Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Our purpose is to humanize healthcare and support organizations in their understanding of each unique individual. Our commitment to Human Understanding® helps leading healthcare systems improve their operations through understanding each person they serve not as point-in-time insights, but as an ongoing relationship. Our end-to-end solutions enable our customers to understand what matters most to each person they serve - before, during, after, and beyond clinical encounters - to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships. Our ability to measure what matters most and systematically capture, analyze, and deliver insights based on self-reported information from patients, families, and consumers is critical in today's healthcare market. We believe access to, analysis of, and acting on our extensive individual-driven information is increasingly valuable as healthcare providers need to better understand and engage the people they serve to create long-term relationships, build loyalty, and improve processes.

Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, employee engagement, reputation management, and brand loyalty. We partner with customers across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as the evolving healthcare landscape drives its constituents towards a more collaborative and integrated service model.

Results of Operations

The following table sets forth, for the periods indicated, selected financial information derived from our condensed consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics. The discussion that follows the information should be read in conjunction with our condensed consolidated financial statements.

Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025

		(In thousands, except percentages) Three Months Ended March 31,								Percentage Increase (Decrease)
		2026				2025				2026 over 2025
Revenue		$	34,803			$	33,551				4
Direct expenses			13,646				13,057				5
Selling, general, and administrative			13,419				10,356				30
Depreciation and amortization			2,169				1,542				41
Operating income			5,569				8,596				(35	)
Total other expense			(1,190	)			(873	)			36
Provision for income taxes			1,157				1,936				(40	)
Effective Tax Rate			26	%			25	%			1
Operating margin			16	%			26	%			(10	)
Total Recurring Contract Value		$	152,070			$	134,371				13
Cash provided by operating activities			7,180				6,646				8

Revenue. Revenue in the 2026 period increased compared to the 2025 period by $1.3 million. This was mainly from $0.6 million higher recurring revenue from existing customers compared to the prior year, and $0.5 million higher revenue from new customers, compared to the prior year.

Direct expenses. Direct expenses consist primarily of salaries and employee benefits, employee travel and lodging, materials, contract labor, third party software subscription costs, hosted customer conferences, and other direct expenses associated with revenue. Personnel costs within direct expenses are associated with individuals in product delivery, customer support, thought leadership, conference support, technology infrastructure, and product development. Direct expenses represented 39% of revenue for both 2026 and 2025. Direct expenses increased to $13.6 million in 2026 from $13.1 million in 2025, primarily driven by higher third-party software subscription costs and increased spending on IT contractor services related to continued investments in technology and development.

Selling, general, and administrative expenses. Selling, general, and administrative expenses consist of salaries and employee benefits, commission and amortization of deferred commission, stock-based compensation, employee travel and lodging, third party software subscription and platform costs, marketing costs, facility expenses, office expenses, fees for professional services, provision for credit losses, and other operational expenses. Personnel costs within selling, general, and administrative expenses are associated with individuals in sales, marketing, accounting, business development, human resources, administrative, product development, internal information systems, and executive management. Selling, general, and administrative expenses increased to $13.4 million for the three months ended March 31, 2026, from $10.4 million for the same period in 2025. The increase was primarily driven by $1.4 million of higher stock-based compensation related to executive leadership and approximately $0.5 million of executive salary expense that was not present in the prior-year period. The remaining increase was attributable to higher computer software subscription expenses to support ongoing technology investments, regulatory-related accruals, and the timing of corporate-related expenses.

Depreciation and amortization. Depreciation and amortization expenses increased in the 2026 period compared to the 2025 period due to the completion of our headquarters building renovations in June 2025.

Operating income and margin. Operating income decreased in the 2026 period compared to the 2025 period due to the increased compensation related to our executive leadership transition and increased investment in technology.

Total other expense. Total other expense increased in the 2026 period compared to the 2025 period due to higher interest expense due to a higher balance on the Delayed Draw Term Loan.

Provision for income taxes and effective tax rate. Provision for income taxes decreased in the 2026 period compared to the 2025 period primarily due to decreased taxable income, partially offset by an increase in the effective tax rate. The effective tax rate increased in the 2026 period due to executive compensation subject to the deductibility limitations under Section 162(m), which did not affect the effective tax rate in the first quarter of 2025.

Total Recurring Contract Value (TRCV). TRCV at March 31, 2026, was higher compared to March 31, 2025, primarily due to sales to new and existing customers and to improved retention of contracts with existing customers. We view TRCV as a leading indicator of our future revenue trends. TRCV represents the total annualized contract value of recurring amounts under customer contracts that are in effect or contractually committed as of the most recent quarter-end and are expected to be in force over the subsequent 12 months, based on contractual pricing and term provisions. TRCV is calculated using contracted recurring fees and assumes no upsells, downsells, price changes, early terminations, or non-renewals, unless we have been notified of such changes by the customer as of the measurement date. TRCV is an operating metric and is not a measure of revenue recognized under U.S. GAAP. The timing and amount of revenue we recognize under ASC 606 may differ from the pattern implied by TRCV due to allocation of transaction price and the timing of satisfaction of performance obligations. As a result, there is typically a lag between changes in TRCV and changes in our reported revenue. Generally, if we are able to sustain growth in TRCV, we would expect revenue growth to follow within subsequent periods, although intervening factors may affect this relationship.

Recent Developments

In April 2026, the Compensation and Talent Committee of our Board of Directors approved amendments to equity awards granted to certain executives in 2025. The amendments eliminated the Company's right to repurchase the shares underlying these awards if the executives' employment terminated under certain circumstances prior to the third anniversary of the respective grant dates. The impacted executives were also awarded bonuses intended to cover their anticipated tax obligations in connection with these amendments.

The amendments and related bonuses are expected to result in approximately $9.4 million of expense during the second quarter of 2026, consisting of (i) approximately $6.5 million of non-cash accelerated equity compensation expense, substantially all of which would otherwise have been recognized ratably through the second quarter of 2028, and (ii) approximately $2.9 million of cash bonus expense, primarily related to tax payments. The Company's effective tax rate for the second quarter and the remainder of 2026 is expected to be impacted by the non-deductibility of these amounts. The acceleration of equity compensation expense eliminates the impact of these awards on future periods.

Non-GAAP Financial Measures

In addition to consolidated GAAP financial measures, we review various non-GAAP financial measures that management believes to be important in the evaluation of its operating results and performance, including "Adjusted Net Income," "Adjusted Earnings per Share," "Adjusted EBITDA," "Adjusted EBITDA Margin," "Free Cash Flow," and "Free Cash Flow Margin."

We believe Adjusted Net Income, Adjusted Earnings per Share, Adjusted EBITDA, and Adjusted EBITDA Margin are helpful supplemental measures to assist management and investors in evaluating our operating results as (i) they exclude certain items that are unusual in nature or whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business, and (ii) the exclusion of non-cash stock compensation is useful for investors applying certain valuation metrics and is consistent with the leverage ratio for our credit facility. Adjusted Net Income represents net income adjusted to add back certain management bonuses and non-cash stock compensation and the related tax. Adjusted EBITDA represents net income before interest, taxes, depreciation, amortization, certain management bonuses, and non-cash stock compensation items. Adjusted EBITDA Margin represents Adjusted EBITDA divided by our revenue.

We consider Free Cash Flow to be a measure that provides useful information to management and investors about our liquidity. Free Cash Flow does not represent residual cash flow available for discretionary expenditures. We define Free Cash Flow as net cash provided by operating activities less capital expenditures. Free Cash Flow Margin represents Free Cash Flow divided by our revenue.

We view Adjusted Net Income, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, and Free Cash Flow Margin as operating performance measures. As such, we believe the most directly comparable GAAP financial measures to Adjusted Net Income and Adjusted Earnings per Share are GAAP Net Income and GAAP Earnings per Share, respectively, the most directly comparable GAAP financial measure to Adjusted EBITDA and Adjusted EBITDA Margin is GAAP Net Income and GAAP Net Income Margin, and the most directly comparable GAAP financial measure to Free Cash Flow and Free Cash Flow Margin is GAAP Net Cash Provided by Operating Activities and GAAP Net Cash Provided by Operating Activities Margin.

Non-GAAP measures are supplemental financial measures of our performance and should not be considered substitutes for net income, earnings per share, or any other measure derived in accordance with GAAP. This information should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items or events being adjusted. In addition, other companies may use different measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.

Adjusted Net Income and Adjusted Earnings per Share

The following table presents a reconciliation of GAAP net income and GAAP earnings per share to adjusted net income and adjusted earnings per share, respectively, for each of the periods indicated (in thousands excluding earnings per share):

		Three Months Ended March 31,
		2026				2025
Net income		$	3,222			$	5,787
Add back:
Non-cash stock compensation			1,608				171
Tax on stock compensation			(262	)			(43	)
Adjusted net income		$	4,568			$	5,915
Earnings per share of common stock, diluted		$	0.14			$	0.25
Adjusted earnings per share of common stock, diluted		$	0.21			$	0.26
Weighted average shares and share equivalents outstanding, diluted			21,911				22,974

Adjusted EBITDA and Adjusted EBITDA Margin

The following table presents a reconciliation of GAAP net income and GAAP net income margin to adjusted EBITDA and adjusted EBITDA margin, respectively, for each of the periods indicated (in thousands):

		Three Months Ended March 31,
		2026				2025
Net income		$	3,222			$	5,787
Add back:
Depreciation and amortization			2,169				1,542
Interest expense			1,255				899
Income taxes			1,157				1,936
Non-cash stock compensation			1,608				171
Adjusted EBITDA		$	9,411			$	10,335
Net income margin			9.3	%			17.2	%
Adjusted EBITDA margin			27.0	%			30.8	%

Free Cash Flow and Free Cash Flow Margin

The following table presents a reconciliation of GAAP net cash provided by operating activities and net cash provided by operating activities margin to free cash flow and free cash flow margin, respectively, for each of the periods indicated (in thousands):

		Three Months Ended March 31,
		2026				2025
Net cash provided by operating activities		$	7,180			$	6,646
Less:
Capital expenditures			1,834				2,986
Free cash flow		$	5,346			$	3,660
Net cash provided by operating activities margin		20.6		%			19.8	%
Free cash flow margin			15.4	%			10.9	%

Liquidity and Capital Resources

Our Board of Directors has established priorities for capital allocation, which include funding of innovation and growth investments, including merger and acquisition activity as well as internal projects, and returning capital to shareholders through dividends and share repurchases.

As of March 31, 2026, our principal sources of liquidity included $2.5 million of cash and cash equivalents, up to $30.0 million of unused borrowings under our Revolving Loan and an additional $27.6 million on our Delayed Draw Term Loan.

Our cash flows from operating activities primarily consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation, and the effect of working capital changes. Cash provided by operating activities increased primarily due to working capital changes, partially offset by a decrease in net income. Working capital changes were mainly driven by trade accounts receivable and prepaid expenses primarily due to timing of billings and payments, and higher deferred revenue. Cash provided by operating activities was also partially offset by an increase in net income net of non-cash items.

See the Condensed Consolidated Statements of Cash Flows included in this report for the detail of our operating cash flows.

We had a working capital deficit of $18.5 million and $16.4 million on March 31, 2026, and December 31, 2025, respectively. The change was primarily due to decreases in cash and cash equivalents and increases in accounts payable, deferred revenue, and income taxes payable. Cash and cash equivalents decreased mainly due to the payment of dividends and the repurchase of shares of our common stock for treasury. The decrease in cash and cash equivalents was partially offset by cash from operating activities. Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements. Notwithstanding our working capital deficit on March 31, 2026, we believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.

Cash used in investing activities primarily consisted of capitalized internal-use software and purchases of property and equipment including computer software and hardware, building improvements, and furniture and equipment.

Cash used in financing activities consisted of payments of dividends on our common stock, payments on our Delayed Draw Term Loan, repurchases of common stock, and cash to pay contingent consideration related to our 2024 acquisition of Nobl Health.

Our material cash requirements include the following contractual and other obligations:

Dividends

Cash dividends of $3.6 million were paid in the three months ended March 31, 2026. Additional dividends of $3.6 million were declared in the three months ended March 31, 2026, and paid in April 2026. The dividends were paid from cash on hand and borrowings on our Revolving Loan. Our Board of Directors considers whether to declare a dividend and the amount of any dividends declared on a quarterly basis.

Capital Expenditures

We paid cash of $1.8 million for capital expenditures in the three months ended March 31, 2026. These expenditures consisted primarily of computer hardware and software and costs related to software development for our Human Understanding® solutions.

Debt

Our credit agreement (the "Credit Agreement"), includes (i) a $30.0 million revolving credit facility (the "Revolving Loan") and (ii) a $110.0 million delayed draw-down term facility (the "Delayed Draw Term Loan" and, together with the Revolving Loan, the "Credit Facilities"). The Delayed Draw Term Loan includes an accordion feature that, so long as no event of default exists or would exist after giving effect to such increase, allows us to request an increase in the Delayed Draw Term Loan of up to the lesser of (x) $25.0 million and (y) our EBITDA as of the preceding four fiscal quarters, exercisable in increments of $10.0 million (or the remaining available amount of the accordion, if less). We may use the Delayed Draw Term Loan to fund permitted future business acquisitions, repurchases of our common stock, capital expenditures, or payment of dividends and the Revolving Loan to fund ongoing working capital needs and for other general corporate purposes.

Interest accrues and is payable monthly at a floating rate equal to the one-month Term SOFR plus a percentage per annum determined by our cash flow leverage ratio, ranging from 2.25% to 2.75% (6.02% at March 31, 2026).

The outstanding balance on the Delayed Draw Term Loan was $78.4 million at March 31, 2026. Principal amounts outstanding are due and payable monthly during the term of the Delayed Draw Term Loan, in equal monthly installments to amortize the aggregate outstanding principal balance by (i) 5% during each of the first three years and (ii) 7.5% during each of the fourth and fifth years following the date of such loan. All outstanding principal and interest on the Delayed Draw Term Loan are due and payable in full at the maturity date, February 6, 2030. We had the availability to borrow an additional $27.6 million on the Delayed Draw Term Loan at March 31, 2026, excluding the accordion feature.

Principal amounts outstanding under the Revolving Loan are due and payable in full at maturity at February 6, 2028. As of March 31, 2026, we had no borrowings outstanding and the availability to borrow $30.0 million on the Revolving Loan. Our weighted average short-term borrowings for the three-month periods ended March 31, 2026, and 2025 were $1.9 million and $2.0 million, respectively. The weighted average interest rate on short-term borrowings during the three-month periods ended March 31, 2026, and 2025 was 6.04% and 6.67%, respectively.

We are obligated to pay ongoing unused commitment fees quarterly in arrears at a percentage per annum determined by our cash flow leverage ratio, ranging from 0.15% to 0.30%, based on the actual daily unused portions of the Revolving Loan and the Delayed Draw Term Loan, respectively.

The Credit Agreement is collateralized by substantially all of our assets, subject to permitted liens and other agreed exceptions, and contains customary representations, warranties, affirmative and negative covenants (including financial covenants), and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our common stock, and acquisitions, subject in each case to certain exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x and a cash flow leverage ratio of 3.50x or less for all testing periods throughout the term of the Credit Facilities. As of March 31, 2026, we were in compliance with our financial covenants.

Leases

We have lease arrangements for certain computer, office, printing, and mail inserting equipment as well as office and data center space. As of March 31, 2026, we had fixed lease payments of $493,000 and $8,000 for operating and finance leases, respectively payable within 12 months.

Taxes

The liability for gross unrecognized tax benefits related to uncertain tax positions was $2.3 million as of March 31, 2026. See Note 3, "Income Taxes", to the Condensed Consolidated Financial Statements contained in this report for income tax related information.

Stock Repurchase Program

In March 2026, our Board of Directors approved a stock repurchase program authorizing the repurchase up to $60.0 million of our outstanding common stock through March 31, 2028 (the "2026 Program"). Under this authorization, may repurchase shares from time to time in the open market, through privately negotiated transactions, and/or other means in compliance with the Securities and Exchange Act of 1934 and the rules and regulations thereunder. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Exchange Act. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares of common stock under this authorization. The timing, manner, price, and amount of any repurchases will be determined by the Company at its discretion, and will depend on a variety of factors, including business, economic and market conditions, prevailing stock prices, corporate and regulatory requirements, and other considerations. The repurchase program may be suspended or discontinued at any time.

During the three months ended March 31, 2026, we repurchased 109,701 shares of our common stock for an aggregate of $1.9 million.

Critical Accounting Estimates

There have been no changes to our critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2025, that have a material impact on our Condensed Consolidated Financial Statements and the related Notes.