Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of HealthStream should be read in conjunction with HealthStream's Consolidated Financial Statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. HealthStream's actual results may differ significantly from the results discussed and those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, the risks described under Risk Factors and elsewhere in this report, as well as additional risks or uncertainties not presently known to us or that we currently deem immaterial.

The following discussion addresses our 2025 and 2024 results and year-to-year comparisons between 2025 and 2024. A discussion of year-to-year comparisons between 2024 and 2023 can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 28, 2025, under Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

HealthStream provides primarily SaaS based applications for healthcare organizations-all designed to improve business and clinical outcomes by supporting the people who deliver patient care. We are focused on helping individuals and organizations in healthcare meet their ongoing learning, clinical development, credentialing, and scheduling needs. We also provide our solutions to nursing schools and nursing students.

Our business is managed and organized around our single platform strategy, also referred to as our One HealthStream approach. At the center of this single platform strategy is our hStream technology platform. By enabling our applications through hStream, we believe that stand-alone applications, which already provide a powerful value proposition on their own, are beginning to leverage each other to more efficiently and effectively empower our customers to manage their businesses and improve their outcomes. Further, the Company's internal structure and executive leadership are likewise shaped by the organizing principle of a single platform, including with regard to technology, operations, accounting, internal reporting (including the nature of information reviewed by our key decision makers), organizational structure, compensation, performance assessment, and resource allocation. Ongoing progress towards One HealthStream is exemplified by our recent refinement and adoption of a standardized, enterprise-wide implementation, onboarding, and customer success operational model.

Our solutions are powered by our hStream technology platform that enables activity across HealthStream's diverse ecosystem of applications. These underlying solutions are comprised primarily of SaaS, subscription-based applications that are used by healthcare organizations to meet a broad range of their workforce development needs around learning, clinical development, credentialing, and scheduling. Our solutions are also utilized by nursing schools as they prepare the healthcare workforce of tomorrow and by nursing students as they prepare to enter that workforce. Our numerous content libraries allow customers to subscribe to a wide array of courseware, which includes content from leading healthcare and nursing associations, medical and healthcare publishers, and other ecosystem partners. Our scheduling solutions provide organizations with the tools to visualize and manage real-time clinical staff scheduling to enable them to optimize their workforce, reduce costs, and improve care. Our flagship credentialing, privileging, and enrollment solution, CredentialStream, provides customers an intuitive, modern user experience with a continual stream of enhancements, evidence-based content, and curated data, all of which provides healthcare organizations with tools to support the provider lifecycle management from recruiting, application submission, verification of licensure and other credentials, privileging, appointments by credentialing committees, enrollment, network, management, onboarding, and performance evaluations of providers.

As HealthStream's business continues to evolve, we remain solely dedicated to the healthcare market, and our primary customers continue to be healthcare organizations across the continuum of care and other participants in the healthcare industry, such as nursing schools and nursing students, whether through our enterprise applications or our emerging career networks.

Revenues for the year ended December 31, 2025 were $304.1 million, compared to $291.6 million for the year ended December 31, 2024, an increase of 4%. The contributions to growth were $13.3 million in subscription revenues, partially offset by a decrease of $0.9 million in professional services revenues. Subscription revenue increases resulted from growth in several products, including Competency Suite, CredentialStream, and ShiftWizard, coupled with contributions from our recent acquisitions (Virsys12 and MissionCare), but were partially offset by declines in our legacy credentialing, scheduling, and content program solutions. Operating income decreased by 5% to $20.2 million for 2025, compared to $21.3 million for 2024. Net income decreased to $18.3 million for 2025, compared to $20.0 million for 2024. Earnings per share were $0.61 per share (diluted) for 2025, compared to $0.66 per share (diluted) for 2024.

During 2025, we completed two acquisitions: the acquisition of Virsys12, which was completed in October 2025 for a cash purchase price of $11.4 million and contingent consideration of up to $4.0 million, and the acquisition of MissionCare, which was completed in December 2025 for a cash purchase price of $24.6 million in cash payable at closing (subject to a post-closing working capital adjustment), $4.0 million in shares of HealthStream common stock issued at closing in a private placement, and contingent cash consideration of up to $10.0 million. In addition, during 2025, the Company paid $3.7 million in cash dividends and made $30.0 million of share repurchases pursuant to our share repurchase programs. Also, during the first quarter of 2025, we entered into an agreement to sublease a portion of our office space in the Capitol View building in Nashville, Tennessee to optimize our workforce performance to deliver positive results for customers, employees, and shareholders, which commenced in April 2025 and will expire in October 2031. Additionally, in December 2025, Robert A. Frist, Jr., our chief executive officer, contributed $3.8 million of his personally owned HealthStream stock to the Company in order to facilitate the grant of 146,286 shares of common stock to over 700 employees under our 2022 Omnibus Incentive Plan, which resulted in a corresponding $3.8 million charge for stock-based compensation and related expenses and employer payroll taxes during the three months ended December 31, 2025. Moreover, as of December 31, 2025, the Company had cash, cash equivalents, and marketable securities of $57.0 million, and the Company maintained full availability under its $50.0 million revolving credit facility, which expires in October 2026.

MACROECONOMIC AND INDUSTRY DEVELOPMENTS

Macroeconomic and other conditions in the United States that directly or indirectly impact the healthcare industry are challenging in certain respects and may become more challenging based on recent and contemplated changes to various policies and regulations. While healthcare costs continue to grow, government cuts or reimbursement rate reductions to funding for healthcare organizations, the impact of tariffs on goods and services utilized by healthcare provider organizations, as well as uncertainty surrounding potential policy, regulatory, and economic shifts, continue to be challenging for our healthcare customers. In particular, the federal budget reconciliation legislation enacted on July 4, 2025 includes significant policy changes that may adversely impact healthcare provider organizations, including changes that are expected to decrease access to health insurance and result in significant cuts to federal healthcare spending, particularly within the Medicaid program. We believe that these challenges and uncertainties, particularly among healthcare provider organizations with patient populations more dependent on government-funded reimbursement, have caused, and may continue to cause, some delays in purchasing and non-renewals of our products and services, particularly in relation to elective or non-mandatory products and services.

Macroeconomic challenges also persist in the United States in terms of inflationary pressures, ongoing elevated interest rate levels, heightened geopolitical tensions, and strained global trade relations. While inflationary conditions have decreased in comparison to recent periods, we believe that many of our customers have experienced increased labor, supply chain, capital, and other expenditures associated with recent inflationary pressures. These conditions and challenges impacting the United States economy and our customers in the healthcare industry have adversely affected, and may continue to adversely impact, our business and results of operations.

CRITICAL ACCOUNTING ESTIMATES

Preparation of our Consolidated Financial Statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements, reported amounts of revenues and expenses during the reporting period, and related disclosures. In the Notes to our Consolidated Financial Statements, we describe our significant accounting policies used in preparing the Consolidated Financial Statements. Our policies are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under different assumptions or conditions. Our management has identified the following critical accounting policies for the areas that are materially impacted by estimates and assumptions.

Revenue Recognition

Revenues are recognized when or as 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. Our contracts with customers often contain promises for multiple goods and services. For these contracts, the Company accounts for the promised goods and services in its contracts as separate performance obligations if they are distinct. The contract price, which represents transaction price when the contract reflects a fixed fee arrangement, or management's estimate of variable consideration including application of the constraint when the contract does not have a fixed fee, is allocated to the separate performance obligations on a relative standalone selling price basis. Whenever possible, standalone selling price is based on observable prices, and when such observable data is not available, the Company estimates standalone selling price using an approach designed to maximize the use of observable inputs. Judgment is required in determining whether performance obligations are distinct, standalone selling prices, and the amount of variable consideration to reflect as transaction price.

Accounting for Income Taxes

The Company accounts for income taxes 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 reverse. Management evaluates all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed. We assess the realizability of our deferred tax assets, and to the extent that we believe a recovery is not likely, we establish a valuation allowance to reduce the deferred tax asset to the amount we estimate will be recoverable. As of December 31, 2025, the Company established a valuation allowance of $2.0 million for the portion of its deferred tax assets that are not more likely than not expected to be realized, compared to a valuation allowance of $1.9 million as of December 31, 2024.

Business Combinations and Contingent Consideration

The Company allocates the purchase price of acquired businesses to identifiable assets and liabilities based on their estimated fair values at the acquisition date. This process requires significant estimates and assumptions, particularly in valuing intangible assets, including customer relationships, trade names, non-compete agreements, and developed technology, which often involve estimating future cash flows, discount rates, and useful lives. Changes in these assumptions may materially affect the amount of goodwill and identifiable intangible assets recognized.

For acquisitions involving contingent consideration requiring future payments to sellers if specified financial targets are achieved, we estimate the fair value of earn-out obligations using probability-weighted performance outcomes and discounted cash-flow models or other option-pricing techniques that incorporate significant unobservable inputs (Level 3), such as management's estimates of revenue or performance outcomes, the probability of achieving milestone events, timing of expected payments, and market-participant discount rates. Because contingent payments are remeasured at fair value each period, changes in underlying assumptions may result in significant income-statement volatility.

RESULTS OF OPERATIONS

Revenues and Expense Components

The following descriptions of the components of revenues and expenses apply to the comparison of results of operations.

Revenues, net. The products and services generating revenues are increasingly oriented around and drive value in relation to our hStream technology platform. Subscription or software licensing services primarily consist of the provision of services through our platform, learning management application, a variety of training and development tools and content subscriptions, our applications that help facilitate provider credentialing, privileging, and enrollment administration, and staff scheduling applications. Professional services primarily consist of training, implementation and onboarding, and consulting services to serve professionals that work within healthcare organizations.

Cost of Revenues (excluding depreciation and amortization). Cost of revenues (excluding depreciation and amortization) consist primarily of salaries and employee benefits, stock-based compensation, employee travel and lodging, materials, contract labor, hosting costs, third party software licensing costs, and other direct expenses associated with revenues, as well as royalties paid by us to ecosystem partners. Personnel costs within cost of revenues are associated with individuals that facilitate product delivery, provide services, handle customer support calls or inquiries, manage the technology infrastructure for our applications, manage content, and provide training or implementation services.

Product Development. Product development consists primarily of salaries and employee benefits, contract labor, stock-based compensation, employee travel and lodging, costs associated with the development of new software and feature enhancements, new products, third party software licensing costs, and costs associated with maintaining and developing our products. Personnel costs within product development include our systems teams, application development, quality assurance teams, product managers, and other personnel associated with software and product development.

Sales and Marketing. Sales and marketing consist primarily of salaries and employee benefits, commissions and amortization of deferred commissions, stock-based compensation, employee travel and lodging, third party software licensing costs, advertising, trade shows, customer conferences, promotions, and related marketing costs. Personnel costs within sales and marketing include our sales teams and marketing personnel.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and employee benefits, stock-based compensation, employee travel and lodging, facility expenses, sublease income, office expenses, fees for professional services, business development and acquisition-related costs, third party software licensing costs, provision for credit losses, and other operational expenses. Personnel costs within general and administrative expenses include individuals associated with normal corporate functions, including accounting, legal, business development, human resources, administrative, internal information systems, and executive management.

Depreciation and Amortization. Depreciation and amortization consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized software development.

Interest Income. Interest income consists of interest earned on cash, cash equivalents, and marketable securities.

Other (Expense) Income, Net. The primary components of other (expense) income are interest expense, the income or loss attributed to equity method investments, fair value adjustments related to non-marketable equity investments, and foreign currency gains and losses.

2025 Compared to 2024

Revenues, net. Revenues increased approximately $12.5 million, or 4%, to $304.1 million for 2025 from $291.6 million for 2024. Subscription services revenues increased $13.4 million, or 5%, and professional services revenues decreased by $0.9 million, or 8%. This subscription services revenues increase resulted from growth in several products, including Competency Suite, CredentialStream, and ShiftWizard, coupled with contributions from our recent acquisitions (Virsys12 and MissionCare), but were partially offset by declines in our legacy credentialing, scheduling, and content program solutions. Compared to the year ended December 31, 2024, revenues for the year ended December 31, 2025 grew by $23.4 million across our portfolio of solutions, including $1.6 million from the Virsys12 and MissionCare acquisitions, but were partially offset by a $9.3 million reduction from legacy applications and a $1.6 million reduction from customer bankruptcies.

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

		Year Ended December 31,
		2025				2024				Percentage Change
Subscription services		$	293,625			$	280,316				5	%
Professional services			10,439				11,330				-8	%
Total revenues, net		$	304,064			$	291,646				4	%
% of Revenues
Subscription services			97	%			96	%
Professional services			3	%			4	%

Cost of Revenues (excluding depreciation and amortization). Cost of revenues increased $9.3 million, or 9%, to $107.2 million for 2025 from $97.9 million for 2024. Cost of revenues as a percentage of revenues were 35% and 34% of revenues for 2025 and 2024, respectively. The increase in expense is primarily associated with higher costs for cloud hosting, third-party software, labor and benefits, royalties, and stock-based compensation and related expenses and employer payroll taxes related to the stock awards granted during the three months ended December 31, 2025 in connection with the contribution of stock by our chief executive officer to enable such grants (the "CEO Stock Gift") as noted above.

Product Development. Product development expenses increased $2.1 million, or 4%, to $51.0 million for 2025 from $48.9 million for 2024. Product development expenses as a percentage of revenues were 17% of revenues for both 2025 and 2024. The increase in expense is primarily due to a charge for stock-based compensation related to the CEO Stock Gift as noted above coupled with increases in labor and benefits.

Sales and Marketing. Sales and marketing expenses increased $2.2 million, or 5%, to $49.4 million for 2025 from $47.2 million for 2024. Sales and marketing expenses as a percentage of revenues were 16% of revenues for both 2025 and 2024. The increase in expense is primarily due to increased labor and benefits, sales commissions, and a charge for stock-based compensation related to the CEO Stock Gift as noted above.

General and Administrative Expenses. General and administrative expenses decreased $2.3 million, or 7%, to $32.8 million for 2025 from $35.1 million for 2024. General and administrative expenses as a percentage of revenues were 11% and 12% of revenues for 2025 and 2024, respectively. The decrease in expense is primarily due to sublease income associated with the office sublease that commenced during the second quarter of 2025 as noted above and a reduction in bad debt expense, which were partially offset by an increase in software expenses and labor and benefits.

Depreciation and Amortization. Depreciation and amortization increased $2.3 million, or 5%, to $43.5 million for 2025 from $41.2 million for 2024. The increase resulted primarily from higher amortization of capitalized software.

Interest Income. Interest income was $3.3 million for 2025 compared to $3.8 million for 2024. The decrease is a result of lower interest rates on invested funds and lower cash balances.

Other (Expense) Income, Net. Other (expense) income, net was an expense of $0.4 million for 2025 compared to expense of $0.3 million for 2024. The change is primarily a result of foreign currency losses.

Income Tax Provision. The Company recorded a provision for income taxes of $4.9 million and $4.8 million for 2025 and 2024, respectively. The Company's effective tax rate was 21% for 2025 compared to 19% for 2024. The Company's effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, the effect of various permanent tax differences, and research and experimentation tax credits.

Net Income. Net income decreased $1.7 million, or 8%, to $18.3 million for 2025 compared to $20.0 million for 2024. The decrease in net income for 2025 compared to 2024 was primarily driven by a charge for stock-based compensation and related expenses and employer payroll taxes related to stock awards granted during the three months ended December 31, 2025 as noted above. Earnings per diluted share were $0.61 per share (diluted) for 2025, compared to $0.66 per share (diluted) for 2024.

Adjusted EBITDA increased $5.0 million, or 7%, to $71.8 million for 2025 compared to $66.8 million for 2024. The increase resulted from the factors mentioned above. Adjusted EBITDA is a non-GAAP financial measure which we define as net income before interest, income taxes, stock-based compensation expense, depreciation and amortization, impairments of long-lived assets, changes in fair value of contingent consideration, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments. See "Reconciliation of Non-GAAP Financial Measures" below for a reconciliation of this calculation to the most comparable measure under U.S. GAAP and information regarding why this non-GAAP financial measure provides useful information to investors.

Key Business Metrics

Our management utilizes the following key financial and non-financial metrics in connection with managing our business.

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Revenues, net. Revenues, net, reflect income generated by the sales of goods and services related to our operations. Revenues, net, were $304.1 million for the year ended December 31, 2025 compared to $291.6 million for the year ended December 31, 2024. Management utilizes revenue in connection with managing our business and believes that this metric provides useful information to investors as a key indicator of the growth and success of our products.

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Net Income. Net income represents revenues, net less all expenses. Net income was $18.3 million for the year ended December 31, 2025 compared to $20.0 million for the year ended December 31, 2024. Management utilizes net income in connection with managing our business, including with regard to our capital deployment strategies.

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Adjusted EBITDA. Adjusted EBITDA, calculated as set forth below under "Reconciliation of Non-GAAP Financial Measures," is utilized by our management in connection with managing our business and provides useful information to investors because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items, as more specifically set forth below, which may not fully reflect the underlying operating performance of our business. We also believe that adjusted EBITDA is useful to many investors to assess the Company's ongoing results from operations. Additionally, short-term cash incentive bonuses and performance-based equity award grants are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets. Adjusted EBITDA was $71.8 million for the year ended December 31, 2025, compared to $66.8 million for the year ended December 31, 2024.

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Capital Expenditures. Capital expenditures represent cash payments incurred for purchases of property and equipment and during the development phase for projects to develop software and content. Capital expenditures were $32.2 million for the year ended December 31, 2025 compared to $28.1 million for the year ended December 31, 2024. Management utilizes this metric in connection with managing the allocation of capitalized expenditures in which the Company invests related to the development of its products and believes that this metric is a key indicator of investment in products relative to their current and expected performance.

Reconciliation of Non-GAAP Financial Measures

This Annual Report on Form 10-K presents adjusted EBITDA, which is a non-GAAP financial measure used by management in analyzing our financial results and ongoing operational performance.

In order to better assess the Company's financial results, management believes that net income before interest, income taxes, stock-based compensation, depreciation and amortization, impairments of long-lived assets, changes in fair value of contingent consideration, and changes in fair value of, including gains (losses) on the sale of, non-marketable equity investments ("adjusted EBITDA"), is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain GAAP accounting, non-cash, and/or non-operating items which may not, in any such case, fully reflect the underlying operating performance of our business. Beginning with the presentation of adjusted EBITDA for the year ended December 31, 2025, the Company has included adjustments in the definition of adjusted EBITDA for impairments of long-lived assets and changes in fair value of contingent consideration because the Company believes that these amounts may not be reflective of the underlying operating performance of our business, and that including these adjustments is consistent with the intended purpose of adjusted EBITDA with respect to reflecting the underlying operating performance of our business and comparing the Company's operational performance between periods. We believe that adjusted EBITDA is useful to investors to assess the Company's ongoing operating performance and to compare the Company's operating performance between periods. Additionally, short-term cash incentive bonuses and performance-based equity awards are based on the achievement of adjusted EBITDA (as defined in applicable bonus and equity grant documentation) targets.

Adjusted EBITDA is a non-GAAP financial measure and should not be considered as a measure of financial performance under GAAP. Because adjusted EBITDA is not a measurement determined in accordance with GAAP, adjusted EBITDA is susceptible to varying calculations. Accordingly, adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies and has limitations as an analytical tool.

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

		2025				2024
GAAP net income		$	18,342			$	20,007
Interest income			(3,340	)			(3,834	)
Interest expense			101				100
Income tax provision			4,876				4,796
Stock-based compensation expense			8,145				4,470
Depreciation and amortization			43,478				41,243
Impairment of long-lived assets			262				-
Fair value adjustment on contingent consideration			(85	)			-
Adjusted EBITDA		$	71,779			$	66,782

Liquidity and Capital Resources

Net cash provided by operating activities was $63.3 million during 2025, compared to $57.7 million during 2024, an increase of 10%. The increase in net cash provided by operating activities is primarily due to an increase in cash receipts and lower income tax payments compared to the prior year, but was partially offset by an increase in labor costs, cloud hosting, and third party software. Our days sales outstanding (DSO) was 37 days and 40 days for 2025 and 2024, respectively. The Company calculates DSO by dividing the average accounts receivable balance (excluding unbilled and other receivables) by average daily revenues for the year. The Company's primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, income tax payments, and general corporate expenses.

Net cash used in investing activities was $50.4 million during 2025, compared to $34.0 million during 2024. During 2025, the Company spent $35.1 million for closing cash purchase price associated with the acquisitions of Virsys12 and MissionCare, net of cash acquired, invested in marketable securities of $43.5 million, made payments for capitalized software development of $28.5 million, purchased property and equipment of $3.7 million, and purchased strategic investments of $1.5 million. These uses of cash were partially offset by $52.1 million in maturities of marketable securities and $9.8 million in sales of marketable securities. During 2024, the Company spent $1.3 million for the acquisitions of TCPS and The Clinical Hub, invested in marketable securities of $74.4 million, made payments for capitalized software development of $26.7 million, and purchased property and equipment of $1.4 million. These uses of cash were partially offset by $69.2 million in maturities of marketable securities.

Cash used in financing activities was $36.3 million during 2025, compared to $4.5 million during 2024. The primary uses of cash in financing activities during 2025 included $30.0 million for repurchases of common stock, $3.7 million for the payment of cash dividends, and $2.5 million for payments of payroll taxes related to stock-based compensation. During 2024, the primary use of cash in financing activities included $3.4 million for the payment of cash dividends and $1.1 million for payments of payroll taxes related to stock-based compensation.

On October 6, 2023, the Company entered into a revolving credit facility, which currently has no outstanding borrowings and expires on October 6, 2026. For additional information regarding the revolving credit facility, see Note 12 to the Consolidated Financial Statements included herein.

The Company's balance sheet reflected negative working capital of $4.5 million at December 31, 2025, compared to positive working capital of $37.4 million at December 31, 2024. The decrease in working capital was primarily due to decreases in cash, cash equivalents, and marketable securities to fund acquisitions and share repurchases. The Company's primary source of liquidity was $57.0 million of cash, cash equivalents, and marketable securities as of December 31, 2025. The Company also has up to $50.0 million available under our revolving credit facility, subject to certain covenants and minimum liquidity requirements, until its expiration in October 2026.

On May 8, 2025, the Company's Board approved a share repurchase program for the Company's common stock, under which the Company was authorized to repurchase up to $25.0 million of outstanding shares of common stock. Pursuant to the authorization, the Company was authorized to make repurchases in the open market, including under a Rule 10b5-1 plan, through privately negotiated transactions, or otherwise. This share repurchase program provided that it would terminate on the earlier of May 31, 2026, or when the maximum dollar amount under the program was expended. During the year ended December 31, 2025, the Company repurchased 905,786 shares of common stock at an aggregate fair value of $25.0 million under this authorization, reflecting an average price per share of $27.60 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of 2022). This share repurchase program ended in July 2025 when the maximum dollar amount under this program was expended.

On November 11, 2025, the Company's Board approved a new share repurchase program under which the Company was authorized to repurchase up to $10.0 million of its outstanding shares of common stock. Pursuant to this authorization, the Company was authorized to make repurchases in the open market, including under a Rule 10b5-1 plan, through privately negotiated transactions, or otherwise. The share repurchase program provided that it would terminate on the earlier of February 26, 2026, or when the maximum dollar amount under the program was expended. During the year ended December 31, 2025, the Company repurchased 205,804 shares of common stock at an aggregate fair value of $5.0 million under this authorization, and the Company continued to repurchase shares pursuant to this authorization during the first quarter of 2026, completing the program in January by repurchasing 222,978 additional shares valued at $5.0 million. This share repurchase program terminated in January 2026 when the maximum dollar amount was expended.

Pursuant to the dividend policy approved by our Board on February 20, 2023, the Board authorized the following quarterly dividend payments during 2025:

Dividend Payment Date	Dividend Declaration Date		Dividend Per Share			Record Date		Cash Outlay
March 21, 2025	February 24, 2025		$	0.031		March 10, 2025		$	944,000
May 30, 2025	May 5, 2025			0.031		May 19, 2025			946,000
August 29, 2025	August 4, 2025			0.031		August 18, 2025			919,000
November 28, 2025	November 3, 2025			0.031		November 17, 2025			920,000
Total dividends			$	0.124				$	3,729,000

The dividend policy and the declaration and payment of each quarterly cash dividend will be subject to our Board's continuing determination that the policy and the declaration of dividends thereunder are in the best interests of our shareholders and are in compliance with applicable law and our credit agreement. Our Board retains the power to modify, suspend, or cancel the dividend policy in any manner and at any time that our Board may deem necessary or appropriate.

The Company's contractual obligations arising in the normal course of business primarily consist of operating lease obligations and purchase obligations. The amounts included as contractual obligations represent the non-cancelable portion of agreements or the minimum cancellation fee. As further discussed in Note 13 to the Company's Consolidated Financial Statements, as of December 31, 2025, we had operating lease obligations of approximately $20.9 million, of which $3.9 million is expected to be paid within 12 months. The Company's purchase obligations that represent non-cancelable contractual obligations primarily relate to information technology assets and our revolving credit facility, which is described further in Note 12 to the Company's Consolidated Financial Statements. As of December 31, 2025, the Company had purchase obligations of $13.7 million, with $8.6 million expected to be paid within 12 months. The Company also has earn-out obligations related to recent acquisitions of up to $14.5 million based on the acquired business achieving specific revenue targets for up to a three-year post-acquisition period. As of December 31, 2025, the estimated fair value of this earn-out obligation was $6.0 million, which reflects the probability-weighted assessment of future performance outcomes and discounting to present value. No earn-out payments are expected to be paid within 12 months. We believe that our existing cash, cash equivalents, marketable securities, forecasted free cash flows, and available borrowings under our revolving credit facility through its expiration in October 2026 will be sufficient to meet anticipated working capital needs, new product development, effect any share repurchases we may elect to make, pay our quarterly cash dividends, and fund capital expenditures for at least the next 12 months and for the foreseeable future thereafter.

The Company's growth strategy includes acquiring businesses that provide complementary products and services. It is anticipated that future acquisitions, if any, would be effected through cash consideration, stock consideration, debt, or a combination thereof. The issuance of our stock as consideration for an acquisition or to raise additional capital could have a dilutive effect on earnings per share and could adversely affect our stock price. The revolving credit facility contains financial covenants and availability calculations designed to set a maximum leverage ratio of outstanding debt to consolidated EBITDA (as defined in our credit facility) and an interest coverage ratio of consolidated EBITDA to interest expense. Therefore, the maximum borrowings against the revolving credit facility would be dependent on the covenant values at the time of borrowing. As of December 31, 2025, the Company was in compliance with all covenants. There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot be assured that if we need additional financing, it will be available on terms favorable to us or at all. Failure to generate sufficient cash flow from operations or raise additional capital when required in sufficient amounts and on terms acceptable to us could harm our business, financial condition, and results of operations.

Recent Accounting Pronouncements

In December 2023, the Financial Account Standards Board ("FASB") issued Account Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to provide disclosure of disaggregated information in the entity's tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024. The Company adopted this standard effective January 1, 2025 using a prospective method. Prior period disclosures have not been adjusted to reflect the new disclosure requirements. For further information, refer to Note 9 to the Company's Consolidated Financial Statements.

In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses," which requires disclosure of disaggregated information about specific categories underlying certain income statement expense line items in the footnotes to the financial statements for both annual and interim periods. This ASU is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard.

In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, to modernize the accounting guidance for the costs to develop software for internal use. The standard applies to costs incurred to develop or obtain software for internal use. ASU 2025-06 amends the existing standard that refers to various stages of a software development project to align better with current software development methods, such as agile development. Under the new standard, entities will commence capitalizing eligible costs when (i) management has authorized and committed to funding the software project, and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. The new standard also supersedes the guidance related to costs incurred to develop a website. ASU 2025-06 is effective for annual periods beginning after December 15, 2027. The guidance can be applied on a prospective basis, a modified basis for in-process projects, or on a retrospective basis. The Company is currently evaluating the impact of this accounting standard on its consolidated financial statements.