program during 2024.

On May 8, 2025, the Company’s Board of Directors approved a new share repurchase program for the Company’s common stock, under which the Company may repurchase up to $25 million of outstanding shares of common stock.

Pursuant to the authorization, repurchases may be made from time to time in the open market, including under a Rule 10b5-1 plan, through privately negotiated transactions, or otherwise.

In addition, any repurchases under the authorization will be subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors.

The share repurchase program will terminate on the earlier of May 31, 2026 or when the maximum dollar amount has been expended.

The share repurchase program does not require the Company to acquire any amount of shares and may be suspended or discontinued at any time.

We believe that our existing cash, cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development, pay our quarterly dividends, effect any share repurchases we may elect to make under our share repurchase program as described above, and fund capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

The Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that complement or enhance our business.

It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, debt, or a combination thereof.

The issuance of our stock as consideration for an acquisition or to raise additional capital could have a dilutive effect on earnings per share and could adversely affect our stock price.

Our revolving credit facility contains financial covenants and availability calculations designed to set a maximum leverage ratio of outstanding debt to adjusted EBITDA and an interest coverage ratio of adjusted EBITDA to interest expense.

Our revolving credit facility contains financial covenants and availability calculations designed to set a maximum leverage ratio of outstanding debt to consolidated EBITDA (as defined in our credit facility) and an interest coverage ratio of consolidated EBITDA to interest expense.

Therefore, the maximum borrowings against our new revolving credit facility would be dependent on the covenant calculations at the time of borrowing.

As of September 30, 2024, we were in compliance with all covenants under our revolving credit facility.

There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot provide assurance that if we need additional financing that it will be available on terms favorable to us, or at all.

March 31, 2025, we were in compliance with all covenants under our revolving credit facility.

There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot provide assurance that if we need additional financing, it will be available on terms favorable to us or at all.

Failure to generate sufficient cash flow from operations or raise additional capital when required in sufficient amounts and on terms acceptable to us could harm our business, financial condition, and results of operations.

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 2. Management’s Discussion and Analysis