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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-26 · 161 added, 81 removed, 284 unchanged (46% of the section changed)

We believe that the risks and uncertainties described below are the significant risks facing the Company as of the date of this Annual Report on Form 10-K.

We believe that the risks and uncertainties described below are the material risks facing the Company as of the date of this Annual Report on Form 10-K.

Our business, reputation, financial condition, results of operations, and/or prospects could be materially and adversely affected by the occurrence of any of the following risks and uncertainties.

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Therefore, the risk factors below should not be considered a complete list of potential risks we may face.

The trading price of our common stock could also decline due to the occurrence of any of the following risks, as well as risks and uncertainties not presently known to us, or that we currently deem immaterial.

The trading price of our common stock could also decline due to

the occurrence of any of the following risks, as well as risks and uncertainties not presently known to us, or that we currently deem immaterial.

Risks Related to the COVID-19 Pandemic

The coronavirus pandemic has adversely impacted our business and could have material adverse impacts on our business or financial results, particularly if negative conditions impacting healthcare organizations persist for a significant period of time or deteriorate.

The COVID-19 pandemic, which spread throughout the world and the United States during 2020 and has resulted in a significant economic downturn, persists despite vaccines beginning to be administered in the United States and abroad.

The pandemic continues to cause uncertainty and economic volatility, including with regard to the pandemic’s various and unpredictable impacts on our healthcare customers and our business.

Our business is focused on providing workforce and provider solutions to healthcare organizations.

Many healthcare organizations have been, and will likely continue to be, substantially adversely impacted by the COVID-19 pandemic, which has resulted in a substantial reduction in the number of elective surgeries, physician office visits, and other healthcare procedures due to restrictive measures, including quarantines and shelter-in-place orders, as well as general concerns related to the risk of contracting COVID-19 from interacting with the healthcare system.

Additionally, adverse conditions related to the pandemic have caused, and could continue to cause, certain of our customers to be unable to pay for our products and services in a timely and fulsome manner, or unable to pay at all, which has had, and will likely continue to have, an adverse impact on our financial results.

To the extent these trends continue, or our customers are unable to pay due to the deterioration of their businesses as the result of COVID-19, our bad debt may increase and future revenue generating opportunities with those customers may be limited.

Conditions related to the pandemic may also adversely impact the ability or willingness of our customers to renew their contracts with us (or to renew contracts at the same levels) and have adversely impacted the willingness of some customers to expand the quantity and type of solutions they purchase from us.

For example, renewing customers that have reduced or expect to reduce the number of their staff due to COVID-19 may not have a need to renew their contracts for as many user subscriptions as purchased under their previous contracts.

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our ability to enter into contracts with new potential customers.

Customers may also be unwilling or unable to pay the same prices for our products and solutions than they have paid in the past, which could negatively impact our results and growth.

Many existing or potential customers are not currently allowing vendors, including ourselves, on their premises, which has reduced, and will likely continue to reduce, the ability of our sales team to make sales they otherwise would likely make but for the impact of COVID-19.

Our sales opportunities generated from in-person marketing initiatives, such as tradeshows, have also been negatively impacted due to the cancellation of such in-person events, and this has led to, and will likely continue to lead to, lost or delayed sales opportunities.

Additionally, we do not recognize revenue until a software product is made available for a customer to use.

In this regard, to the extent our customers delay or fail to implement products they have previously purchased, as we have experienced with certain customers since the onset of the pandemic, or to the extent we are unable to fulfill our own implementation backlogs due to COVID-19, our financial results will likely suffer, as may our future prospects.

Our business also relies on a network of partners whose solutions we resell or whose solutions are sold and delivered over our platform.

To the extent that COVID-19 results in ongoing or increased business disruption or adverse impacts to our partners, such disruptions and adverse impacts could adversely impact our business as well.

Due to COVID-19, our entire workforce is continuing to work remotely from home, even if and to the extent that phased re-opening orders provided by local and state governments would allow for a limited return to office work.

While we have not observed a negative disruption to productivity to date, operating on a prolonged basis as a remote workforce could result in decreases in productivity, increased security risks, impair our ability to manage our business, and harm our ability to attract, retain, and onboard employees.

There continue to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the severity and duration of the pandemic, the timing and availability of widespread medical treatments and vaccines with respect to COVID-19, actions that may be taken by governmental authorities and private businesses to mitigate against the impact of the pandemic, and the ongoing impact of COVID-19 on economic activity and unemployment and underemployment levels.

Moreover, COVID-19 developments continue to evolve quickly, and additional developments may occur which we are unable to predict, particularly given the various new strains of the virus that have begun to and may continue to emerge and proliferate.

Developments related to COVID-19 have adversely impacted our business, and could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows, particularly if negative conditions impacting healthcare organizations persist for a significant period of time or deteriorate.

In addition, the impact of COVID-19 may

exacerbate other risks discussed in Part I, Item 1A , Risk Factors , of this Annual Report on Form 10-K, any of which could have a material effect on us.

Risks Related to Our Business Model

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inability to generate sufficient revenue from our products to offset investment costs;

inability to effectively identify, manage, and exploit existing and emerging market opportunities;

inability to effectively identify, manage, and benefit from existing and emerging market opportunities;

inability to maintain our existing customer relationships;

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failure of the market for our products and services to grow to a sufficient size or at a sufficient rate;

negative impact on our customers and our business related to the unprecedented impact of COVID-19;

inability to hire sufficient number of qualified employees to execute and support the growth of the Company.

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economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our operating results.

Our operating results may vary based on the impact of changes in our industry or the United States economy on us or our clients.

Our operating results may vary based on the impact of changes in our industry or the economy on us or our clients.

The revenue growth and potential profitability of our business depends on demand for workforce and provider solutions for healthcare providers.

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In addition, a portion of our revenue is attributable to the number of users of our products at each of our clients, which in turn is influenced by the employment and hiring patterns of our clients and potential clients.

To the extent that economic uncertainty or weak economic conditions cause our clients and potential clients to freeze or reduce their headcount, demand for our products may be negatively affected.

Historically, economic downturns have resulted in overall reductions in spending by some healthcare providers as well as pressure from clients and potential clients for extended billing terms.

If economic conditions deteriorate, our clients and potential clients may elect to decrease their workforce development and provider solutions budgets by deferring or reconsidering purchases, which would limit our ability to grow our business and negatively affect our operating results.

In addition, while we do not currently expect that our financial results will be significantly and adversely affected by the coronavirus that was first detected in Wuhan, China in December 2019, there continue to be significant uncertainties associated with the coronavirus, including with respect to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by Chinese or other governmental authorities to contain the coronavirus or to treat its impact, and the extent to which the coronavirus outbreak may impact our financial results, including as the result of its possible impact on the economy, including without limitation the healthcare sector, is not certain.

There is also uncertainty surrounding U.S.

presidential and congressional elections in 2020 and the impact on existing and future healthcare legislation.

While we cannot predict the outcome of the elections or any resulting legislative changes, such changes could have a material impact on our business.

To the extent that economic uncertainty or weak economic conditions, including in connection with the COVID-19 pandemic as noted above, cause our clients and potential clients to freeze or reduce their headcount or operations, demand for our products may be negatively affected.

Historically, as well as in connection with the COVID-19 pandemic, economic downturns have resulted in overall reductions in spending by some healthcare providers as well as pressure from clients and potential clients for extended billing terms.

If economic conditions deteriorate, our clients and potential clients may elect to decrease their workforce and provider solutions budgets by deferring or reconsidering purchases, which would limit our ability to grow our business and negatively affect our operating results.

In addition, as noted above, there continue to be significant uncertainties associated with the extent and duration of COVID-19’s negative impact on the economy, the healthcare sector, and our financial results.

Our business also could be adversely impacted by catastrophic events (particularly in areas where we have office locations and/or where we have network infrastructure), such as fires, earthquakes, hurricanes, natural disasters, civil unrest, geographic instability, terrorist attacks, pandemics or other public health emergencies or the effects of climate change (such as drought, flooding, wildfires, increased storm severity and sea level rise).

We may be unable to effectively identify, complete , or integrate the operations of acquisitions, joint ventures, collaborative arrangements , or other strategic investments, which would inhibit our ability to execute upon our growth strategy.

As part of our growth strategy, we actively review possible acquisitions, joint ventures, collaborative arrangements, or strategic investments that complement or enhance our business.

As part of our growth strategy, we actively review possible acquisitions, joint ventures, collaborative arrangements, or strategic investments that complement or enhance our business, and we completed four acquisitions in 2020, and have completed one acquisition in 2021, as part of this growth strategy.

However, we may be unable to source or complete future acquisitions, joint ventures, collaborative arrangements, or other strategic investments on acceptable terms, or at all.

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the possibility that we may become responsible for substantial contingent or unanticipated liabilities as the result of an acquisition, joint venture, collaborative arrangement, or other strategic investment;

inability to retain personnel associated with acquired companies, joint ventures, collaborative arrangements or other strategic investments;

loss of material customers and other key business relations associated with acquired companies, joint ventures, collaborative arrangements, or other strategic investments;

inability to retain key personnel associated with acquired companies, joint ventures, collaborative arrangements, or other strategic investments;

loss of material customers or contracts and other key business relations associated with acquired companies, joint ventures, collaborative arrangements, or other strategic investments;

diversion of management’s attention from other initiatives and/or day-to-day operations to effectively execute our growth strategy;

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Moreover, although we conduct what we believe to be a prudent level of investigation regarding the operating, financial, and information security conditions of acquired companies, joint ventures, collaborative arrangements, or other strategic investments, an unavoidable level of risk remains regarding the operating performance, financial condition, information security, and potential liabilities of these businesses, and we may not be able to fully assess these risks until a transaction has been completed.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill, or intangible assets which must be assessed for impairment at least annually, or to intangible assets, which are assessed for impairment upon certain triggering events.

In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could harm our operating results.

We are subject to risks associated with our equity investments, including partial or complete loss of invested capital, and significant changes in the fair value of these investments could adversely impact our financial results.

We have invested in, and may continue to invest in, early-to-late stage companies for strategic reasons and to support key business initiatives, and we may not realize a return on our equity investments.

Many such companies generate net losses and the market for their products, services, or technologies may be slow to develop or never materialize.

Further, valuations of non-marketable equity investments are inherently complex due to the lack of readily available market data.

We may experience additional volatility to our financial results due to changes in market prices of our marketable equity investments, the valuation and timing of observable price changes or impairments of our non-marketable equity investments, including impairments to such investments due to the COVID-19 pandemic, and changes in the proportionate share of earnings and losses or impairment of our equity investments accounted for under the equity method.

This volatility could be material to our results in any particular period.

Our ability to accurately forecast our financial performance for certain products and services may be hindered by customer scheduling.

While the revenue we receive from particular products and services in our subscription business may be predictable during the term of the applicable contract, the performance of our subscription business may become more subject to fluctuations between quarterly periods as our solution offerings diversify and become more sophisticated.

Certain project-based products, such as consulting, content development, and professional services, are subject to the customers’ involvement in the provision of the product or service.

The timing and magnitude of these project-based product and service contracts may vary widely from quarter to quarter and year to year, and thus may affect our ability to accurately forecast our financial performance.

Certain professional services contracts are subject to the customers’ involvement in the provision of the product or service.

The timing and magnitude of these product and service contracts may vary widely from quarter to quarter and year to year, and thus may affect our ability to accurately forecast our financial performance.

In addition, some products can require significant implementation lead times and resources and may require a level of change management efforts from our clients, which may also impact our ability to accurately forecast our financial performance.

Additionally, as we expand our revenue generating model such that third parties may pay network connection fees based on sales they make, our ability to forecast revenue from such arrangements may not be predictable.

Finally, until the impacts arising from the COVID-19 pandemic have abated, it will continue to be more difficult for us to forecast our financial results.

Our ability to accurately forecast our financial performance may be affected by lengthy and widely varying sales cycles.

The period from our initial contact with a potential customer and their first purchase of our solution typically ranges from three to nine months, and in some cases may be significantly longer.

The range in the sales cycle can be impacted by multiple factors, including an increasing trend towards more formal request for proposal processes and more competition within our industry, as well as formal budget timelines which impact timing of purchases by target customers.

The period from our initial contact with a potential customer and such customer’s first purchase of our solution typically ranges from three to nine months, and in some cases may be significantly longer.

Sales of additional solutions to existing customers may also experience sales cycles ranging from three to nine months, or longer.

The range in the sales cycle can be impacted by multiple factors, including an increasing trend towards more formal request for proposal processes and more competition within our industry, delays associated with the impact of COVID-19, as well as formal budget timelines which impact timing of purchases by target customers.

New products, including those that may compete with or replace our former product offerings, tend to have a longer and more unpredictable revenue ramp period because of varying customer adoption rates.

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We encounter direct competition from both large and small companies focused on providing workforce and provider solutions to the healthcare industry.

Given the profile and growth of the healthcare industry and the ongoing need for training, simulation, credentialing, and other information products and services, it is likely that additional competitors will emerge.

Given the profile and growth of the healthcare industry and the ongoing need for training, simulation, scheduling, credentialing, and other information products and services, it is likely that additional competitors will emerge.

Additionally, mergers of or other strategic transactions by our competitors could weaken our competitive position.

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More recently, the Company began offering third-parties the ability to utilize their sales teams to market and sell their third-party products and have such products delivered through the Company’s technology platform, provided such third-parties pay a network connectivity fee when such products are sold to customers in our network.

Given that these third parties are responsible for their products and the marketing and selling thereof, the Company may not always be able to ensure the operational, financial, or security-related performance or impact of products controlled by a third-party.

products controlled by a third-party.

While we have contractual protections with third-parties regarding their products, including but not limited to service levels, information security, confidentiality, data rights, and indemnification against certain breaches, these may not be sufficient to ensure the predictability or performance of such products, or potential negative impacts related thereto.

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Our ability to increase the sales of our products and services depends in part upon maintaining and strengthening relationships with these current and future ecosystem partners.

Most of these contracts are on a non-exclusive basis.

Some of these contracts are on a non-exclusive basis.

Certain ecosystem partners may offer multiple products and services, including, in some instances, products or services which may compete with other products and services we offer.

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If our partners terminate or fail to renew their agreements with us on as favorable terms, such as a reduction in our revenue share arrangement, it could result in a reduction in the number of courses and solutions we are able to distribute, declines in the number of subscribers to our platforms, and decreased revenues.

Most of our agreements with our ecosystem partners are non-exclusive, and our competitors offer, or could offer, solutions that are similar to or the same as those we offer.

Some of our agreements with our ecosystem partners are non-exclusive, and our competitors offer, or could offer, solutions that are similar to or the same as those we offer.

If our current partners offer or otherwise make available their products and services to users or our competitors on more favorable terms than those offered to us, or increase our license fees, our competitive position, revenue, and our profit margins and prospects could be harmed.

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While all new products and services are subject to testing and quality control, all software and software-based services are subject to errors and malfunctions.

If we release new products, services, and/or enhancements with bugs, defects, or errors or that cause bugs, defects, or errors in existing products, it could result in lost revenues and/or reduced ability to meet contractual obligations and would be detrimental to our business and reputation.

If new products, features, or content are not accepted or integrated by new or existing customers, we may not be able to recover the cost of this development, and our financial performance will be harmed.

Continued growth of our customer population is dependent on our ability to continue to provide relevant products and services in a timely manner.

our business and reputation.

Continued growth and maintenance of our customer population is dependent on our ability to continue to provide relevant products and services in a timely manner.

The success of our business will depend on our ability to continue providing our products and services as well as enhancing our content, product , and service offerings that address the needs of healthcare organizations.

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The loss of or inability to obtain or maintain any of these licenses could result in delays in the introduction of new products and services or could force us to discontinue offering portions of solutions until equivalent technology, if available, is identified, licensed, and integrated.

In addition, we could experience customers choosing not to renew their agreements with us or terminating their agreements early if we lose or are unable to maintain licenses to some of our product components.

If our customers terminate or fail to renew their agreements with us on as favorable terms, it could result in a reduction in the number of content and solutions we are able to distribute, declines in the number of subscribers to our platforms, and decreased revenues.

The operation of our products would be impaired if errors occur in third party technology or content that we incorporate, and we may incur additional costs to repair or replace the defective technology or content.

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Our product and service contracts typically range from one to five years in length, and customers are not obligated to renew their contract with us after their contract term expires;

in fact, some customers have elected not to renew their contract.

in fact, some customers have elected not to renew their contract, and this risk has increased as the result of conditions related to the COVID-19 pandemic.

In addition, our customers may renew at a lower pricing or activity level.

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Our ability to recognize revenue is dependent upon several factors in order for us to implement customers on our subscription-based platform and platform applications.

If customers do not provide us with the information required to complete implementations in a timely manner, our ability to recognize revenue may be delayed, which could adversely impact our operating results.

If customers do not provide us with the information required to complete implementations in a timely manner, our ability to recognize revenue may be delayed, which could adversely

impact our operating results.

Some products, including several in our Provider Solutions segment, can require significant implementation lead times and the rate at which customer orders move from backlog to revenue generation in connection with these products may significantly affect the timing of revenue recognition.

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As a result, much of the revenue we report in each quarter is related to subscription or licensing agreements entered into during previous quarters.

Consequently, a decline in new or renewed subscription or licensing agreements in any one quarter will not necessarily be fully reflected in the revenue in that quarter and will negatively affect our revenue in future quarters.

Consequently, a decline in new or renewed subscription or licensing agreements in any one quarter will not necessarily be reflected in the revenue in that quarter and will negatively affect our revenue in future quarters.

In addition, we may be unable to adjust our cost structure to reflect this reduced revenue.

Accordingly, the effect of significant downturns in sales and market acceptance of our products and services may not be fully reflected in our results of operations until future periods.

Accordingly, the effect of significant downturns in sales and market acceptance of our products and services may not be reflected in our results of operations until future periods.

Additionally, our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

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At December 31, 2020, we had approximately $46.5 million in cash, cash equivalents, and marketable securities.

We also have up to $50.0 million of availability under our Revolving Credit Facility, subject to certain covenants, which expires in November 2020.

We also have up to $65.0 million of availability under our Revolving Credit Facility, subject to certain covenants, which expires in October 2023.

We actively review possible business acquisitions to complement or enhance our products, services, and technology platforms.

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We cannot assure you that if we need additional financing, it will be available on terms favorable to us, or at all.

Moreover, the COVID-19 pandemic has led to disruption and volatility in financial and capital markets and could lead to future disruption and/or volatility, particularly if public health conditions related to the pandemic deteriorate or persist for a significant period of time.

If adequate funds are not available or are not available on acceptable terms, our ability to fund expansion, take advantage of available opportunities, develop or enhance services or products, or otherwise respond to competitive pressures would be significantly limited.

If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our existing shareholders may be reduced.

Goodwill, identifiable intangible assets, and long-lived assets recorded on our balance sheet may be subject to impairment losses that could reduce our reported assets and earnings.

There are inherent uncertainties in the estimates, judgments, and assumptions used in assessing recoverability of goodwill, intangible assets, and long-lived assets.

Economic, legal, regulatory, competitive, reputational, contractual, and other factors could result in future declines in the operating results of our business units or market values that do not support the carrying value of goodwill, identifiable intangible assets, and long-lived assets.

If the value of our goodwill, intangible assets, or long-lived assets is impaired, accounting principles require us to reduce their carrying value and report an impairment charge, which would reduce our reported assets and earnings for the period in which an impairment is recognized.

Goodwill, identifiable intangible assets, long-lived assets, and strategic investments recorded on our balance sheet may be subject to impairment losses that could reduce our reported assets and earnings.

There are inherent uncertainties in the estimates, judgments, and assumptions used in assessing recoverability of goodwill, intangible assets, long-lived assets, and strategic investments.

Moreover, the risk of such declines in operating results and market values may be increased by conditions resulting from the COVID-19 pandemic.

If the value of our goodwill, intangible assets, long-lived assets, or strategic investments is impaired, accounting principles require us to reduce their carrying value and report an impairment charge, which would reduce our reported assets and earnings for the period in which an impairment is recognized.

We may be affected by healthcare reform efforts and other changes in the healthcare industry that impact us and our clients.

Our clients are concentrated in the healthcare industry, which is subject to changing regulatory, economic, and political conditions.

In the past several years, we have experienced an increase in bankruptcies among our customers.

This decrease in creditworthiness among certain of our customers along with other economic challenges facing the healthcare sector caused us to record bad debt expense of $0.2 million, $1.0 million and $1.6 million in 2019, 2018, and 2017, respectively.

Any continuation or escalation of this development could result in our inability to collect amounts owed from existing clients and decrease our ability to gain new clients, which could adversely impact our revenue, results of operations, and ability to execute on our growth strategy.

In the past several years, we have experienced bankruptcies amongst our customers.

Additionally, the

COVID-19 pandemic has substantially affected and imposed increased financial pressures on many healthcare organizations.

Adverse conditions related to the COVID-19 pandemic have caused, and could continue to cause, certain of our customers to be unable to pay for our products and services in a timely and fulsome manner, or unable to pay at all, which has had, and will likely continue to have, an adverse impact on our financial results.

This decrease in creditworthiness among certain of our customers along with other economic challenges facing the healthcare sector caused us to record bad debt expense of $ 0.

3 million , $ 0 .

2 million, and $1.

0 million in 20 20 , 201 9 , and 201 8 , respectively.

Any escalation of these trends c ould result in our inability to collect amounts owed from existing clients and decrease our ability to gain new clients, which could adversely impact our revenue, results of operations, and ability to execute on our growth strategy.

Congress and certain state legislatures have passed or are considering laws and regulations intended to result in major changes to the U.S.

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citizens and improve quality of care, but it also has reduced government program spending and imposed operating costs and changes on many of our clients.

Efforts by the presidential administration and certain members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation, and/or its interpretation have cast considerable uncertainty on the future of the law.

For example, final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all the essential health benefits mandated by the Affordable Care Act.

Effective January 1, 2019, the financial penalty associated with the individual mandate was eliminated as part of the tax reform legislation which was enacted in December 2017.

These changes may impact the number of individuals that elect to purchase health insurance or the scope of such coverage, if purchased.

Because the penalty associated with the individual mandate was eliminated, a federal judge in Texas ruled in December 2018 that the mandate was unconstitutional and determined that the rest of the Affordable Care Act was therefore invalid.

Changes to the Affordable Care Act have created uncertainty on its future.

As a result of Congress eliminating the financial penalty associated with the individual mandate, a federal judge in Texas ruled in December 2018 that the mandate was unconstitutional and determined that the rest of the Affordable Care Act was therefore invalid.

In December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate but remanded for further consideration the issue of how this affects the rest of the law.

Pending this appeals process, the law remains in place pending appeal.

On November 10, 2020, the Supreme Court heard oral arguments, and law remains in place pending the appeals process.

There is uncertainty regarding whether, when, and how the Affordable Care Act will be further changed, the ultimate impact of court challenges, how the law will be interpreted and implemented, and the impact of other initiatives intended to reform healthcare delivery, coverage, and/or financial systems.

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This may negatively affect our stock price if we cannot effectively remediate the issues identified in a timely manner.

Changes in accounting standards issued by the Financial Accounting Standards Board, or FASB, could adversely effect our balance sheet, revenue, and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.

Changes in accounting standards issued by the Financial Accounting Standards Board, or FASB, could adversely affect our balance sheet, revenue, and results of operations, and could require a significant expenditure of time, attention, and resources, especially by senior management.

Our accounting and financial reporting policies conform to GAAP, which are periodically revised and/or expanded.

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Changes to regulations concerning revenue recognition could require us to alter our current revenue accounting practices and cause us to either defer revenue into a future period or to recognize lower revenue in a current period.

Likewise, changes to regulations concerning expense recognition could require us to alter our current expense accounting practices and cause us to defer recognition of expense into a future period or to recognize increased expenses in a current period.

Likewise, changes to regulations concerning expense recognition could require us to alter our current expense accounting practices and cause us to defer recognition of expense into a future

period or to recognize increased expenses in a current period.

Such changes could also cause us to alter the manner in which we contract for, sell, and incentivize sales of products and services.

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Our inability from time to time to successfully develop the necessary systems and implement the necessary services on a timely basis may result in our customers experiencing delays, interruptions, and/or errors in their service.

Such delays or interruptions may cause customers to become dissatisfied with our service and move to competing providers of workforce development and provider solutions services.

Such delays or interruptions may cause customers to become dissatisfied with our service and move to competing providers of workforce and provider solutions services.

If this happens, our reputation, results of operations, and financial condition could be adversely affected.

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We may not be able to upgrade our hardware and software technology infrastructure quickly enough to effectively meet demand for our services or our operational needs.

We must continue to obtain reasonably priced, commercially available hardware, operating software, and hosting services, as well as continue to enhance our software and systems to accommodate the increased use of our platform, the increased content in our library, the expanding amount and type of data we store on behalf of our customers, and the resulting increase in operational demands on our business.

Decisions about hardware and software enhancements are based in part on estimated forecasts of the growth in demand for our services.

Decisions about hardware and software enhancements are based in part on

estimated forecasts of the growth in demand for our services.

This growth in demand for our services is difficult to forecast and the potential audience for our services is widespread and dynamic.

If we are unable to increase the data storage and processing capacity of our systems at least as fast as the growth in demand, our customers may encounter delays or disruptions in their service.

Unscheduled downtime or reduced response time of our platforms could harm our business and

could discourage current and potential customers from using or continuing to use our services and reduce future revenue.

Unscheduled downtime or reduced response time of our platforms could harm our business and could discourage current and potential customers from using or continuing to use our services and reduce future revenue.

If we are unable to acquire, update, or enhance our technology infrastructure and systems quickly enough to effectively meet increased operational demands on our business, that may also have an adverse effect on our results of operations or financial condition.

Further, our applications necessarily must integrate with a variety of systems and technologies.

As we develop our platforms and rely on ever changing and improving technologies, we may be impeded by our customers’ and ecosyste m partners’ inability to adopt new technologies and technology standards upon which new platform enhancements may be based.

As we develop our platforms and rely on ever changing and improving technologies, we may be impeded by our customers’ and ecosystem partners’ inability to adopt new technologies and technology standards upon which new platform enhancements may be based.

Our network infrastructure and computer systems and software may fail.

An unexpected event (including but not limited to a cyber-security incident, telecommunications failure, fire, earthquake, or other catastrophic loss) at our Internet service providers’ facilities, at our on-site data center facilities, or our public-cloud infrastructure providers, could cause the loss of critical data and prevent us from offering our products and services for an unknown period of time.

An unexpected event (including but not limited to a cyber-security incident, such as ransomware attack, security compromise, or other attempts to misappropriate our confidential information;

telecommunications failure;

public health crises;

epidemics or pandemics;

or other catastrophic loss) at or impacting our Internet service providers’ facilities, our on-site data center facilities, or our public-cloud infrastructure providers, could cause the loss of critical data and prevent us from offering our products and services for an unknown period of time.

Moreover, the ongoing COVID-19 pandemic could have a significant adverse operational impact on these facilities and/or these providers on which we rely, as such providers continue to navigate their own challenges resulting from their employee basis continuing to work remotely and other impacts of the pandemic.

System downtime could negatively affect our reputation and ability to sell our products and services and may expose us to significant third-party claims.

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Such disruptions could harm our reputation and cause customers to become dissatisfied and possibly take their business to a competing provider, which would adversely affect our financial performance.

A data breach or security incident could result in a loss of confidential data, give rise to remediation and other expenses, expose us to liability under HIPAA, the Health Information Technology for Economic and Clinical Health Act (HITECH), foreign data privacy regulations, federal and state privacy laws, consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise could adversely impact our business.

California has passed the California Consumer Privacy Act of 2018 (CCPA), which took effect January 1, 2020.

The CCPA applies broadly to information that identifies or is associated with any California household or individual, and compliance with the CCPA requires that we implement several operational changes, including processes to respond to individuals’ data access and deletion requests.

In addition, many foreign data privacy regulations (including the General Data Protection Regulation (GDPR), which became effective in the European Union on May 25, 2018, and China’s Cybersecurity Law which became effective in 2017) can be more stringent than those in the United States.

A data breach or security incident could result in a loss of confidential data, give rise to remediation and other expenses, expose us to liability under HIPAA, the Family Educational Rights and Privacy Act (“FERPA”), the Health Information Technology for Economic and Clinical Health Act (HITECH), foreign data privacy regulations, federal and state privacy laws, consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise could adversely impact our business.

There are a variety of other state, national, foreign, and international laws and regulations that apply to the collection, use, retention, protection, security, disclosure, transfer, and other processing of personal data, such as the California Consumer Protection Act (CCPA), which was recently significantly modified by the California Privacy Rights Act (CPRA), as well as the European Union’s General Data Protection Regulation (GDPR).

The CCPA and CPRA apply broadly to information that identifies or is associated with any California household or individual, and compliance with the CCPA and CPRA may require us to modify our data processing practices and policies and to incur substantial costs and expenses to comply.

In addition, other states, including Virginia and Washington, may pass new privacy legislation, which may lead to additional operational impact and costs for us to comply.

Further, many foreign data privacy regulations (including the GDPR and China’s Cybersecurity Law) can be more stringent than those in the United States.

These laws and regulations are rapidly evolving and changing and could have an adverse effect on our operations.

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We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations.

We collect and store sensitive information, including intellectual property, individually identifiable health information, provider credentialing and privileging data, and other personally identifiable information, on our networks.

We collect and store sensitive information, including intellectual property, individually identifiable health information, provider credentialing and privileging data, education records, and other personal information, on our networks.

The secure maintenance of this information is critical to our business operations.

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If the security measures that we use to protect customer or personal information are ineffective, we may lose users of our services, which could reduce our revenue, tarnish our reputation, and subject us to significant liability.

In addition, if our subcontractors or subprocessors fail to use adequate security or data protection processes or use personal date in an unpermitted or improper manner, we may be liable for certain losses and may damage our reputation.

In addition, if our subcontractors, subprocessors, or various other vendors on which we

rely fail to use adequate security or data protection processes or use personal date in an unpermitted or improper manner, we may be liable for certain losses and may damage our reputation.

We have implemented multiple layers of security measures to protect confidential data that we collect and store through technology, processes, and our people, and our defenses are monitored and routinely tested internally and by external parties.

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Further, the audit processes, penetration and vulnerability testing, and controls used within our production platforms, may not be sufficient to identify and prevent errors or deliberate misuse.

In addition, our software, databases, and servers may be vulnerable to computer viruses, physical or electronic attacks, and similar disruptions.

In addition, our software, databases, and servers may contain vulnerabilities or irregularities that lead to computer viruses, physical or electronic attacks, and similar disruptions.

We may be at increased risk because we outsource certain services or functions to, or have systems that interface with, third parties.

For example, third party IT vendors may not provide us with fixes or updates to hardware or software in a manner as to avoid an unauthorized loss or

disclosure or to address a known vulnerability, which may subject us to known threats or downtime as a result of those delays.

For example, third party IT vendors may not provide us with fixes or updates to hardware or software in a manner as to avoid an unauthorized loss, access, or disclosure of data or to address a known vulnerability, which may subject us to known threats and cause system failures or disruptions.

Third party vendors that store or have access to our data may not have effective controls, processes, or practices to protect our information from attack, damage, or unauthorized access.

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We cannot assure that we can prevent all security breaches.

Despite these efforts, a data breach or security incident could result from a variety of circumstances and events, including third-party action, system errors or downtime, employee negligence or error, malfeasance, failures during the process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, telecommunication failures, user errors, catastrophic events, or threats from malicious persons and groups, new vulnerabilities, and advanced new attacks against information systems.

Despite these efforts, a data breach or security incident could result from a variety of circumstances and events, including third-party action or inaction, system errors or downtime, employee negligence or error, malfeasance, failures during the process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, telecommunication failures, user errors, catastrophic events, or threats from malicious persons and groups, new vulnerabilities, and advanced new attacks against information systems.

Data incidents could result in interruptions, delays, loss, access, misappropriation, and disclosure or corruption of data which could damage our reputation and could otherwise adversely impact our business.

There can be no assurance that we will not be subject to data incidents that bypass our security measures, result in loss of confidential information, or dispute our information systems or business.

In addition, data incidents could expose us and our customers to liability under privacy, security, and consumer protection laws, such as HIPAA, CCPA and foreign data privacy regulations, or litigation under these or other laws, including common law theories, and subject us to federal and state governmental inquiries or enforcement, especially if a large number of individuals are affected or if the compromised information is highly sensitive.

Like many other organizations, we have experienced data incidents from time to time in the course of our business and handled these incidents in accordance with our internal policies and understanding of the applicable laws.

There can be no assurance that we will not be subject to data incidents that bypass our security measures, result in loss of confidential information, or dispute our information systems or business.

In addition, data incidents could expose us and our customers to liability under privacy, security, and consumer protection laws, such as HIPAA, FERPA, CCPA, and CPRA and foreign data privacy regulations, or litigation under these or other laws, including common law theories, and subject us to federal and state governmental inquiries or enforcement, especially if a large number of individuals are affected or if the compromised information is highly sensitive.

Our cyber liability and business interruption insurance may not adequately compensate us for losses that may occur.

We may need to spend significant resources to protect against security breaches or to alleviate problems caused by any breaches.

Furthermore, we have acquired a number of companies, products, services, and technologies over the years.

Although we devote significant resources to address any security issues with respect to such acquisitions, we still may inherit additional risks when we integrate those companies within HealthStream.

Furthermore, we have acquired a number of companies, products, services, and technologies in recent years, including four acquisitions completed during 2020 and one acquisition that has been completed during 2021.

Although we devote significant resources to address any security issues with respect to such acquisitions, we still may inherit additional security risks when we integrate those companies within HealthStream.

Moreover, if a high-profile security breach occurs with respect to an industry peer, our customers and potential customers may lose trust in the security of our solutions in general.

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For example, an important element in a malpractice case brought against a hospital or other provider could be the validation of proper credentialing for the provider, and any errors or omissions in our products that provide these services could subject us to claims.

Further, a list of providers’ privileges may be made available to the general public by hospitals and medical practices, and errors in credentialing and privileging may result in damage to the hospital, medical practice, or provider.

Further, a list of providers’ privileges may be made available to the

general public by hospitals and medical practices, and errors in credentialing and privileging may result in damage to the hospital, medical practice, or provider.

We may be required to indemnify against such claims and defending against any such claims could be costly and time-consuming and could negatively affect our business.

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Revenues associated with sales of HeartCode and RQI products pursuant to the Legacy Agreements have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin.

Revenues from these products were $58.9 million in 2019 and are expected to decline to approximately $36.0 million in 2020 (with sequential declines anticipated in each quarter

of 2020) as we conclude the fulfillment of HeartCode and RQI purchases made prior to December 31, 2018 and will be approximately zero beginning with the first quarter of 2021 .

Revenues from these products were $58.9 million in 2019 and $38.4 million in 2020 and will be approximately zero beginning with the first quarter of 2021.

While we have entered into agreements to market, sell, and deliver new resuscitation programs to our customers (i.e., other than HeartCode and RQI), including through our collaboration with the American Red Cross which was announced in January 2019, there is no assurance that we will be successful in efforts to market, sell, or deliver such products.

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Further, government laws and regulations, such as the Affordable Care Act, that directly affect our customers, can have an indirect impact on our business.

We may lose sales from existing or potential customers, or incur significant expenses, if states are successful in imposing states sales and use taxes on our services to a greater degree than is currently the case or we inherit potential states and use tax compliance issues in connection with acquisitions we may make from time to time.

We may also be required to develop features, enhancements, or modifications to our products to support our customers’ evolving compliance obligations.

This may require us to divert development and other resources from other areas, incur significant expenditures, or, if we are unsuccessful in delivering these features, enhancements, or modifications, result in monetary damages, loss of revenue or customers, reputational harm, or other adverse impacts to our business.

We may lose sales from existing or potential customers or incur significant expenses if states are successful in imposing state sales and use taxes on our services to a greater degree than is currently the case or we inherit potential state sales and use tax compliance issues in connection with acquisitions we may make from time to time.

A successful assertion by one or more states that we should collect sales or uses taxes on the sale of our services to a greater degree than is our current practice could result in substantial tax liabilities for past sales, decrease our ability to compete on pricing with other vendors, and otherwise harm our business.

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Our current and past privacy and security practices, including any breaches of protected health information or other data, could be subject to review or other investigation by various state and federal regulatory authorities or could become the subject of future litigation.

Failure to comply with applicable laws and regulations, including those governing privacy and security, could subject us to civil and criminal penalties, subject us to contractual penalties (including termination of our customer agreements), adversely affect our ability to retain clients and attract new clients, damage our reputation, or otherwise have a detrimental impact on our business.

While we strive to adhere our practices and procedures to the laws that are applicable to our business, they are subject to evolving rules and regulations, interpretations, and regulator discretion.

To the extent a regulator or court disagrees with our interpretation of these laws and determines that our practices are not in compliance with applicable laws and regulations, we could be subject to civil and criminal penalties that could adversely affect the continued operation of our business, including significant fines or monetary damages and/or penalties.

In addition, failure to comply with applicable legal or regulatory requirements in the U.S.

or in any of the countries in which we operate could result in significant legal and financial exposure, damage to our reputation, subject us to contractual penalties (including termination of our

customer agreements), adversely affect our ability to retain clients and attract new clients, or otherwise have a material adverse effect on our business operations, financial condition and results of operations.

Any reduction or change in the regulation of continuing education and training in the healthcare industry may adversely affect our business.

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We may be liable to third parties for the content sold or made available by us if the text, graphics, software, or other content therein violates copyright, trademark, or other intellectual property rights, if our ecosystem partners violate their contractual obligations to others by providing content that we sell or make available, or if the content is inaccurate, incomplete, or does not conform to accepted standards of care in the healthcare profession.

Further, we may be liable to these ecosystem partners

if we allow access or release and lose control of their intellectual property stored on our platform either due to security issues or through improper release to customers who have not paid for access to such intellectual property .

Further, we may be liable to these ecosystem partners if we allow access or release and lose control of their intellectual property stored on our platform either due to security issues or through improper release to customers who have not paid for access to such intellectual property.

We attempt to minimize these types of liabilities by requiring representations and warranties relating to our intellectual property partners’ ownership of the rights to distribute as well as the accuracy of their intellectual property.

We also take necessary measures to review this intellectual property ourselves.

Although our agreements with our ecosyste m partners in most instances contain provisions providing for indemnification by the ecosyste m partners in the event of inaccurate intellectual property , our ecosyste m partners may not have the financial resources to meet these indemnification obligations.

We also take measures to review this intellectual property ourselves.

Although our agreements with our ecosystem partners in most instances contain provisions providing for indemnification by the ecosystem partners in the event of inaccurate intellectual property, our ecosystem partners may not have the financial resources to meet these indemnification obligations.

Alleged liability could harm our business by damaging our reputation, requiring us to incur legal costs in defense, exposing us to awards of damages and costs, and diverting management’s attention away from our business.

Protection of certain intellectual property may be difficult and costly, and our inability to protect our intellectual property could reduce the value of our products and services.

Protection of certain intellectual property may be difficult and costly, and our inability to protect our intellectual property could reduce the value of our products and services or reduce our competitive advantage.

Despite our efforts to protect our intellectual property rights, as well as the intellectual property rights of our ecosystem partners, a third party could, without authorization, copy or otherwise misappropriate our content, information from our databases, or other intellectual property, including that of our third-party ecosystem partners.

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Our business could be harmed if unauthorized parties infringe upon or misappropriate our intellectual property, proprietary systems, content, platform, services, or other information or the intellectual property of our ecosystem partners.

Our efforts to protect our intellectual property through copyright, trademarks, and other controls, as well as our efforts to protect the intellectual property of our ecosystem partners, may not be adequate.

Our efforts to protect our intellectual property through copyright, trademarks, trade secrets, patents, and other forms of protection, as well as our efforts to protect the intellectual property of our ecosystem partners, may not be adequate.

For instance, we may not be able to secure trademark or service mark registrations for marks in the United States or in foreign countries, or to secure patents for our proprietary products and services, and even if we are successful in obtaining patent and/or trademark registrations, these registrations may be opposed or invalidated by a third party.

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If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products, or take other remedial actions.

It may be difficult for a third party to acquire our company, and this could depress our stock price.

Our sources of data might restrict our use of or refuse to license data, which could adversely impact our ability to provide certain products or services.

A portion of the data that we use is either purchased or licensed from third parties or public records or is obtained from our customers for specific customer engagements.

We believe that we have all rights necessary to use the data that is incorporated into our products and services.

However, if new laws or regulations impose restrictions on our use of the data or regulators’ or courts’ interpretations result in restrictions of the data that we currently use in our products and services, or a large number of data providers withdraw their data from us, our ability to provide our products and fulfil our contractual obligations to our customers could be materially adversely impacted.

Risks Related to International Operations

We face risks arising from our international operations.

Following our acquisition of ANSOS, which was completed in December 2020, we have international offices and/or operations in several countries outside of the United States, including Canada, Australia, and New Zealand.

Conducting our business internationally, particularly with expansion into countries in which we have limited experience, subjects us to a variety of risks that that we do not necessarily face to the same degree in the US.

These risks include, among others:

unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties, or other trade restrictions;

differing labor regulations;

regulations relating to data security and the unauthorized use of, or access to, commercial and personal information;

potential penalties or other adverse consequences for violations of anti-corruption, anti-bribery, and other similar laws and regulations, including the US Foreign Corrupt Practices Act;

greater difficulty in supporting and localizing our products;

unrest and/or changes in a specific country’s or region’s social, political, legal, health, or economic conditions;

challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, controls, policies, benefits, and compliance programs;

currency exchange rate fluctuations;

limited or unfavorable intellectual property protection;

competition with companies or other services that may understand local markets better than we do;

increased financial accounting and reporting burdens, and complexities associated with implementing and maintaining adequate internal controls;

restrictions on repatriation of earnings.

Risks Related to Provisions in Our Organizational Documents and Tennessee Corporate Law

It may be difficult for a third party to acquire our company.

Tennessee corporate law and our charter and bylaws contain provisions that could delay, defer, or prevent a change in control of our company or our management.

These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions.

These provisions:

These provisions in our organizational documents:

authorize us to issue "blank check" preferred stock, which is preferred stock that can be created and issued by the board of directors, without prior shareholder approval, with rights senior to those of common stock;

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prohibit shareholder action by written consent;

do not provide shareholders with the right to call a special shareholders meeting;

establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by shareholders at a meeting.

In addition, we are subject to certain provisions of Tennessee law which limit, in some cases, our ability to engage in certain business combinations or transactions with significant shareholders.

These provisions, either alone or in combination with each other, give our current directors a substantial ability to influence the outcome of a proposed acquisition of the Company.

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If a change in control or change in management is delayed or prevented by these provisions, the market price of our securities could decline.

As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock.

Unresolved Staff Comments

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 1A. Risk Factors