What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 214 added, 271 removed, 244 unchanged (67% of the section changed)

3 unchanged sentences

(In thousands)

September 30,

Current assets:

2 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of $ 519 and

$ 843 at September 30, 2020 and December 31, 2019, respectively

$ 549 at March 31, 2021 and December 31, 2020, respectively

Accounts receivable - unbilled

3 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 20,968 and

$ 19,291 at September 30, 2020 and December 31, 2019, respectively

$ 19,237 at March 31, 2021 and December 31, 2020, respectively

Capitalized software development, net of accumulated amortization of $ 74,095 and

$ 57,768 at September 30, 2020 and December 31, 2019, respectively

$ 70,516 at March 31, 2021 and December 31, 2020, respectively

Operating lease right of use assets, net

Customer-related intangibles, net of accumulated amortization of $ 38,938 and

$ 29,760 at September 30, 2020 and December 31, 2019, respectively

$ 36,723 at March 31, 2021 and December 31, 2020, respectively

Other intangible assets, net of accumulated amortization of $ 12,371 and

$ 12,735 at September 30, 2020 and December 31, 2019, respectively

$ 10,748 at March 31, 2021 and December 31, 2020, respectively

Deferred tax assets

15 unchanged sentences

31,553 and 31,493 shares

issued and outstanding at September 30, 2020 and December 31, 2019, respectively

issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Retained earnings

2 unchanged sentences

Total liabilities and shareholders’ equity

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

HEALTHSTREAM, INC.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Revenues, net

7 unchanged sentences

Operating income

Other income, net

Income from continuing operations before income tax provision

Income tax provision

Income from continuing operations

Discontinued operations:

Gain on sale of discontinued operations

Other (loss) income, net

Income before income tax provision

Income tax provision

Income from discontinued operations

Net income per share – basic:

Continuing operations

Discontinued operations

Net income per share - basic

Net income per share - diluted:

Continuing operations

Discontinued operations

Net income per share - diluted

Net income per share:

Weighted average shares of common stock outstanding:

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

HEALTHSTREAM, INC.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income, net of taxes:

Foreign currency translation adjustments

Unrealized (loss) gain on marketable securities

Unrealized gain (loss) on marketable securities

Total other comprehensive income (loss)

Comprehensive income

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

HEALTHSTREAM, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Accumulated Other Comprehensive

Total Shareholders’

Income (Loss)

Balance at December 31, 2020

Comprehensive loss

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Repurchase of common stock

Balance at March 31, 2020

Comprehensive income

Stock based compensation

Repurchase of common stock

Balance at June 30, 2020

Dividend forfeitures

Comprehensive income

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Repurchase of common stock

Balance at September 30, 2020

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

HEALTHSTREAM, INC.

CONDENSED CONSOLIDATED STATEMENTs OF SHAREHOLDERS' EQUITY (UNAUDITED)

(In thousands, except per share data)

Nine Months Ended September 30, 2019

Balance at March 31, 2021

Three Months Ended March 31, 2020

Accumulated Other Comprehensive

Total Shareholders’

(Loss) Income

Income (Loss)

Balance at December 31, 2019

Comprehensive income

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Balance at March 31, 2019

Comprehensive income

Stock donated to Company (held in treasury)

Stock based compensation

Common stock issued under stock plans,

net of shares withheld for employee taxes

Balance at June 30, 2019

Comprehensive loss

2 unchanged sentences

net of shares withheld for employee taxes

Balance at September 30, 2019

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

Repurchase of common stock

Balance at March 31, 2020

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements .

HEALTHSTREAM, INC.

1 unchanged sentence

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES:

Income from discontinued operations

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

4 unchanged sentences

Deferred income taxes

Loss (gain) on non-marketable equity investments

Loss on non-marketable equity investments

Non-cash paid time off expense

Non-cash royalty expense

11 unchanged sentences

Business combinations, net of cash acquired

Proceeds from sale of discontinued operations

Proceeds from maturities of marketable securities

Purchases of marketable securities

Proceeds from sale of property and equipment

Payments to acquire non-marketable equity investments

3 unchanged sentences

FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Taxes paid related to net settlement of equity awards

Payments of earn-outs related to acquisitions

Repurchases of common stock

Repurchase of common stock

Payment of cash dividends

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash additions to non-marketable equity investments

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements (unaudited) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X.

Accordingly, Condensed Consolidated Financial Statements do not include all information and footnotes required by US GAAP for complete financial statements.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X.

Accordingly, condensed consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

All intercompany transactions have been eliminated in consolidation.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

On February 12, 2018, the Company divested its Patient Experience (“PX”) business to Press Ganey Associates, Inc.

(“Press Ganey”).

The sale of the PX business resulted in the Company’s divestiture of the Company’s patient experience solutions business segment.

The Company has classified the results of its previously owned PX segment as discontinued operations in its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2019.

See Note 10 for additional information.

The Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited Consolidated Financial Statements at that date does not include all information and footnotes required by US GAAP for complete financial statements.

For further information, refer to the Consolidated Financial Statements and footnotes thereto for the year ended December 31, 2019 (included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 26, 2020).

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Recently Adopted

In June 2016, the FASB issued ASU 2016-03, Financial Instruments—Credit Losses (“ASC 326”):

Measurement of Credit Losses on Financial Instruments , which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis, ASC 326 eliminates the probable initial recognition threshold in prior GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

The Company adopted this ASU on January 1, 2020, and the effect of adoption on the Company’s Consolidated Financial Statements and related disclosures was not material.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet at December 31, 2020 was derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements.

For further information, refer to the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2020 (included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 25, 2021).

REVENUE RECOGNITION AND SALES COMMISSIONS

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.

Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those goods or services.

Revenue is recognized based on the following five step model:

4 unchanged sentences

Recognition of revenue when, or as, the Company satisfies a performance obligation

The following table represents revenues disaggregated by revenue source for the three and nine months ended September 30, 2020 and 2019 (in thousands).

The following table represents revenues disaggregated by revenue source (in thousands).

Sales taxes are excluded from revenues.

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Business Segments

Subscription services

Professional services

Total revenues, net

Three Months Ended September 30, 2019

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

Business Segments

2 unchanged sentences

Total revenues, net

For the three months ended September 30, 2020 and 2019, the Company recognized a reduction of $ 0.2 million and a charge of $ 51,000 in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

For the nine months ended September 30, 2020 and 2019, the Company recognized $ 0.2 million and $ 99,000 in impairment losses on receivables and contract assets arising from the Company’s contracts with customers, respectively.

For the three months ended March 31, 2021 and 2020, the Company recognized $ 0.1 million and $ 0.3 million, respectively, in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.

Deferred revenue represents contract liabilities that are recorded when cash payments are received or are due in advance of our satisfaction of performance obligations.

During the three months ended September 30, 2020 and 2019, we recognized $ 34.4 million and $ 33.8 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

During the nine months ended September 30, 2020 and 2019, we recognized $ 60.5 million and $ 61.3 million of revenue from amounts included in deferred revenues at the beginning of the respective periods.

As of September 30, 2020, $ 408 million of revenue is expected to be recognized from remaining performance obligations under contract with customers.

We expect to recognize revenue with respect to 45 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

During the three months ended March 31, 2021 and 2020, we recognized revenues of approximately $ 33.6 million and $ 31.6 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods.

As of March 31, 2021, approximately $ 446 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers.

We expect to recognize revenue related to approximately 46 % of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

The sales commission plan for 2020 typically includes two payments;

the initial payment is due in the period a customer contract is entered into, and the final payment is due 60 days after the product implementation is completed.

The sales commission plan for 2019 typically included an initial payment in the period a customer contract was entered into and subsequent payment either 15 or 27 months after the initial payment, depending on the contract term.

Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment, are capitalized in the period a customer contract is entered into and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit, whereas subsequent sales commission payments which require a substantive performance condition of the employee are expensed ratably through the payment date.

Under the 2020 plan, both the initial payment and subsequent payment are capitalized in the period the contract is entered into, whereas under the 2019 plan only the initial payment was capitalized, and the subsequent payment was expensed ratably through the payment date.

The timing of the second payment under the 2020 plan from an accounting perspective does not represent a substantive performance condition of the employee.

The capitalized contract cost is included in deferred commissions in the accompanying Condensed Consolidated Balance Sheets.

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

Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment and associated payroll taxes, are capitalized in the period a customer contract is entered into and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit, whereas subsequent sales commission payments which require a substantive performance condition of the employee are expensed ratably through the payment date.

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

The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions are not commensurate with initial commissions.

Non-commensurate commissions are amortized over the greater of the contract term or technological obsolescence period of approximately three years .

The Company recorded amortization of deferred commissions of $ 2.3 million and $ 2.1 million for the three months ended September 30, 2020 and 2019, and $ 6.6 million and $ 6.3 million for the nine months ended September 30, 2020 and 2019, respectively, which is included in sales and marketing expenses in the accompanying Condensed Consolidated Statements of Income.

The Company recorded amortization of deferred commissions of approximately $ 2.1 million and $ 2.2 million for the three months ended March 31, 2021 and 2020 , respectively, which is included in s ales and marketing expenses in the accompanying C ondensed C onsolidated S tatements of I ncome.

Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income.

During the three months ended September 30, 2020 and 2019 , the Company recorded a provision for income taxes from continuing operations of $ 0.6 million and $ 1.1 million, respectively.

During the nine months ended September 30, 2020 and 2019 , the Company recorded a provision for income taxes from continuing operations of $ 3.5 million and $ 3.3 million, respectively.

The Company’s effective tax rate for continuing operations for the nine months ended September 30, 2020 and 2019 was 21 % and 24 %, respectively.

The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, and the effect of various permanent and discrete tax differences.

The decrease in the effective tax rate is primarily due to the recognition of tax benefits resulting from higher research and development tax credits than previously estimated.

The Company recorded additional income tax expense associated with tax deficiencies of $ 30,000 during the nine months ended September 30, 2020 and recorded a reduction to income tax expense for excess tax benefits of $ 0.1 million during the nine months ended September 30, 2019.

The Company computes its interim period provision for income taxes by applying the estimated annual effective tax rate to year-to-date pretax income or loss and adjusts the provision for discrete tax items recorded in the period.

During the three months ended March 31, 2021 and 2020 , the Company recorded a provision for income taxes of approximately $ 0.9 million and $ 1.9 million, respectively.

The Company’s effective tax rate for the three months ended March 31, 2021 and 2020 was 29 % and 21 %, respectively.

The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, and the effect of various permanent tax differences.

During the three months ended March 31, 2021, the Company recorded discrete tax expense of $ 0.1 million related to various items, including recording a permanent difference related to purchase accounting adjustments and the impact of a state tax rate change enacted during the period.

During the three months ended March 31, 2020, the Company recorded a $ 1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $ 0.3 million.

The Company recognizes excess tax benefits and tax deficiencies associated with stock based awards as a component of its provision for income taxes.

The Company recorded additional income tax expense associated with tax deficiencies of approximately $ 17,000 and $ 26,000 during the three months ended March 31, 2021 and 2020, respectively.

SHAREHOLDERS’ EQUITY

1 unchanged sentence

The Company has stock awards outstanding under its 2016 Omnibus Incentive Plan.

The Company accounts for its stock based compensation plans using the fair-value based method for costs related to share based payments, including restricted share units (“RSUs”).

During the nine months ended September 30, 2020, the Company issued 114,784 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.94 per share measured based on the closing fair market value of the Company’s stock on the date of grant.

During the nine months ended September 30, 2019, the Company issued 96,828 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 27.31 per share measured based on the closing fair market value of the Company’s stock on the date of grant.

Total stock based compensation expense recorded for the three and nine months ended September 30, 2020 and 2019, which is recorded within continuing operations in the Condensed Consolidated Statements of Income, is as follows (in thousands):

The Company accounts for its stock based compensation plan using the fair-value based method for costs related to share based payments, including restricted share units (“RSUs”).

During the three months ended March 31, 2021, the Company issued 121,551 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 23.16 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the three months ended March 31, 2020, the Company issued 111,510 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $ 22.96 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the three months ended June 30, 2018, the Company issued 70,000 performance-based RSUs, the vesting of which occurs over a five-year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual basis in increments of 10 %, 15 %, 20 %, 25 %, and 30 % based on performance in 2018, 2019, 2020, 2021, and 2022, respectively.

The performance criteria for 17,500 of these performance-based RSUs, along with 7,000 performance-based catch-up RSUs which did not vest based on 2020 performance and remain eligible for vesting, will be based on 2021 performance.

The measurement date for these 24,500 performance-based RSUs was established during the three months ended March 31, 2021 with a grant date fair value of $ 23.01 per share, measured based on the closing fair market value of the Company’s stock on the date the performance criteria was established.

The performance criteria for the remaining 21,000 performance-based RSUs has not yet been determined and will be established in 2022 based on performance in 2022;

therefore, the measurement date for these remaining 21,000 performance-based RSUs cannot be determined until the performance criteria have been established.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenues (excluding depreciation and amortization)

3 unchanged sentences

Total stock based compensation expense

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Share Repurchase Plan

On March 13, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $ 30.0 million of outstanding shares of common stock.

The share repurchase program will terminate on the earlier of March 12, 2021 or when the maximum dollar amount has been expended.

Pursuant to this authorization, repurchases have been made, and may continue to be made from time to time, in the open market through privately negotiated transactions or otherwise, including under a Rule 10b5-1 plan, which permits shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws in accordance with specific prearranged terms related to timing, price, and volume (among others), without further direction from the Company.

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

Under this program during the three months ended September 30, 2020, the Company repurchased 318,902 shares at an aggregate fair value of $ 6.3 million, reflecting an average price per share of $ 19.87 (excluding the cost of dealer commissions).

During the nine months ended September 30, 2020, the Company repurchased 762,843 shares at an aggregate fair value of $ 16.3 million, reflecting an average price per share of $ 21.42 (excluding the cost of broker commissions) .

During June 2019, the Company’s Chief Executive Officer, Robert A.

Frist, Jr., contributed 78,520 of his personally owned shares of HealthStream, Inc.

common stock (valued at $ 2.0 million) to the Company, without any consideration paid to him, for the benefit of the Company’s employees.

In connection therewith, effective June 26, 2019 the Company approved the award of 78,520 fully vested shares of common stock to approximately 820 employees of the Company under the

HealthStream, Inc.

2016 Omnibus Incentive Plan.

These shares were issued in July 2019.

As required by ASC Topic 718, Compensation – Stock Compensation , the Company recognized $ 2.0 million of stock based compensation expense for these stock awards during the three months ended June 30, 2019 based on the closing fair market value of the Company’s stock on the date of the Company’s approval of these grants.

Total payments related to the employees’ tax obligations to taxing authorities for these stock awards were $ 0.6 million and are reflected as a financing activity within the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019.

In addition, the employer taxes and expenses associated with these grants were $ 0.2 million and were recorded as an expense during June 2019.

Frist contributed an additional 7,852 of his personally owned shares to cover these costs.

The receipt of shares from Mr.

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

The share repurchase program expired on March 12, 2021 .

Under this program, the Company repurchased a total of 957,367 shares in open market purchases at an aggregate fair value of $ 20.0 million, reflecting an average price per share of $ 20.89 (excluding the cost of broker commissions).

No repurchases occurred during the three months ended March 31, 2021.

EARNINGS PER SHARE

1 unchanged sentence

Diluted earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of potentially dilutive common and common equivalent shares outstanding during the period.

Common equivalent shares are composed of incremental common shares issuable in connection with RSUs subject to vesting.

Common equivalent shares are composed of incremental common shares issuable upon the exercise of stock options and RSUs subject to vesting.

The dilutive effect of common equivalent shares is included in diluted earnings per share by application of the treasury stock method.

The total number of common equivalent shares excluded from the calculations of diluted earnings per share due to their anti-dilutive effect or contingent performance conditions was 115,000 and 54,000 for the three months ended September 30, 2020 and 2019 , respectively, and 112,000 and 107,000 for the nine months ended September 30, 2020 and 2019 , respectively.

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share data):

The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately 148,000 and 106,000 for the three months ended March 31, 2021 and 2020 , respectively.

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Income from continuing operations

Income from discontinued operations

Weighted-average shares outstanding

1 unchanged sentence

Weighted-average diluted shares

Net income per share - basic:

Continuing operations

Discontinued operations

Net income per share - basic

Net income per share - diluted:

Continuing operations

Discontinued operations

Net income per share - diluted

Net income per share:

MARKETABLE SECURITIES

At September 30, 2020 and December 31, 2019, the fair value of marketable securities, which were all classified as available for sale, included the following (in thousands):

September 30, 2020

The fair value of marketable securities, which were all classified as available for sale and which the Company does not intend to sell nor will the Company be required to sell prior to recovery of their amortized cost basis, included the following (in thousands):

March 31, 2021

Cash and Cash Equivalents

2 unchanged sentences

Corporate debt securities

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

December 31, 2020

1 unchanged sentence

Current Marketable Securities

Time deposits

Corporate debt securities

Government-sponsored enterprise debt securities

The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate the fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs.

As of September 30, 2020, the Company did no t recognize any allowance for credit impairments on its available for sale debt securities.

As of March 31, 2021, the Company did no t recognize any allowance for credit impairments on its available for sale debt securities.

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

BUSINESS COMBINATIONS

CredentialMyDoc

On December 16, 2019, the Company acquired substantially all the assets of Covenant Technology Group, LLC (“CredentialMyDoc”), a Savannah, Georgia-based company focusing on an intuitive, easy to use, and fast to implement provider credentialing and enrollment SaaS solution, primarily in ambulatory care settings.

The consideration paid for CredentialMyDoc consisted of $ 9.0 million in cash, after giving effect to the post-closing working capital adjustment.

Of the purchase price paid at closing, $ 1.1 million is being held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company.

The results of operations for CredentialMyDoc have been included in the Provider Solutions segment of the Company’s Financial Statements from the date of acquisition.

On March 9, 2020, the Company acquired all of the outstanding stock of HcT2 Co.

dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise for net cash consideration of approximately $ 21.5 million, after giving effect to the post-closing working capital adjustment.

The Company accounted for this transaction as a business combination achieved in stages which required the Company to remeasure its previously existing minority ownership interest, which was accounted for as a non-marketable equity investment measured using the fair value alternative, to fair value at the acquisition date based on the total enterprise value, adjusting for a control premium.

The fair value of the Company’s interest in NurseGrid was $ 3.6 million at closing, resulting in a gain of $ 1.2 million, recorded as a change in fair value of non-marketable equity investments in the Company’s Condensed Consolidated Statement of Income during the three months ended March 31, 2020.

Additionally, the Company’s previously recorded non-marketable equity investment in NurseGrid was de-recognized from the Company’s Condensed Consolidated Balance Sheet during the same period.

Acquisition-related transaction costs were $ 0.2 million.

The financial results of NurseGrid have been included in the Workforce Solutions segment from March 9, 2020 .

A summary of the purchase price is as follows (in thousands):

Cash paid at closing

Working capital adjustment - post-closing

Total consideration paid

Post-closing adjustment, net of cash received

Cash acquired

Net consideration paid

Fair value of existing equity interest in NurseGrid

Total purchase price

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

10 unchanged sentences

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The primary intangible assets acquired were customer relationships and developed technology.

The fair value estimate for customer relationships intangible asset included significant assumptions in the prospective financial information, such as revenue growth, customer attrition, EBITDA margin, and the discount rate.

The primary intangible assets acquired were developed technology and trade name.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

Additionally, these assumptions are forward looking and could be affected by future economic and market conditions.

The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering CredentialMyDoc products, and expected synergies from integrating CredentialMyDoc with other products or other combined functional areas within the Company.

The goodwill balance is deductible for U.S.

The fair value estimate for trade name intangible asset included significant assumptions in the prospective financial information, such as projected revenues, royalty rate, and the discount rate.

Additionally, these assumptions are forward looking and could be affected by future

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

economic and market conditions.

The goodwill balance is primarily attributed to the assembled workforce, future market opportunities to engage and support the NurseGrid Mobile user community, and expected synergies from integrating NurseGrid with other combined functional areas within the Company.

The goodwill balance is not deductible for U.S.

income tax purposes.

5 unchanged sentences

Total intangible assets

The following unaudited pro forma financial information summarizes the results of operations of the Company and CredentialMyDoc as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Total revenues

Income from continuing operations

Net income per share - basic

Net income per share - diluted

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, and fair value adjustments of acquired deferred revenue balances.

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to NurseGrid’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances .

The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

On March 9, 2020, the Company acquired all of the outstanding stock of HcT2 Co.

dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise, for net cash consideration of approximately $ 21.5 million, after giving effect to the post-closing working capital adjustment.

Additionally, the Company’s previously recorded non-marketable equity investment in NurseGrid was de-recognized from the Company’s Condensed Consolidated Balance Sheet.

The financial results of NurseGrid have been included in the Workforce Solutions segment from March 9, 2020.

A summary of the purchase price is as follows (in thousands):

Cash paid at closing

Post-closing adjustment, net of cash received

Cash acquired

Net consideration paid

Fair value of existing equity interest in NurseGrid

Net consideration paid

On October 12, 2020, the Company acquired all of the outstanding stock of ShiftWizard, Inc., a Raleigh, North Carolina-based healthcare technology company offering a SaaS-based solution that integrates key workforce management capabilities, including scheduling, productivity, and forecasting.

The consideration paid for ShiftWizard consisted of $ 30.5 million in cash after giving effect to the post-closing working capital adjustment.

Acquisition-related transaction costs were $ 0.3 million.

The financial results of ShiftWizard have been included in the Workforce Solutions segment from October 12, 2020.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Accounts and unbilled receivable, net

Prepaid and other current assets

Prepaid assets

Operating lease right-of-use assets

Deferred tax assets

Intangible assets

Property and equipment

Indemnification assets

Intangible asset

Accounts payable and accrued liabilities

Deferred revenue

Deferred tax liability

Operating lease liabilities

Indemnification liability

Net assets acquired

The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill.

The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The primary intangible assets acquired were developed technology and trade name.

The excess of purchase price over the fair values of net tangible and intangible assets is recorded as goodwill.

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

acquisition date) as the Company finalizes the valuation of these items.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes .

Included in the assets and liabilities is an indemnification asset and liability of $ 0.5 million associated with a Paycheck Protection Program loan pending forgiveness as of the acquisition date that was subsequently forgiven.

The primary intangible assets acquired were customer relationships and developed technology.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

The fair value estimate for trade name intangible asset included significant assumptions in the prospective financial information, such as projected revenues, royalty rate, and the discount rate.

Additionally, these assumptions are forward looking and could be affected by future economic and market conditions.

The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes.

The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering ShiftWizard products, and expected synergies from integrating ShiftWizard with other products or other combined functional areas within the Company.

The goodwill balance is not deductible for U.S.

income tax purposes.

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 157,000 to an estimated fair value of $ 78,000 .

The $ 79,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The following table sets forth the preliminary components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Preliminary Fair value

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 2.7 million to an estimated fair value of $ 1.6 million.

The $ 1.1 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Customer relationships

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Total intangible assets

The amounts of revenue and operating loss of NurseGrid included in the Company’s Consolidated Statement of Income since the date of acquisition of March 9, 2020 for the three and nine months ended September 30, 2020 are as follows (in thousands):

The following unaudited pro forma financial information summarizes the results of operations of the Company and ShiftWizard as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

September 30, 2020

Nine Months Ended

September 30, 2020

Total revenues

Operating loss

Net income per share - basic

Net income per share - diluted

ANSOS TM Staff Scheduling application

On December 2, 2020, the Company acquired all of the equity interests of Change Healthcare’s staff scheduling business, consisting of the ANSOS TM Staff Scheduling application and related products (ANSOS).

The consideration paid for ANSOS was $ 66.4 million in cash, after giving effect to the post-closing working capital adjustment.

Acquisition-related transaction costs were $ 1.1 million.

The financial results of ANSOS have been included in the Workforce Solutions segment from December 2, 2020.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Accounts and unbilled receivable, net

Prepaid assets

Operating lease right-of-use assets

Property and equipment

Deferred tax assets

Indemnification asset

Intangible assets

Accounts payable and accrued liabilities

Deferred revenue

Operating lease liabilities

Deferred tax liability

Uncertain tax position liability

Net assets acquired

The excess of purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill.

The fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions.

During the three months ended March 31, 2021, the Company determined that a portion of the acquired accounts receivable balance required an adjustment to net realizable value.

Additionally, the Company recorded opening balance sheet deferred tax liabilities related to the allocation of intangible assets to the foreign entities.

As a result of these two items coupled with the post-closing working capital adjustment, the Company recorded a measurement period adjustment which increased goodwill by $ 1.7 million.

The measurement period adjustment had no effect on current or prior period earnings.

The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of income tax attributes and working capital accounts.

Included in the preliminary assets and liabilities acquired is an indemnification asset and an uncertain tax position liability of $ 0.7 million determined based on management’s estimate of the most likely value related to income tax attributes.

The primary intangible assets acquired were customer relationships and developed technology.

The fair value estimate for customer relationships intangible asset included significant assumptions regarding prospective financial information with respect to the acquisition, including with respect to revenue growth, customer attrition, EBITDA margin, and the discount rate.

The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology.

Additionally, these assumptions are forward looking and could be affected by future economic and market conditions.

The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering ANSOS products, and expected synergies from integrating ANSOS with other products or other combined functional areas within the Company.

The portion of goodwill allocated to the U.S.

entity is deductible for U.S.

income tax purposes (representing 95%).

The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $ 17.8 million to an estimated fair value of $ 14.5 million.

The $ 3.3 million write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

The following table sets forth the components of identifiable intangible assets and their estimated useful lives as of the acquisition date (in thousands):

Customer relationships

11 - 14 years

Developed technology

Total intangible assets

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited pro forma financial information summarizes the results of operations of the Company and ANSOS as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Total revenues

Income from continuing operations

Net income per share - basic

Net income per share - diluted

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to NurseGrid’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances .

Other Business Combinations

On December 10, 2020, the Company acquired substantially all of the assets of myClinicalExchange, LLC, a Denver, Colorado-based information technologies company offering a SaaS-based solution that allows healthcare organizations to track, manage, and report the intern and clinical rotation educational requirements of medical, nursing, and allied healthcare students as well as host required documentation for medical residents.

The consideration paid for myClinicalExchange consisted of $ 4.4 million in cash.

Acquisition-related transaction costs were $ 0.1 million.

The acquisition is not considered material to the Company’s Financial Statements.

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

The results of operations for myClinicalExchange are included in the Company’s Condensed Consolidated Financial Statements from the date of acquisition and are included in the Workforce Solutions segment.

On January 19, 2021, the Company acquired the issued and outstanding equity of ProcessDATA, Ltd.

(d/b/a ComplyALIGN and HospitalPORTAL) (“ComplyALIGN”), a Chicago, Illinois-based healthcare technology company offering a SaaS-based policy management system for healthcare organizations, for $ 2.0 million in cash.

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

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

Acquisition-related transaction costs were $ 0.1 million.

The results of operations for ComplyALIGN are included in the Company’s Condensed Consolidated Financial Statements from the date of acquisition and are included in the Workforce Solutions segment.

During the three months ended March 31, 2021, the carrying amount of goodwill increased by $ 2.7 million, consisting of a $ 1.7 million of measurement period adjustment related to ANSOS, $ 0.6 million of acquired goodwill related to ComplyALIGN, and $ 0.4 million for the effect of currency translation adjustments.

BUSINESS SEGMENTS

The Company provides services to healthcare organizations and other members within the healthcare industry.

The Company’s services are focused on the delivery of workforce development products and services (Workforce Solutions) and provider credentialing, privileging, and enrollment products and services (Provider Solutions).

The Company measures segment performance based on operating income before income taxes and prior to the allocation of certain corporate overhead expenses, interest income, interest expense, and depreciation.

The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, administrative and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance.

The following is the Company’s business segment information for the three and nine months ended September 30, 2020 and 2019 and as of September 30, 2020 and December 31, 2019 (in thousands).

The Company’s services are focused on the delivery of workforce training, certification, assessment, development, and scheduling products and services (Workforce Solutions) and provider credentialing, privileging, call center, and enrollment products and services (Provider Solutions).

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, information systems, administrative and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance.

The following is the Company’s business segment information (in thousands).

Three Months Ended

September 30,

Nine Months Ended

September 30,

Revenues, net:

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Total revenues, net

Operating income from continuing operations:

Operating income:

Workforce Solutions

Provider Solutions

Total operating income from continuing operations

Total operating income

Segment assets *

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Provider Solutions

Segment assets include accounts and unbilled receivables, prepaid and other current assets, other assets, capitalized software development, certain property and equipment, goodwill, and intangible assets.

Cash and cash equivalents and marketable securities are not allocated to individual segments and are included within Unallocated.

Segment assets include accounts and unbilled receivables, prepaid royalties, prepaid and other current assets, other assets, capitalized software development, deferred commissions, certain property and equipment, goodwill, and intangible assets.

Cash and cash equivalents, marketable securities, non-marketable equity investments, and certain ROU assets are not allocated to individual segments and are included within Unallocated.

A significant portion of property and equipment assets are included within Unallocated.

DISCONTINUED OPERATIONS

Patient Experience

On February 12, 2018, the Company divested its PX business to Press Ganey for $ 65.2 million in cash (after giving effect to the post-closing working capital adjustment), resulting in a gain, net of tax, of $ 20.5 million, of which $ 19.0 million was recorded during the year ended December 31, 2018 and $ 1.5 million was recorded during the year ended December 31, 2019.

This sale of the PX business resulted in the Company’s divestiture of the Company’s patient experience solutions business segment.

The Company has classified this gain on the sale of the PX business as discontinued operations in its Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2019.

Our results for the three and nine months ended September 30, 2020 do not include any discontinued operations.

Revolving Credit Facility

On December 31, 2018, the Company entered into a Second Amendment to its Revolving Credit Agreement, dated as of November 24, 2014 (as amended, the “Revolving Credit Facility”), with SunTrust Bank (“SunTrust”), which extended the maturity date to November 24, 2020 .

On October 28, 2020, the Company entered into a Third Amendment to Revolving Credit Agreement (Revolving Credit Facility), amending the Revolving Credit Facility dated as of November 24, 2014 with Truist Bank, successor by merger to SunTrust Bank (Truist), extending the maturity date to October 28, 2023.

Under the Revolving Credit Facility, the Company may borrow up to $ 65.0 million, which includes a $ 5.0 million swing line sub-facility and a $ 5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $ 25.0 million, subject to securing additional commitments from existing lenders or new lending institutions.

The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.

At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either (1) a rate per annum equal to the highest of SunTrust’s prime rate or 0.5 % in excess of the Federal Funds Rate or 1.0 % in excess of one-month LIBOR (the “Base Rate”), plus an applicable margin, or (2) the one, two, three, or six month per annum LIBOR for deposits in the applicable currency (the “Eurocurrency Rate”), as selected by the Company, plus an applicable margin.

At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either (1) a rate per annum equal to the highest of Truist’s prime rate or 0.5 % in excess of the Federal Funds Rate or 1.0 % in excess of one-month LIBOR (the Base Rate), plus an applicable margin, or (2) the one, two, three, or six-month per annum LIBOR for deposits in the applicable currency (the Eurocurrency Rate), as selected by the Company, plus an applicable margin.

The applicable margin for Eurocurrency Rate loans depends on the Company’s funded debt leverage ratio and varies from 1.50 % to 1.75 %.

1 unchanged sentence

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

Principal is payable in full at maturity on November 24, 2020, and there are no scheduled principal payments prior to maturity.

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

The Company is required to pay a commitment fee ranging between 20 and 30 basis points per annum of the average daily unused portion of the Revolving Credit Facility, depending on the Company’s funded debt leverage ratio.

The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries.

The purpose of the Revolving Credit Facility is for general working capital needs, permitted acquisitions (as defined in the Revolving Credit Facility), and for stock repurchase and/or redemption transactions that the Company may authorize.

The Revolving Credit Facility contains certain covenants that, among other things, restrict additional indebtedness, liens and encumbrances, changes to the character of the Company’s business, acquisitions, asset dispositions, mergers and consolidations, sale or discount of receivables, creation or acquisitions of additional subsidiaries, and other matters customarily restricted in such agreements.

HEALTHSTREAM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

1 unchanged sentence

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

As of September 30, 2020, the Company was in compliance with all covenants.

There were no balances outstanding on the Revolving Credit Facility as of or during the three and nine months ended September 30, 2020.

As of March 31, 2021, the Company was in compliance with all covenants.

There were no balances outstanding on the Revolving Credit Facility as of or during the three months ended March 31, 2021.

NON-MARKETABLE EQUITY INVESTMENTS

Non-marketable equity investments of preferred stock in corporations that do not result in a controlling financial interest are accounted for using the measurement alternative for equity investments that do not have readily determinable fair values.

ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

The aggregate carrying amount of all non-marketable equity investments accounted for using the measurement alternative was $ 3.9 million and $ 5.9 million as of September 30, 2020 and December 31, 2019, respectively, which carrying value we evaluate for impairment at each reporting period.

During the nine months ended September 30, 2020, the Company recorded a $ 1.2 million upward adjustment to the carrying value of our non-marketable equity investment in NurseGrid due to a change in fair value based on the consideration paid upon the Company’s acquisition of NurseGrid on March 9, 2020 (see Note 8).

The aggregate carrying amount of non-marketable equity investments accounted for using the measurement alternative for equity investments that do not have readily determinable fair values was $ 3.9 million as of March 31, 2021 and December 31, 2020, which carrying value we evaluate for impairment at each reporting period.

Cumulatively, the Company has recorded $ 0.1 million in downward adjustments to the carrying value of non-marketable equity investments.

2 unchanged sentences

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

CONTRACTUAL ADJUSTMENT

In June 2018, a contract with one of our royalty partners expired and was not renewed.

However, the contract required continued royalty payments for any subscriptions that extended beyond the contract termination date.

Following the contract termination, there was a mutual disagreement related to various elements of this past partnership, and the Company accrued but did not pay royalties to the partner following the contract expiration.

During the first quarter of 2020, the Company received a release of liability from the partner associated with this contract, resulting in no royalties to be paid to the partner.

The de-recognition of this royalty liability and related expense was recorded as a $ 3.4 million reduction to cost of revenues in the first quarter of 2020.

SUBSEQUENT EVENTS

On October 12, 2020, the Company acquired all of the equity of ShiftWizard, Inc., a Raleigh, North Carolina-based company focused on providing a SaaS-based solution that integrates key workforce management capabilities, including scheduling, productivity, and forecasting, for $ 32.0 million in cash, subject to working capital and other purchase price adjustments.

The acquisition will be accounted for using the acquisition method of business combination under ASC 805, Business Combinations.

The initial accounting for the business combination is incomplete due to the timing of the acquisition.

Therefore, we are unable disclose certain information required by ASC 805.

We will provide preliminary purchase price allocation information in our Annual Report on Form 10-K for the year ending December 31, 2020.

On October 28, 2020, the Company entered into a Third Amendment to its Revolving Credit Agreement, dated as of November 24, 2014 (as amended, the “Revolving Credit Facility”), with Truist Bank (“Truist”), which increased the capacity under the Revolving Credit Facility to $ 65.0 million and extended the maturity date to October 28, 2023 .

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

What changed 10-Q

Item 1. Financial Statements