Core Viewpoint - HealthStream, Inc. will host a conference call and webcast to discuss its third quarter 2025 financial results on November 4, 2025 [1] Financial Results Announcement - The financial results for the third quarter 2025, which ended on September 30, 2025, will be released after market close on November 3, 2025 [1]

Valuation Insights - The conservative DCF valuation estimate for the company is $26.46, which does not meet the minimum 10% margin of safety required for investment [1] - The analysis emphasizes a fact-driven approach, relying on financial data to assess the company's health, followed by qualitative analysis to understand growth prospects [1] Analyst Position - The analyst holds a beneficial long position in the shares of HSTM through stock ownership, options, or other derivatives [2] - The article reflects the analyst's personal opinions and is not influenced by compensation from any company mentioned [2]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2025 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No.: 000-27701 HealthStream, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-1443555 (State or other jurisdiction of incorporation or organization) 500 ...

Financial Data and Key Metrics Changes - The company achieved record quarterly revenue of $74.4 million, up 4% from the same quarter last year [6][24] - Operating income increased by 33.4% to $5.9 million, while net income rose by 29.3% to $5.4 million [6][25] - Adjusted EBITDA was reported at $17.6 million, reflecting an 11.3% increase [6][29] - Subscription product revenues grew by 4.2%, while professional service revenues declined by 3.5% [25] Business Line Data and Key Metrics Changes - Credential Stream revenue grew by 26%, Shift Wizard by 21%, and Competency Suite by 18% [26] - Legacy products in credentialing and scheduling saw a decline totaling $1.8 million compared to last year [26] - Excluding legacy products, the core business grew over 8% in the quarter [26] Market Data and Key Metrics Changes - Remaining performance obligations were $618 million, up from $538 million year-over-year, with expectations of 39% conversion to revenue in the next 12 months [26] - The company maintains a strong cash balance of $90.6 million and has no interest-bearing debt [23][29] Company Strategy and Development Direction - The company is transitioning from SaaS applications to a PaaS architecture to enhance interoperability [21] - HealthStream is focused on utilizing AI to improve efficiency and create competitive differentiation across its product offerings [13][14] - The launch of the HealthStream Learning Experience (HLX) aims to provide personalized self-directed learning pathways for healthcare professionals [17][39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the sales pipeline and macroeconomic conditions, noting that four out of five anticipated deals were signed in the second quarter [8][52] - The company is well-positioned to help customers navigate new healthcare policies and improve workflow efficiency [51][52] - Management anticipates continued growth in healthcare employment over the next five years despite some challenges in specific segments [78][80] Other Important Information - The company holds 20 patents and has received over 40 Brandon Hall awards for excellence in learning and development [22] - A quarterly cash dividend of 3.1 cents per share was declared, to be paid on August 29 [33] Q&A Session Summary Question: Will gross margins bounce back in Q3? - Management expects gross margins to hover around 65% for the remainder of the year due to ongoing costs related to scaling and performance improvements [58][59] Question: What does the pipeline look like for the HLX platform? - The HLX is now a revenue-generating product, and the company is beginning to build a pipeline for it, expecting steady incremental growth [60][61][62] Question: Can you elaborate on Shift Wizard and legacy products? - The growth of Shift Wizard is now surpassing the decline of legacy products, and the offset from legacy products is expected to diminish in the coming quarters [68][70] Question: Was there any reputational damage from the scaling issues in CredentialStream? - While there was some frustration among customers, management believes the impact will be minimal and is focused on improving capacity and service [73][76] Question: How does the healthcare employment market impact HealthStream? - Overall healthcare employment is expected to grow, and while there may be challenges in specific segments, the demand for healthcare services remains strong [78][80] Question: How are price escalators being integrated into contracts? - Price escalators are being included in new and renewed contracts, and negotiations are generally reasonable [87][88] Question: Can you provide an update on NurseGrid's performance? - NurseGrid is generating over $50,000 a month in revenue through its new monetization strategies, and the user base continues to grow [90][93]

Core Insights - HealthStream achieved a record quarterly revenue of $74.4 million for fiscal Q2 2025, reflecting a 4.0% increase year-over-year and slightly exceeding analyst estimates [1][2] - The company reported diluted earnings per share of $0.18, surpassing the consensus forecast of $0.156, and raised its full-year net income guidance to $19.5–$22.4 million [1][11] Financial Performance - Revenue for fiscal Q2 2025 was $74.4 million, compared to $71.6 million in Q2 2024, marking a 4.0% year-over-year increase [2] - Diluted EPS increased by 28.6% from $0.14 in Q2 2024 to $0.18 in Q2 2025 [2] - Operating income rose to $5.9 million, a 33.4% increase from $4.4 million in the prior year [2] - Net income reached $5.4 million, up 29.3% from $4.2 million in Q2 2024 [2] - Adjusted EBITDA increased by 11.3% to $17.6 million from $15.8 million in the previous year [2] Business Strategy - HealthStream focuses on providing software and content solutions to healthcare providers for workforce management, including learning management systems and credentialing software [3] - The company is emphasizing growth in its SaaS subscription business, with 96% of revenue now generated from recurring subscriptions [5] - Investments in the hStream technology platform are a priority, promoting efficiency and integration across various healthcare workforce solutions [7] Market Position and Demand - The company is addressing industry-wide staff shortages and regulatory compliance needs, with 80% to 90% of revenue linked to theme-driven mandates [9] - Subscription revenue grew by $2.9 million, or 4.2%, from the prior year, while professional services revenue saw a slight decline [5] - Legacy product attrition is decreasing, with management noting a drag of approximately $1.7 million from older applications [8] Capital Management - HealthStream maintains a strong capital structure with no debt and $90.6 million in liquid reserves as of June 30, 2025 [10] - The company repurchased $18.1 million in shares and increased its quarterly dividend to $0.031 per share [10] Future Outlook - Management raised full-year revenue guidance to $297.5–$303.5 million and adjusted EBITDA expectations to $68.5–$72.5 million [11] - Future acquisitions remain a strategic focus, and investors should monitor the execution of investments in AI, analytics, and cloud software [12]

Core Viewpoint - HealthStream (HSTM) reported quarterly earnings of $0.18 per share, exceeding the Zacks Consensus Estimate of $0.16 per share, and showing an increase from $0.14 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was +12.50%, with the company having surpassed consensus EPS estimates three times over the last four quarters [2] - HealthStream's revenues for the quarter ended June 2025 were $74.4 million, which missed the Zacks Consensus Estimate by 0.49%, compared to $71.56 million in the same quarter last year [3] - The company has only topped consensus revenue estimates once in the last four quarters [3] Stock Performance - HealthStream shares have declined approximately 19.3% since the beginning of the year, while the S&P 500 has gained 6.1% [4] - The current Zacks Rank for HealthStream is 3 (Hold), indicating expected performance in line with the market in the near future [7] Future Outlook - The consensus EPS estimate for the upcoming quarter is $0.17 on revenues of $75.88 million, and for the current fiscal year, it is $0.65 on revenues of $300.55 million [8] - The outlook for the Internet - Services industry, to which HealthStream belongs, is currently in the bottom 30% of over 250 Zacks industries, which may impact stock performance [9]

[Earnings Release Overview](index=1&type=section&id=HEALTHSTREAM%20ANNOUNCES%20SECOND%20QUARTER%202025%20RESULTS) HealthStream announced its second quarter 2025 results, highlighting key financial achievements and capital allocation activities [Second Quarter 2025 Key Highlights](index=1&type=section&id=Second%20Quarter%202025%20Key%20Highlights) HealthStream announced record quarterly revenues and significant year-over-year increases across key financial metrics for Q2 2025, alongside capital allocation activities including share repurchases and a quarterly dividend declaration Second Quarter 2025 Financial Highlights (YoY) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Growth (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Revenues | $74.4 | $71.6 | 4.0% | | Operating Income | $5.9 | $4.4 | 33.4% | | Net Income | $5.4 | $4.2 | 29.3% | | Diluted EPS | $0.18 | $0.14 | N/A | | Adjusted EBITDA | $17.6 | $15.8 | 11.3% | - The Board of Directors authorized a share repurchase program on May 8, 2025, to repurchase up to **$25.0 million** of outstanding common stock, with **$18.1 million** repurchased during the second quarter[7](index=7&type=chunk) - A quarterly cash dividend of **$0.031 per share** was declared, payable on August 29, 2025[7](index=7&type=chunk) [CEO Commentary](index=2&type=section&id=Commenting%20on%20HealthStream%27s%20results) CEO Robert A. Frist, Jr. highlighted the strong financial performance in the second quarter of 2025, including record quarterly revenues, and expressed confidence in HealthStream's solutions to continue aiding healthcare organizations in achieving greater workflow efficiencies - CEO Robert A. Frist, Jr. noted record quarterly revenues of **$74.4 million**, up **four percent** year-over-year, and stated that HealthStream's solutions are well-positioned to help healthcare organizations achieve greater workflow efficiencies[15](index=15&type=chunk) [Financial Performance Analysis](index=1&type=section&id=Financial%20Results) This section provides a detailed analysis of HealthStream's financial performance for Q2 and year-to-date 2025, including revenue, profitability, and financial position [Second Quarter 2025 Results](index=1&type=section&id=Second%20Quarter%202025%20Compared%20to%20Second%20Quarter%202024) HealthStream reported strong Q2 2025 financial results with revenue growth primarily driven by subscription services, and significant improvements in operating income, net income, and EPS due to increased revenues, sublease income, and lower bad debt expense, partially offset by higher investment-related expenses [Revenue Performance](index=1&type=section&id=Revenues%20for%20the%20second%20quarter%20of%202025) Total revenues for Q2 2025 increased by 4.0% year-over-year to $74.4 million, setting a new company record, primarily driven by a 4.2% increase in subscription revenues Q2 2025 Revenue Breakdown (YoY) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | Growth (%) | | :-------------------- | :----------------- | :----------------- | :---------------- | :--------- | | Total Revenues | $74.4 | $71.6 | $2.8 | 4.0% | | Subscription Revenues | N/A | N/A | $2.9 | 4.2% | | Professional Services | N/A | N/A | ($0.1) | N/A | [Profitability and EPS](index=1&type=section&id=Operating%20income%20was%20%245.9%20million) Operating income surged by 33.4%, net income by 29.3%, and diluted EPS by 28.6% in Q2 2025, benefiting from revenue growth, sublease income, and reduced bad debt expense, despite increased investments in platform and SaaS applications Q2 2025 Profitability and EPS (YoY) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Growth (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Operating Income | $5.9 | $4.4 | 33.4% | | Net Income | $5.4 | $4.2 | 29.3% | | Diluted EPS | $0.18 | $0.14 | 28.6% | - The improvement in operating income was primarily attributable to increased revenues, sublease income, and lower bad debt expense, partially offset by higher expenses for investments in platform and SaaS applications[4](index=4&type=chunk) [Year-to-Date 2025 Results](index=2&type=section&id=Year-to-Date%202025%20Compared%20to%20Year-to-Date%202024) For the first six months of 2025, HealthStream reported modest year-over-year increases across key financial metrics, with revenues up 2.5%, operating income up 1.6%, and Adjusted EBITDA up 2.8%, driven by similar factors as the quarterly results Year-to-Date 2025 Financial Performance (YoY) | Metric | YTD 2025 (Millions) | YTD 2024 (Millions) | Growth (%) | | :---------------- | :------------------ | :------------------ | :--------- | | Revenues | $147.9 | $144.3 | 2.5% | | Operating Income | $10.3 | $10.1 | 1.6% | | Net Income | $9.7 | $9.4 | N/A | | Diluted EPS | $0.32 | $0.31 | N/A | | Adjusted EBITDA | $33.8 | $32.9 | 2.8% | - The increase in year-to-date operating income was primarily due to higher revenues, sublease income, and lower bad debt expense, partially offset by increased expenses for platform and SaaS application investments[9](index=9&type=chunk) [Financial Position and Capital Expenditures](index=2&type=section&id=At%20June%2030%2C%202025%2C%20the%20Company%20had%20cash) As of June 30, 2025, HealthStream maintained a strong liquidity position with $90.6 million in cash, cash equivalents, and marketable securities, and no outstanding indebtedness. Capital expenditures for the second quarter were $9.2 million - Cash, cash equivalents, and marketable securities totaled **$90.6 million** as of June 30, 2025[8](index=8&type=chunk) - The Company does not have any outstanding indebtedness from borrowed money[8](index=8&type=chunk) - Capital expenditures incurred during the second quarter of 2025 were **$9.2 million**[8](index=8&type=chunk) [Capital Allocation and Corporate Actions](index=2&type=section&id=Other%20Business%20Updates) This section details HealthStream's capital allocation strategies, including its share repurchase program and quarterly cash dividend declarations [Share Repurchase Program](index=2&type=section&id=On%20May%208%2C%202025%2C%20the%20Company%20announced%20a%20share%20repurchase%20program) HealthStream's Board authorized a $25.0 million share repurchase program, under which $18.1 million was repurchased in Q2 2025, and the program was completed in July with an additional $6.9 million in repurchases - The Board of Directors authorized a share repurchase program on May 8, 2025, to repurchase up to **$25.0 million** of outstanding common stock[10](index=10&type=chunk) - **$18.1 million** in shares were repurchased during the second quarter of 2025 pursuant to this authorization[10](index=10&type=chunk) - The program was completed in July by repurchasing shares valued at **$6.9 million**, exhausting the maximum dollar amount[10](index=10&type=chunk) [Quarterly Cash Dividend](index=2&type=section&id=On%20August%204%2C%202025%2C%20the%20Board%20of%20Directors%20approved%20a%20quarterly%20cash%20dividend) The Board of Directors declared a quarterly cash dividend of $0.031 per share, payable on August 29, 2025, to shareholders of record on August 18, 2025 - A quarterly cash dividend of **$0.031 per share** was approved by the Board of Directors on August 4, 2025[11](index=11&type=chunk) - The dividend is payable on August 29, 2025, to holders of record on August 18, 2025[11](index=11&type=chunk) [Financial Outlook for 2025](index=2&type=section&id=Financial%20Outlook%20for%202025) HealthStream updated its full-year 2025 guidance, raising the expected net income range while maintaining revenue, Adjusted EBITDA, and capital expenditure projections. The guidance excludes impacts from potential acquisitions/dispositions or changes in non-marketable equity investments Full Year 2025 Guidance | Metric | Low (Millions) | High (Millions) | Previous Net Income Guidance (Millions) | | :-------------------- | :------------- | :-------------- | :-------------------------------------- | | Revenue | $297.5 | $303.5 | N/A | | Net Income | $19.5 | $22.4 | $18.6 to $21.0 | | Adjusted EBITDA | $68.5 | $72.5 | N/A | | Capital Expenditures | $31.0 | $34.0 | N/A | - The updated guidance for 2025 reflects the Company's assumptions regarding new sales and renewals[14](index=14&type=chunk) - This consolidated guidance does not include the impact of any acquisitions or dispositions, gains or losses from changes in fair value of non-marketable equity investments, or impairment of long-lived assets[14](index=14&type=chunk) [Conference Call Information](index=3&type=section&id=A%20conference%20call%20with%20Robert%20A.%20Frist%2C%20Jr.) HealthStream will host a conference call on Tuesday, August 5, 2025, at 9:00 a.m. (ET) to discuss the results, with webcast and telephone access details provided. A replay will be archived on the company's website - A conference call will be held on Tuesday, August 5, 2025, at **9:00 a.m. (ET)**[16](index=16&type=chunk) - Participants can access the live conference call via webcast or by registering for telephone access[16](index=16&type=chunk) - A replay of the conference call and webcast will be archived on the Company's website in the Investor Relations section[16](index=16&type=chunk) [Non-GAAP Financial Measures](index=3&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) This section defines HealthStream's non-GAAP financial measures, primarily Adjusted EBITDA, and provides reconciliations to comparable GAAP measures for transparency [Definition and Rationale](index=3&type=section&id=This%20press%20release%20presents%20adjusted%20EBITDA) HealthStream utilizes Adjusted EBITDA, a non-GAAP financial measure, to evaluate its operating performance by adjusting net income for certain non-cash and non-operating items, believing it provides a useful and comparable view of the underlying business - Adjusted EBITDA is defined as net income before interest, income taxes, stock-based compensation, depreciation and amortization, and changes in fair value of non-marketable equity investments[17](index=17&type=chunk) - Management believes Adjusted EBITDA is useful for evaluating ongoing operating performance and comparing performance between periods, as it adjusts for certain GAAP accounting, non-cash, and/or non-operating items[17](index=17&type=chunk) - Adjusted EBITDA is a non-GAAP measure and should not be considered a substitute for, or superior to, GAAP measures, and may not be comparable to similarly titled measures of other companies[18](index=18&type=chunk)[19](index=19&type=chunk) [Reconciliation of Adjusted EBITDA](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures%281%29) HealthStream provides detailed reconciliations of Adjusted EBITDA to net income for both the reported quarterly and year-to-date periods, as well as for the full-year 2025 financial outlook, to ensure transparency with GAAP measures [Quarterly and Year-to-Date Reconciliation](index=7&type=section&id=Operating%20Results%20Summary) This section presents the reconciliation of GAAP net income to Adjusted EBITDA for the three and six months ended June 30, 2025, and 2024, detailing the specific adjustments made Adjusted EBITDA Reconciliation (Q2 & YTD) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | GAAP net income | $5,389 | $4,168 | $9,721 | $9,394 | | Interest income | (958) | (944) | (1,889) | (1,848) | | Interest expense | 25 | 25 | 50 | 49 | | Income tax provision | 1,478 | 1,132 | 2,393 | 2,448 | | Stock-based compensation | 836 | 1,094 | 1,940 | 2,154 | | Depreciation & amortization | 10,867 | 10,370 | 21,621 | 20,706 | | **Adjusted EBITDA** | **$17,637** | **$15,845** | **$33,836** | **$32,903** | [2025 Outlook Reconciliation](index=8&type=section&id=Financial%20Outlook%20for%202025) This section provides the reconciliation of projected net income to projected Adjusted EBITDA for the full year 2025 guidance, detailing the anticipated adjustments 2025 Financial Outlook Reconciliation to Adjusted EBITDA | Metric | Low (Thousands) | High (Thousands) | | :-------------------------- | :-------------- | :--------------- | | Net income | $19,500 | $22,400 | | Interest income | (3,300) | (3,500) | | Interest expense | 100 | 100 | | Income tax provision | 5,200 | 6,000 | | Stock-based compensation | 4,000 | 4,300 | | Depreciation & amortization | 43,000 | 43,200 | | **Adjusted EBITDA** | **$68,500** | **$72,500** | [About HealthStream](index=3&type=section&id=About%20HealthStream) HealthStream is a leading healthcare technology platform company that provides workforce solutions, empowering healthcare professionals and operating the industry's largest ecosystem of platform-delivered solutions for patient care excellence - HealthStream (Nasdaq: HSTM) is a leading healthcare technology platform company for workforce solutions[1](index=1&type=chunk)[20](index=20&type=chunk) - It is the healthcare industry's largest ecosystem of platform-delivered workforce solutions[20](index=20&type=chunk) - The company's mission is to empower healthcare professionals to deliver excellence in patient care[20](index=20&type=chunk) [Condensed Consolidated Financial Statements](index=4&type=section&id=HEALTHSTREAM%2C%20INC.%20Condensed%20Consolidated%20Statements%20of%20Income) This section presents HealthStream's unaudited condensed consolidated statements of income, balance sheets, and cash flows for the reported periods [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section presents the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2025, and 2024, detailing revenues, operating costs and expenses, operating income, and net income Condensed Consolidated Statements of Income (Selected Data, in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Revenues, net | $74,396 | $71,556 | $147,881 | $144,316 | | Total operating costs and expenses | $68,510 | $67,145 | $137,617 | $134,215 | | Operating income | $5,886 | $4,411 | $10,264 | $10,101 | | Net income | $5,389 | $4,168 | $9,721 | $9,394 | | Diluted Net income per share | $0.18 | $0.14 | $0.32 | $0.31 | | Dividends declared per share | $0.031 | $0.028 | $0.062 | $0.056 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, outlining the company's assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (Selected Data, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total assets | $500,148 | $510,766 | | Total liabilities | $149,581 | $151,411 | | Total shareholders' equity | $350,567 | $359,355 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2025, and 2024, detailing cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Selected Data, in thousands) | Metric | YTD 2025 | YTD 2024 | | :------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $32,097 | $27,389 | | Net cash used in investing activities | ($18,399) | ($19,031) | | Net cash used in financing activities | ($21,086) | ($2,561) | | Net (decrease) increase in cash and cash equivalents | ($7,367) | $5,798 | | Cash and cash equivalents at end of period | $52,102 | $46,131 | [Forward-Looking Statements](index=9&type=section&id=This%20press%20release%20includes%20certain%20forward-looking%20statements) This section contains a standard disclaimer regarding forward-looking statements, cautioning that actual results may differ materially due to various known and unknown risks and uncertainties, and the company undertakes no obligation to update these statements - The press release includes forward-looking statements regarding expectations for financial performance and dividend policy for 2025, which involve risks and uncertainties[31](index=31&type=chunk) - Actual results, performance, or achievements may be materially different from those expressed or implied by forward-looking statements due to factors such as negative economic conditions, changes in U.S. policy, adverse healthcare industry developments, and geopolitical instability[31](index=31&type=chunk) - Readers should not place undue reliance on forward-looking statements, and the Company undertakes no obligation to update or revise them[31](index=31&type=chunk)

Company Overview - HealthStream is a market leader in workforce solutions for U S healthcare organizations, focusing on learning, credentialing, and scheduling [18] - The company serves the highly regulated healthcare industry, which faces challenges in improving patient safety and workforce retention [18] - HealthStream's vision is to improve the quality of healthcare by developing the people who deliver care, with 96% of employees reporting that the vision inspires their performance [6, 9] Financial Performance - In Q1 2025, HealthStream's revenues reached $73 5 million, with an adjusted EBITDA of $16 2 million [18] - For FY 2024, the company reported revenues of $291 6 million and an adjusted EBITDA of $66 8 million [18] - The company has a strong balance sheet with $113 3 million in cash as of Q1 2025 and no debt [18] Market and Growth Strategies - HealthStream is expanding its total addressable market by targeting 1,000+ nursing schools and 1,000,000+ nursing students [33] - The company's growth strategies include expanding its customer network, increasing the value of each account through cross-selling, and growing new revenue streams via partners and PaaS capabilities [38] - The total addressable market (TAM) is 12,600,000 individuals focused on healthcare delivery [29]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) This section covers HealthStream's Q1 2025 unaudited financial statements, management's analysis, market risks, and internal controls [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for HealthStream, Inc., including balance sheets, income statements, comprehensive income statements, statements of shareholders' equity, and cash flow statements, along with their accompanying notes. These statements provide a snapshot of the company's financial position and performance for the three months ended March 31, 2025, and comparative periods [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) This section presents the company's financial position, assets, liabilities, and equity, for Q1 2025 and year-end 2024 | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $77,289 | $59,469 | | Marketable securities | $36,030 | $37,748 | | Total current assets | $169,718 | $153,122 | | Total assets | $524,036 | $510,766 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Deferred revenue | $102,009 | $84,227 | | Total current liabilities | $125,861 | $115,693 | | Total shareholders' equity | $362,808 | $359,355 | | Total liabilities and shareholders' equity | $524,036 | $510,766 | - Total assets increased by **$13.27 million** from December 31, 2024, to March 31, 2025, primarily driven by an increase in cash and cash equivalents[9](index=9&type=chunk) - Deferred revenue (current) saw a significant increase of **$17.78 million**, indicating growth in future service obligations[9](index=9&type=chunk) [Condensed Consolidated Statements of Income (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) This section details the company's Q1 2025 revenues, operating income, and net income, compared to the prior year | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenues, net | $73,485 | $72,760 | | Total operating costs and expenses | $69,107 | $67,070 | | Operating income | $4,378 | $5,690 | | Income before income tax provision | $5,248 | $6,543 | | Income tax provision | $916 | $1,316 | | Net income | $4,332 | $5,227 | | Net income per share (Basic) | $0.14 | $0.17 | | Net income per share (Diluted) | $0.14 | $0.17 | | Dividends declared per share | $0.031 | $0.028 | - Net revenues increased by **1.0%** year-over-year, while operating income decreased by **23.1%** and net income decreased by **17.1%**[10](index=10&type=chunk) - Diluted EPS decreased from **$0.17 to $0.14**, a **17.6%** decline year-over-year[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) This section details comprehensive income components, including net income and other items, for Q1 2025 and the prior-year period | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $4,332 | $5,227 | | Foreign currency translation adjustments | $49 | $(476) | | Unrealized loss on marketable securities | $(19) | $(5) | | Total other comprehensive income (loss) | $30 | $(481) | | Comprehensive income | $4,362 | $4,746 | - Comprehensive income decreased by **8.1%** year-over-year, primarily due to a decrease in net income, despite a positive shift in foreign currency translation adjustments[12](index=12&type=chunk) [Condensed Consolidated Statement of Shareholders' Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Shareholders'%20Equity%20(Unaudited)) This section outlines changes in shareholders' equity, including common stock, retained earnings, and comprehensive income, for Q1 2025 | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Common Stock Amount | $252,466 | $252,432 | | Retained Earnings | $112,361 | $108,972 | | Accumulated Other Comprehensive (Loss)/Income | $(2,019) | $(2,049) | | Total Shareholders' Equity | $362,808 | $359,355 | - Total shareholders' equity increased by **$3.45 million** from December 31, 2024, to March 31, 2025, driven by net income and stock-based compensation, partially offset by dividends[14](index=14&type=chunk) - Dividends declared on common stock were **$0.031 per share** in Q1 2025, up from **$0.028 per share** in Q1 2024[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section presents cash flows from operating, investing, and financing activities for Q1 2025, compared to the prior-year period | Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $27,074 | $20,938 | | Net cash used in investing activities | $(7,248) | $(7,120) | | Net cash used in financing activities | $(2,013) | $(1,704) | | Net increase in cash and cash equivalents | $17,820 | $12,074 | | Cash and cash equivalents at end of period | $77,289 | $52,407 | - Net cash provided by operating activities increased by **$6.14 million (29.3%)** year-over-year, primarily due to strong cash receipts from customers[16](index=16&type=chunk)[82](index=82&type=chunk) - Net cash used in investing activities slightly increased by **$0.13 million**, with higher payments for capitalized software development and property and equipment[16](index=16&type=chunk)[83](index=83&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures for the financial statements, covering accounting policies and key financial items [1. OVERVIEW AND BASIS OF PRESENTATION](index=8&type=section&id=1.%20OVERVIEW%20AND%20BASIS%20OF%20PRESENTATION) HealthStream, Inc. provides SaaS-based applications for healthcare organizations, focusing on learning, clinical development, credentialing, and scheduling needs, utilizing its hStream technology platform. The financial statements are unaudited, prepared under US GAAP for interim reporting, and reflect a consolidated enterprise approach managed by the CEO - HealthStream's core business is providing **Software-as-a-Service (SaaS)** applications to healthcare organizations to improve business and clinical outcomes[17](index=17&type=chunk)[55](index=55&type=chunk) - The company operates under a **'One HealthStream' approach**, centered on its proprietary **hStream technology platform** to enhance interoperability and customer value[18](index=18&type=chunk)[56](index=56&type=chunk) - The CEO, as the chief operating decision maker, uses consolidated net income and functional expenses to manage operations and assess performance[21](index=21&type=chunk) [2. RECENT ACCOUNTING PRONOUNCEMENTS](index=9&type=section&id=2.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) HealthStream adopted ASU 2023-07 (Segment Reporting) effective January 1, 2024, retrospectively. The company is evaluating ASU 2023-09 (Income Taxes) for adoption in 2025 and ASU 2024-03 (Expense Disaggregation Disclosures) for adoption in 2026/2027 - **ASU 2023-07, Segment Reporting**, was adopted effective January 1, 2024, using a retrospective method, requiring new disclosures for reportable segment expenses[23](index=23&type=chunk) - **ASU 2023-09, Income Taxes**, requiring disaggregated tax rate reconciliation and income taxes paid by jurisdiction, is effective for fiscal years beginning after December 15, 2024, and HealthStream will adopt it for the annual period ending December 31, 2025[24](index=24&type=chunk) - **ASU 2024-03, Expense Disaggregation Disclosures**, is effective for fiscal years beginning after December 15, 2026, and the company is currently evaluating its impact[25](index=25&type=chunk) [3. REVENUE RECOGNITION](index=9&type=section&id=3.%20REVENUE%20RECOGNITION) HealthStream recognizes revenue based on a five-step model when control of goods or services is transferred. Subscription services remain the dominant revenue source, accounting for 96% of total revenues. The company expects to recognize approximately $613 million from remaining performance obligations, with 40% within the next 12 months | Revenue Source | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Percentage Change | | :----------------- | :------------------------------------------ | :------------------------------------------ | :---------------- | | Subscription services | $70,789 | $70,205 | 1% | | Professional services | $2,696 | $2,555 | 6% | | Total revenues, net | $73,485 | $72,760 | 1% | - Subscription services constituted **96%** of total revenues for both periods[67](index=67&type=chunk) - Approximately **$613 million** of revenue is expected from remaining performance obligations, with **40%** recognized over the next 12 months[28](index=28&type=chunk) [4. INCOME TAXES](index=9&type=section&id=4.%20INCOME%20TAXES) The company accounts for income taxes using the asset and liability method. The effective tax rate for the three months ended March 31, 2025, was 17%, a decrease from 20% in the prior year, reflecting statutory rates, state and foreign taxes, permanent differences, and discrete tax items - The effective tax rate for the three months ended March 31, 2025, was **17%**, down from **20%** in the same period of 2024[31](index=31&type=chunk)[74](index=74&type=chunk) - The income tax provision decreased to **$0.9 million** in Q1 2025 from **$1.3 million** in Q1 2024[10](index=10&type=chunk)[74](index=74&type=chunk) [5. SHAREHOLDERS' EQUITY](index=11&type=section&id=5.%20SHAREHOLDERS'%20EQUITY) HealthStream declared a quarterly cash dividend of $0.031 per share for Q1 2025 and subsequently for Q2 2025. The company also detailed stock option and restricted share unit (RSU) activity, with total unrecognized compensation expense for RSUs at $7.9 million as of March 31, 2025 - A quarterly cash dividend of **$0.031 per share** was declared and paid on March 21, 2025, and another for May 30, 2025[32](index=32&type=chunk)[87](index=87&type=chunk) Restricted Share Unit Activity (Three Months Ended March 31, 2025) | Metric | Number of RSUs (in thousands) | Weighted Average Grant Date Fair Value | | :-------------------------- | :---------------------------- | :----------------------------------- | | Outstanding at beginning of period | 571 | $24.54 | | Granted | 87 | $32.55 | | Vested | (127) | $22.93 | | Forfeited | (53) | $25.35 | | Outstanding at end of period | 478 | $26.35 | - Total unrecognized compensation expense related to non-vested RSUs was **$7.9 million** as of March 31, 2025, with a weighted average expense recognition period of **2.4 years**[36](index=36&type=chunk) [6. EARNINGS PER SHARE](index=12&type=section&id=6.%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per share are calculated based on net income and weighted-average shares outstanding. For Q1 2025, both basic and diluted EPS were $0.14, a decrease from $0.17 in Q1 2024 | Metric | Three Months Ended March 31, 2025 (in thousands, except per share data) | Three Months Ended March 31, 2024 (in thousands, except per share data) | | :----------------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------- | | Net income | $4,332 | $5,227 | | Weighted-average shares outstanding (Basic) | 30,444 | 30,313 | | Weighted-average diluted shares | 30,587 | 30,418 | | Net income per share (Basic) | $0.14 | $0.17 | | Net income per share (Diluted) | $0.14 | $0.17 | - Approximately **105,000** common equivalent shares were excluded from diluted EPS calculations in Q1 2025 due to their anti-dilutive effect, compared to **176,000** in Q1 2024[38](index=38&type=chunk) [7. MARKETABLE SECURITIES](index=13&type=section&id=7.%20MARKETABLE%20SECURITIES) The company's marketable securities, primarily U.S. treasury securities, are classified as available-for-sale and are held with the intent to recover their amortized cost basis. Their fair value decreased slightly from $37.7 million at December 31, 2024, to $36.0 million at March 31, 2025 | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Fair Value of U.S. treasury securities | $36,030 | $37,748 | | Adjusted Cost | $36,028 | $37,726 | | Unrealized Gains | $5 | $24 | | Unrealized Losses | $(3) | $(2) | - All marketable securities are classified as current assets, maturing within one year[40](index=40&type=chunk) [8. DEBT](index=14&type=section&id=8.%20DEBT) HealthStream maintains an unsecured Revolving Credit Facility of up to $50.0 million, maturing on October 6, 2026. The facility is for general working capital, acquisitions, and stock repurchases. As of March 31, 2025, there were no outstanding balances, and the company was in compliance with all covenants - The company has a **$50.0 million Revolving Credit Facility**, with an accordion feature allowing an increase of up to **$25.0 million**, maturing on October 6, 2026[42](index=42&type=chunk) - The Revolving Credit Facility is unsecured and intended for general working capital, permitted acquisitions, and stock repurchase/redemption transactions[43](index=43&type=chunk)[46](index=46&type=chunk) - As of March 31, 2025, there were **no outstanding balances** on the Revolving Credit Facility, and the company was in compliance with all financial covenants[48](index=48&type=chunk)[92](index=92&type=chunk) [9. SUBSEQUENT EVENT](index=14&type=section&id=9.%20SUBSEQUENT%20EVENT) On May 8, 2025, HealthStream's Board of Directors approved a new share repurchase program, authorizing the repurchase of up to $25 million of common stock. This program will terminate by May 31, 2026, or when the maximum amount is expended - A new share repurchase program was approved on May 8, 2025, authorizing the repurchase of up to **$25 million** of common stock[49](index=49&type=chunk)[90](index=90&type=chunk)[113](index=113&type=chunk) - Repurchases can be made in the open market, including under a **Rule 10b5-1 plan**, and are subject to market conditions and applicable securities laws[49](index=49&type=chunk)[51](index=51&type=chunk)[90](index=90&type=chunk)[113](index=113&type=chunk) - The program will terminate on the earlier of **May 31, 2026**, or when the maximum dollar amount has been expended[51](index=51&type=chunk)[90](index=90&type=chunk)[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on HealthStream's financial condition and results of operations for the three months ended March 31, 2025, compared to the prior year. It includes a business overview, recent developments, key financial metrics, and a detailed comparison of revenue and expense line items, along with a reconciliation of non-GAAP financial measures and an analysis of liquidity and capital resources [Special Cautionary Notice Regarding Forward‑Looking Statements](index=16&type=section&id=Special%20Cautionary%20Notice%20Regarding%20Forward%EF%AC%82Looking%20Statements) This section advises readers that the report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially. It emphasizes that undue reliance should not be placed on these statements and refers to risk factors in the 2024 Form 10-K - The report contains **forward-looking statements**, which are predictive in nature and involve known and unknown risks and uncertainties[52](index=52&type=chunk)[53](index=53&type=chunk) - Readers are cautioned not to place undue reliance on these statements and should consider risk factors outlined in the **2024 Form 10-K**[53](index=53&type=chunk)[54](index=54&type=chunk) [Business Overview](index=16&type=section&id=Business%20Overview) HealthStream provides SaaS-based applications for healthcare organizations, focusing on learning, clinical development, credentialing, and scheduling, all managed under a 'One HealthStream' single platform strategy. Key financial metrics for Q1 2025 showed a 1.0% revenue increase but declines in operating income, net income, and adjusted EBITDA. The company also subleased a portion of its office space to optimize workforce performance - HealthStream offers **SaaS applications** to healthcare organizations, aiming to improve business and clinical outcomes by supporting patient care providers[55](index=55&type=chunk) - The company's strategy is a **'One HealthStream' approach**, centered on its **hStream technology platform** to integrate applications and enhance customer value[56](index=56&type=chunk) Q1 2025 Significant Financial Metrics | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change (%) | | :------------------ | :-------------------- | :-------------------- | :--------- | | Revenues | $73.5 | $72.8 | 1.0% | | Operating income | $4.4 | $5.7 | -23.1% | | Net income | $4.3 | $5.2 | -17.1% | | EPS (diluted) | $0.14 | $0.17 | -17.6% | | Adjusted EBITDA | $16.2 | $17.1 | -5.0% | - HealthStream entered an agreement to sublease a portion of its Nashville office space, expecting to record approximately **$2.3 million** in sublease income in 2025 and **$3.2 million** annually thereafter[58](index=58&type=chunk)[60](index=60&type=chunk) [Recent Developments](index=18&type=section&id=Recent%20Developments) Macroeconomic conditions, including inflation, high interest rates, and geopolitical tensions, continue to challenge the healthcare industry and HealthStream's customers. These conditions, coupled with potential government funding cuts and policy changes, are causing delays in purchasing and non-renewals of elective products, adversely impacting the company's business and results of operations - Challenging macroeconomic conditions, including **inflationary pressures**, **elevated interest rates**, and **geopolitical tensions**, are impacting the healthcare industry[61](index=61&type=chunk)[62](index=62&type=chunk) - Government cuts, reimbursement rate reductions, and policy uncertainties in healthcare are causing **delays in purchasing** and **non-renewals of elective products and services** among customers[61](index=61&type=chunk)[62](index=62&type=chunk) - These conditions have adversely affected, and may continue to impact, HealthStream's business and results of operations[62](index=62&type=chunk) [Key Financial Metrics](index=18&type=section&id=Key%20Financial%20Metrics) Management uses several key financial metrics to manage the business, including net revenues, net income, adjusted EBITDA, and capital expenditures. Revenues increased slightly to $73.5 million, while net income and adjusted EBITDA decreased. Capital expenditures rose to $8.8 million, reflecting investment in product development Key Financial Metrics (Three Months Ended March 31) | Metric | 2025 (in millions) | 2024 (in millions) | Change (%) | | :-------------------- | :----------------- | :----------------- | :--------- | | Revenues, net | $73.5 | $72.8 | 1.0% | | Net Income | $4.3 | $5.2 | -17.3% | | Adjusted EBITDA | $16.2 | $17.1 | -5.3% | | Capital Expenditures | $8.8 | $7.8 | 12.8% | - **Adjusted EBITDA** is a non-GAAP measure used by management to evaluate operating performance and for incentive bonuses, reflecting net income adjusted for certain GAAP accounting, non-cash, and non-operating items[65](index=65&type=chunk)[78](index=78&type=chunk) - Capital expenditures increased, indicating continued investment in software and content development[65](index=65&type=chunk) [Critical Accounting Policies and Estimates](index=18&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no changes in HealthStream's critical accounting policies and estimates from those reported in its 2024 Form 10-K - **No changes** have occurred in the company's critical accounting policies and estimates since the **2024 Form 10-K**[64](index=64&type=chunk) [Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024](index=19&type=section&id=Three%20Months%20Ended%20March%2031%2C%202025%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202024) This section details the year-over-year changes in HealthStream's revenues and operating expenses for the first quarter. While total revenues saw a modest 1% increase, driven by subscription and professional services growth, this was partially offset by reductions from legacy applications, perpetual license sales, and customer bankruptcies. Operating costs generally increased, leading to a decline in operating income and net income [Revenues, net](index=19&type=section&id=Revenues%2C%20net) Total revenues increased by 1% year-over-year, driven by subscription and professional services, despite legacy application impacts | Revenue Source | Q1 2025 (in thousands) | Q1 2024 (in thousands) | Change (%) | | :----------------- | :--------------------- | :--------------------- | :--------- | | Subscription services | $70,789 | $70,205 | 1% | | Professional services | $2,696 | $2,555 | 6% | | Total revenues, net | $73,485 | $72,760 | 1% | - Total revenues increased by **$0.7 million (1%)** year-over-year[66](index=66&type=chunk) - Revenue growth was negatively impacted by a **$1.7 million** reduction from legacy applications, **$0.9 million** from perpetual license sales, and **$0.6 million** from customer bankruptcies, offset by **$3.9 million** growth across the solution portfolio[66](index=66&type=chunk) [Cost of Revenues (excluding Depreciation and Amortization)](index=19&type=section&id=Cost%20of%20Revenues%20(excluding%20Depreciation%20and%20Amortization)) Cost of revenues increased 4% to $25.5 million, driven by software, cloud hosting, and labor, reaching 35% of revenues - Cost of revenues increased by **$0.9 million (4%)** to **$25.5 million** in Q1 2025, representing **35%** of revenues, up from **34%** in Q1 2024[67](index=67&type=chunk) - The increase was primarily due to higher costs for software and cloud hosting, and increased labor costs, partially offset by a decrease in royalties[67](index=67&type=chunk) [Product Development](index=19&type=section&id=Product%20Development) Product development expenses remained flat at $12.0 million, decreasing as a percentage of revenues from 17% to 16% - Product development expenses remained **flat at $12.0 million** for both Q1 2025 and Q1 2024[68](index=68&type=chunk) - As a percentage of revenues, product development decreased from **17%** in Q1 2024 to **16%** in Q1 2025[68](index=68&type=chunk) [Sales and Marketing](index=19&type=section&id=Sales%20and%20Marketing) Sales and marketing expenses increased 3% to $12.1 million, driven by labor and commissions, rising to 17% of revenues - Sales and marketing expenses increased by **$0.3 million (3%)** to **$12.1 million** in Q1 2025, primarily due to higher labor costs and sales commissions[69](index=69&type=chunk) - As a percentage of revenues, sales and marketing increased from **16%** in Q1 2024 to **17%** in Q1 2025[69](index=69&type=chunk) [General and Administrative](index=19&type=section&id=General%20and%20Administrative) General and administrative expenses increased 4% to $8.7 million, due to labor and software, reaching 12% of revenues - General and administrative expenses increased by **$0.4 million (4%)** to **$8.7 million** in Q1 2025, mainly due to higher labor and software expenses, partially offset by lower facilities costs[70](index=70&type=chunk) - As a percentage of revenues, general and administrative expenses increased from **11%** in Q1 2024 to **12%** in Q1 2025[70](index=70&type=chunk) [Depreciation and Amortization](index=19&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization expense increased 4% to $10.8 million, mainly from capitalized software amortization - Depreciation and amortization expense increased by **$0.5 million (4%)** to **$10.8 million** in Q1 2025, primarily due to increased amortization associated with capitalized software[71](index=71&type=chunk) [Interest Income](index=19&type=section&id=Interest%20Income) Interest income remained consistent at $0.9 million for both Q1 2025 and Q1 2024 - Interest income remained **consistent at $0.9 million** for both Q1 2025 and Q1 2024[72](index=72&type=chunk) [Other Expense, Net](index=19&type=section&id=Other%20Expense%2C%20Net) Other expense, net, remained consistent at $0.1 million for both Q1 2025 and Q1 2024 - Other expense, net, remained **consistent at $0.1 million** for both Q1 2025 and Q1 2024[73](index=73&type=chunk) [Income Tax Provision](index=19&type=section&id=Income%20Tax%20Provision) Income tax provision decreased to $0.9 million in Q1 2025, with the effective tax rate falling from 20% to 17% - Income tax provision decreased to **$0.9 million** in Q1 2025 from **$1.3 million** in Q1 2024[74](index=74&type=chunk) - The effective tax rate decreased to **17%** in Q1 2025 from **20%** in Q1 2024[74](index=74&type=chunk) [Net Income](index=19&type=section&id=Net%20Income) Net income decreased 17.3% to $4.3 million, resulting in diluted EPS of $0.14, down from $0.17 prior year | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change (%) | | :------------------ | :-------------------- | :-------------------- | :--------- | | Net income | $4.3 | $5.2 | -17.3% | | EPS (diluted) | $0.14 | $0.17 | -17.6% | | Adjusted EBITDA | $16.2 | $17.1 | -5.3% | [Reconciliation of Non-GAAP Financial Measures](index=21&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) This section provides a reconciliation of adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable GAAP measure, net income. Adjusted EBITDA is used by management to evaluate operating performance and for incentive compensation, as it adjusts for certain non-cash and non-operating items - **Adjusted EBITDA** is a non-GAAP financial measure used by management to analyze financial results and ongoing operational performance[77](index=77&type=chunk)[78](index=78&type=chunk) - It is calculated as net income before interest, income taxes, stock-based compensation, depreciation and amortization, and changes in fair value of non-marketable equity investments[78](index=78&type=chunk) Adjusted EBITDA Reconciliation (Three Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | GAAP net income | $4,332 | $5,227 | | Interest income | $(931) | $(904) | | Interest expense | $25 | $24 | | Income tax provision | $916 | $1,316 | | Stock-based compensation expense | $1,104 | $1,060 | | Depreciation and amortization | $10,755 | $10,336 | | **Adjusted EBITDA** | **$16,201** | **$17,059** | [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) HealthStream's liquidity improved in Q1 2025, with net cash from operating activities increasing to $27.1 million, driven by strong cash receipts and reduced Days Sales Outstanding (DSO). The company maintains $77.3 million in cash and equivalents and $36.0 million in marketable securities, along with an unused $50.0 million revolving credit facility. A new $25 million share repurchase program was approved, and the company believes it has sufficient liquidity for future needs - Net cash provided by operating activities increased by **$6.2 million** to **$27.1 million** in Q1 2025, primarily due to strong cash receipts and a reduction in DSO from **46 to 37 days**[82](index=82&type=chunk) - The company's primary liquidity sources include **$77.3 million** in cash and cash equivalents and **$36.0 million** in marketable securities as of March 31, 2025[85](index=85&type=chunk) - A **$50.0 million revolving credit facility** remains available with no outstanding borrowings, expiring **October 6, 2026**[86](index=86&type=chunk) - A new share repurchase program for up to **$25 million** was approved on May 8, 2025, to terminate by **May 31, 2026**[90](index=90&type=chunk) - Management believes existing cash, marketable securities, operating cash flow, and the credit facility are sufficient to meet anticipated working capital, product development, dividend payments, and capital expenditures for at least the next **12 months**[91](index=91&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) HealthStream is exposed to market risks from changes in interest rates, foreign currency fluctuations, and investment risks. While currently having no outstanding debt, future borrowings under its revolving credit facility would expose it to interest rate volatility. Foreign currency risk exists due to international operations, and investment risk stems from strategic investments in privately held companies, primarily in healthcare technology [Interest Rate Risk](index=23&type=section&id=Interest%20Rate%20Risk) The company faces interest rate risk from future borrowings; a 10% rate decrease would impact interest income by $0.4 million - The company had **no outstanding debt** as of March 31, 2025, but is exposed to interest rate risk from future borrowings under its revolving credit facility[94](index=94&type=chunk) - A hypothetical **10% decrease** in interest rates for invested balances (**$113.3 million** at March 31, 2025) would decrease annualized interest income by **$0.4 million**[94](index=94&type=chunk) [Foreign Currency Risk](index=23&type=section&id=Foreign%20Currency%20Risk) HealthStream faces foreign currency risk from operations in Canadian, New Zealand, and Australian dollars, without hedging contracts - HealthStream faces foreign currency risks from revenues and operating expenses denominated in **Canadian, New Zealand, and Australian dollars**[95](index=95&type=chunk) - The company has **not entered into foreign currency hedging contracts** but may do so in the future as international operations grow[96](index=96&type=chunk) [Investment Risk](index=23&type=section&id=Investment%20Risk) Investment policy focuses on highly rated securities, but strategic investments in private healthcare tech carry market and impairment risks - The company's investment policy focuses on **highly rated securities** to minimize principal loss, with limits on credit exposure and portfolio maturity[97](index=97&type=chunk) - Strategic investments in privately held, early-stage healthcare technology companies expose the company to volatility from market price changes, observable price changes, and impairments[98](index=98&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) HealthStream's CEO and principal financial officer evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2025, concluding they were effective. There were no material changes in internal control over financial reporting during the first quarter of 2025 [Evaluation of Controls and Procedures](index=23&type=section&id=Evaluation%20of%20Controls%20and%20Procedures) The CEO and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2025 - The CEO and principal financial officer concluded that HealthStream's disclosure controls and procedures were **effective** as of March 31, 2025[100](index=100&type=chunk) [Changes in Internal Control over Financial Reporting](index=23&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the first quarter of 2025 - There were **no material changes** in HealthStream's internal control over financial reporting during the first quarter of 2025[101](index=101&type=chunk) [PART II. OTHER INFORMATION](index=24&type=section&id=Part%20II.%20Other%20Information) This section covers legal proceedings, risk factors, equity sales, other disclosures, and exhibits for the period [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) HealthStream reported no legal proceedings for the period - There are **no legal proceedings** to report[102](index=102&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, highlighting that macroeconomic conditions and uncertainties in the U.S. healthcare industry continue to adversely impact HealthStream's business. These include persistent inflation, high interest rates, potential government funding cuts, and policy changes, leading to reduced demand for elective solutions, increased pricing sensitivity, and delayed investment decisions among customers [Risks Related to Our Business Model](index=24&type=section&id=Risks%20Related%20to%20Our%20Business%20Model) Macroeconomic conditions, including inflation, high interest rates, and potential government cuts, negatively impact demand and pricing for solutions - Macroeconomic conditions, including **persistent inflationary pressures**, **elevated interest rates**, and **geopolitical tensions**, continue to challenge the U.S. healthcare industry and HealthStream's business[104](index=104&type=chunk) - Potential government funding reductions, changes to Medicare/Medicaid, and tariffs on healthcare-related goods may increase costs for customers and reduce demand for HealthStream's products[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - These conditions have led to **decreased demand for elective solutions**, **increased pricing sensitivity**, and **delayed investment decisions** among customers, adversely affecting financial results[105](index=105&type=chunk)[111](index=111&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) HealthStream did not have any share repurchase program in effect or purchase any common stock during the three months ended March 31, 2025. However, a new $25 million share repurchase program was approved by the Board on May 8, 2025, set to expire by May 31, 2026 - **No shares of common stock were purchased** under a repurchase program during the three months ended March 31, 2025[112](index=112&type=chunk) - On May 8, 2025, the Board approved a new share repurchase program for up to **$25 million** of common stock, terminating by **May 31, 2026**[113](index=113&type=chunk) [Item 5. Other Information](index=26&type=section&id=Item%205.%20Other%20Information) No other material information was reported for the period, and no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b-5 trading arrangements - **No other material information** was reported for the period[114](index=114&type=chunk) - **No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b-5 trading arrangements**[114](index=114&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the 2025 Cash Incentive Bonus Plan, CEO and CFO certifications under Sarbanes-Oxley Act, and various Inline XBRL taxonomy extensions - Exhibits include the **2025 Cash Incentive Bonus Plan**, CEO and CFO certifications (**Sections 302 and 906 of Sarbanes-Oxley Act**), and **Inline XBRL documents**[115](index=115&type=chunk) [SIGNATURE](index=27&type=section&id=SIGNATURE) The report was duly signed on behalf of HealthStream, Inc. by Scott A. Roberts, Chief Financial Officer, on May 9, 2025 - The report was signed by **Scott A. Roberts, Chief Financial Officer**, on **May 9, 2025**[119](index=119&type=chunk)

Core Viewpoint - HealthStream (HSTM) has experienced a significant downtrend, with a 13.2% decline over the past four weeks, but it is now in oversold territory, suggesting a potential turnaround due to analysts' positive earnings outlook [1] Group 1: Stock Performance - HSTM's stock has faced heavy selling pressure, leading to a decline of 13.2% in the last month [1] - The stock's Relative Strength Index (RSI) is currently at 25.2, indicating it is oversold and may soon reverse its trend [5] Group 2: Analyst Sentiment - There is a strong consensus among sell-side analysts regarding HSTM's ability to exceed previous earnings estimates, with a 0.5% increase in the consensus EPS estimate over the last 30 days [7] - HSTM holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, indicating a favorable outlook for a potential rebound [8]