HEALTHSTREAM INC

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

HealthStream, Inc. (the "Company") was incorporated in1990 as a Tennessee corporation and is headquartered in Nashville, Tennessee. The Company primarily provides Software-as-a-Service ("SaaS") based applications for healthcare organizations—all designed to improve business and clinical outcomes by supporting the people who deliver patient care. The Company is focused on helping individuals and organizations in healthcare meet their ongoing learning, clinical development, credentialing, and scheduling needs. The Company also provides its solutions to nursing schools and nursing students. The Company is organized and operated according to its One HealthStream approach, with its hStream technology platform at the center of that approach. Increasingly, SaaS-based applications in its diverse ecosystem of solutions utilize its proprietary hStream technology platform to enhance their value proposition by creating interoperability with and among other applications.

Recognition of Revenue

In accordance with Accounting Standards Codification ("ASC")606, Revenue from Contracts with Customers, the Company's revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those goods or services.

Revenue is recognized based on the followingfive step model:

Subscription revenues primarily consist of fees in consideration of providing customers access toone or more of its SaaS-based solutions and/or courseware subscriptions, as well as fees related to licensing agreements, all of which include routine customer support and technology enhancements. Revenue is generally recognized ratably over the contract term beginning when the service is made available to the customer. Subscription contracts are generally non-cancelable,one tofive years in length, and billed annually, semi-annually, quarterly, or monthly in advance.

Professional services revenues primarily consist of fees for implementation and onboarding services, consulting, and training. The majority of professional services contracts are billed in advance based on a fixed price basis, and revenue is recognized over time as the services are performed. For both subscription services and professional services, the time between billing the customer and when performance obligations are satisfied is generallynot significant.

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 doesnot 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 isnot available, the Company estimates standalone selling price using an approach designed to maximize the use of observable inputs.

The Company receives payments from customers based on billing schedules established in its contracts. Accounts receivable - unbilled represent contract assets related to its conditional right to consideration for subscription and professional services contracts where performance has occurred under the contract. Accounts receivable are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for credit losses, when the right to consideration becomes unconditional.

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

Basis of Presentation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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Business Segments

The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer. The Company’s business is organized and managed around a consolidated, enterprise approach, including with regard to technology, operations, accounting, internal reporting (including the nature of information reviewed by the CODM), organization structure, compensation, performance assessment, and resource allocation. The Company’s CODM uses consolidated financial information to make operating decisions, assess financial performance, and allocate resources. Further, the CODM reviews and utilizes functional expenses (cost of revenues, product development, sales and marketing, general and administrative expenses, and depreciation and amortization) at the consolidated level to manage the Company's operations. Other segment items included in consolidated net income are interest income, other (expense) income, net and income tax provision, which are reflected in the Consolidated Statements of Income. Expenditures for additions to long-lived assets for the consolidated entity were $72.0 million, $45.0 million, and $46.8 million for the years* ended December 31, 2025,*2024, and2023, respectively.

Use of Estimates

The Consolidated Financial Statements are prepared in accordance with United States generally accepted accounting principles. These accounting principles require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences could be material to the Consolidated Financial Statements.

Cash Equivalents

The Company considers cash equivalents to be unrestricted, highly liquid investments with initial maturities of less thanthree months at purchase.

Marketable Securities

Marketable securities are classified as available for sale and are stated at fair value, with the unrealized gains and losses, net of tax, reported in other accumulated comprehensive loss on the accompanying Consolidated Balance Sheets. Realized gains and losses on investments in marketable securities are included in interest income and declines in market value due to credit-related factors on investments in marketable securities are included in other (expense) income, net on the accompanying Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available for sale are included in interest income on the accompanying Consolidated Statements of Income. Premiums and discounts are amortized over the life of the related available for sale security as an adjustment to the yield using the effective interest method and are reflected as an operating activity within the Consolidated Statements of Cash Flows.

Deferred Commissions

Deferred commissions represent incremental costs incurred to acquire contracts with customers, such as the sales commission payment and associated payroll taxes, which are capitalized and amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit. Capitalized contract costs of $38.9 million and $34.7 million at* December 31, 2025and2024*, respectively, are included under the caption other assets in the accompanying Consolidated Balance Sheets, and amortization of deferred commissions is included in sales and marketing expenses in the Consolidated Statements of Income. The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions arenot commensurate with initial commissions. Non-commensurate commissions are amortized over the greater of the contract term or technological obsolescence period ofthree years.

Prepaid Royalties

Prepaid royalties represent advance payments to business partners under revenue sharing arrangements for which the Company sells and delivers such partner products to its customers. Royalties are typically paid in advance at the commencement of the subscription period or periodically throughout the subscription period, such as in quarterly, bi-annual, or annual installments. Royalty payments are amortized over the term of the underlying subscription contracts, which generally range fromone tofive years, in order to match the direct royalty costs to the same period the subscription revenue is recognized. Amortization of prepaid royalties is included under the caption cost of revenues (excluding depreciation and amortization) in the accompanying Consolidated Statements of Income.

Allowance for Credit Losses

The Company estimates its allowance for credit losses based on its historical collection experience, a review in each period of the aging status of the then-outstanding accounts receivable, and external market factors. Uncollectible receivables are written-off in the period management believes it has exhausted its ability to collect payment from the customer. Expected credit losses are recorded under the caption general and administrative expenses in the accompanying Consolidated Statements of Income.

Changes in the allowance for credit losses and the amounts charged to bad debt expense for thethree years ended* December 31, 2025* were as follows (in thousands):

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Capitalized Software and Content Development

Capitalized software and content development is stated on the basis of cost and is presented net of accumulated amortization, which was $177.0 million and $151.1 million as of* December 31, 2025and2024*, respectively. The Company capitalizes costs incurred during the development phase for projects to develop software and content. These assets are generally amortized using the straight-line method over three years. Amortization of capitalized software development was $25.9 million, $24.1 million, and $22.0 million during2025,2024, and2023, respectively. Maintenance and operating costs are expensed as incurred.

Fair Value Measurement

The Company measures certain assets and liabilities at fair value in accordance with ASC820, Fair Value Measurement. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. ASC820 establishes athree-level fair value hierarchy based on the observability of inputs used in valuation techniques:

Level1 – Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

Level2 – Inputs other than quoted prices included in Level1 that are observable for the asset or liability, either directly or indirectly.

Level3 – Unobservable inputs in which little orno market data exists, therefore requiring the Company to develop its own assumptions about inputs market participants would use.

The Company uses valuation techniques appropriate to the circumstances and maximizes observable inputs when available and evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. The Company's instruments measured at fair value on a recurring basis primarily include marketable securities (Level1 - see Note4 to the Consolidated Financial Statements) and contingent consideration from recently completed acquisitions (Level3). Fair value of these Level3 liabilities is determined using a discounted cash flow technique. Significant unobservable inputs were used in the assessment of fair value, including assumptions regarding future business results, discount rates, and probability assessments based on the likelihood of reaching various targets. Fair value of relevant assets and liabilities is remeasured each reporting period, with changes in fair value recorded within general and administrative expense. During the year ended* December 31, 2025and2024,* the Company recorded $6.0 million and $0.6 million of contingent consideration related to various acquisitions described in Note8 to the Consolidated Financial Statements.

Property and Equipment

Property and equipment are stated on the basis of cost. Depreciation is provided on the straight-line method over the following estimated useful lives, except for leasehold improvements, which are amortized over the shorter of the estimated useful life or their respective lease term.

Goodwill

Goodwill represents the excess of purchase price in a business combination over the fair value of the net identifiable assets acquired, including intangible assets. The carrying amount of its goodwill is evaluated for impairment at least annually during thefourth quarter of each fiscal year and whenever events or changes in facts or circumstances indicate that impairment* mayexist. In accordance with ASC350,* Intangibles–* Goodwill and Other*, companies* mayopt tofirst* assess qualitative factors to determine whether it is more likely thannot that the fair value of a reporting unit is less than its carrying amount. A qualitative assessment includes factors such as financial performance, industry and market metrics, and other factors affecting the reporting unit. If this assessment concludes that it is more likely thannot that the fair value of a reporting unit exceeds its carrying value, then goodwill isnot considered impaired andno further impairment testing is required. Conversely, if the qualitative assessment concludes that it is more likely thannot that the fair value of a reporting unit is less than its carrying value, the Company must then compare the fair value of the reporting unit to its carrying value. The Company determines fair value of the reporting unit using both income and market-based models. These models require the use of various assumptions relating to cash flow projections, growth rates, discount rates, and terminal value calculations. There wereno goodwill impairments identified or recorded for the years ended* December 31, 2025,*2024, and2023.

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Intangible Assets

The Company estimates the fair value of intangible assets acquired as part of a business combination using the income and cost methods, which are based on management’s estimates and assumptions. As of* December 31, 2025*, intangible assets include customer relationships, internally developed technologies, non-competition agreements, and trade names. Intangible assets that are considered to have definite useful lives are being amortized on a straight-line basis over periods ranging between three andeighteen years. The weighted average amortization period for definite lived intangible assets as of* December 31, 2025* was 11.9 years. Intangible assets considered to have indefinite useful lives are evaluated for impairment at least annually during thefourth quarter of each fiscal year, and all intangible assets are reviewed for impairment whenever events or changes in facts or circumstances indicate that the carrying amount of the assets* may**not* be recoverable. There wereno significant intangible asset impairments identified or recorded for the years ended* December 31, 2025,*2024, and2023.

Long-Lived Assets

Long-lived assets to be held for use are reviewed for events or changes in facts and circumstances, both internally and externally, which* mayindicate that an impairment of long-lived assets held for use is present. The Company measures any impairment using discounted future cash flows from the related long-lived assets. The cash flow estimates and discount rates incorporate management’s best estimates, using appropriate and customary assumptions and projections at the date of evaluation. Management periodically evaluates whether the carrying value of long-lived assets, including intangible assets, property and equipment, capitalized software development, deferred commissions, and other assets will be recoverable. There wereno significant long-lived asset impairments recorded for the years ended December 31, 2025,*2024, and2023.

Non-Marketable Equity Investments

Non-marketable equity investments in limited liability companies with specific ownership accounts for each investornot resulting in a controlling financial interest are accounted for using the equity method of accounting. Non-marketable equity investments of preferred stock in corporations that donot result in a controlling financial interest are accounted for using the measurement alternative for equity investments that donot have readily determinable fair values. Accounting Standards Update ("ASU")2016-01, Financial Instruments–* Overall (Subtopic825-10)* requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The fair value of non-marketable equity investments isnot estimated if there areno identified events or changes in circumstances that* may*have a significant adverse effect on the fair value of the investment. The proportionate share of income or loss from equity method investments and any changes in fair value of investments accounted for using the measurement alternative are recorded under the caption other (expense) income, net in the accompanying Consolidated Statements of Income.

The aggregate carrying amount of non-marketable equity investments accounted for using the measurement alternative for equity investments that donot have readily determinable fair values was $1.5 million for both the years ended* December 31, 2025and2024*, which the Company evaluates for impairment at each reporting period, and are classified in other assets on the Consolidated Balance Sheets. There have beenno adjustments recorded due to changes in the fair value of the non-marketable equity investments the Company held as of* December 31, 2025and2024*. The fair value of non-marketable equity investments isnot estimated if there areno identified events or changes in circumstances that* may*have a significant adverse effect on the fair value of the investment.

Financial Instruments

The Company has various financial instruments, including cash, cash equivalents, accounts receivable, accounts receivable-unbilled, accounts payable, and accrued liabilities. The carrying amounts of these financial instruments approximate fair value because of the short-term maturity or short-term nature of such instruments. The Company also has marketable securities, which are recorded at fair value based on quoted market prices or alternative pricing sources (see Note4 – Marketable Securities) and non-marketable equity investments, which are recorded under the equity method or under the measurement alternative (see Note1 - Non-Marketable Equity Investments).

Advertising

The Company expenses the costs of advertising as incurred. Advertising expense for the years ended* December 31, 2025,*2024, and2023 was $1.9 million, $1.9 million, and $1.5 million, respectively, and is included under the caption sales and marketing expense in the accompanying Consolidated Statements of Income.

Business Combinations

The Company accounts for business combinations in accordance withASC 805, Business Combinations using the acquisition method of accounting. Under this method, the identifiable assets acquired, including intangibles assets such as customer relationships, trade names, non-compete agreements, and developed technology, liabilities assumed, and any noncontrolling interests are recognized and measured at their estimated fair values as of the acquisition date. The excess of the purchase consideration over the fair value of net assets acquired is recorded as goodwill. Transaction‑related expenses are expensed as incurred. The fair value measurements applied in accounting for business combinations* mayrequire significant judgment, including estimates related to future cash flows associated with intangible assets, discount rates, market-participant assumptions, projected synergies and operating results, and useful lives. These judgments rely on unobservable inputs and valuation models consistent withASC 820,* and certain asset and liability valuations* mayincludeLevel 3* inputs due to limited market data. The results of operations of acquired businesses are included in the Company's Consolidated Financial Statements from the acquisition date.

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Contingent Consideration

Some business combinations include arrangements that require future payments to the seller based on the achievement of specified financial or operational metrics (earn‑outs). The Company recognizes the fair value of contingent consideration as part of the purchase consideration as of the acquisition date in accordance withASC 805. Contingent consideration obligations are typically measured 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. After initial recognition, contingent consideration classified as a liability is remeasured at fair value at each reporting period, with changes in fair value recorded under the caption general and administrative expenses in the accompanying Consolidated Statements of Income. Because of the use ofLevel 3 valuation inputs, fair‑value changes* mayresult in earnings volatility. Cash flows related to contingent consideration are classified in the Consolidated Statements of Cash Flows based on the nature and timing of the payments. Cash payments made after the acquisition date to settle contingent consideration obligations are classified according to their underlying nature: amounts that represent deferred purchase price are presented as financing activities, while payments attributable to fair value remeasurements recognized in earnings are presented as operating activities, consistent with the income statement classification of the related expense. Non‑cash changes in the fair value of contingent consideration donot* affect cash flows and are disclosed as non‑cash investing or financing activities when material.

Income Taxes

Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to 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. Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. There arefour possible sources of taxable income that* maybe available under the tax law to realize a tax benefit for deductible temporary differences and carryforwards:1) future reversals of existing taxable temporary differences,2) future taxable income exclusive of reversing temporary differences and carryforwards,3) taxable income in prior carryback year(s) if carryback is permitted under the tax law, and4*) tax-planning strategies that would, if necessary, be implemented to realize deductible temporary differences or carryforwards prior to their expiration. Management reviews the realizability of its deferred tax assets each reporting period to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the realizability of deferred tax assets. The Company accounts for income tax uncertainties using a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured in order to determine the tax benefit to be recognized in the financial statements. The Company recognizes interest accrued and penalties related to uncertain tax positions in the caption income tax provision in the accompanying Consolidated Statements of Income.

Earnings per Share

Basic earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are composed of incremental common shares issuable upon the exercise of stock options and restricted share units subject to vesting. The dilutive effect of common equivalent shares is included in diluted earnings per share by application of the treasury stock method. Common equivalent shares that have an anti-dilutive effect on diluted net income per share are excluded from the calculation of diluted weighted average shares outstanding.

Concentrations of Credit Risk and Significant Customers

The Company’s credit risks relate primarily to cash, cash equivalents, marketable securities, accounts receivable, and accounts receivable - unbilled. The Company places its temporary excess cash in high quality, short-term money market instruments. At times, such investments* may*be in excess of the FDIC insurance limits. Marketable securities consist primarily of U.S. treasuries.

The Company sells its products and services to various companies in the healthcare industry that are primarily located in the United States. Customer credit worthiness evaluations are performed on an as-needed basis, and the Company generally requiresno collateral from customers. An allowance for credit losses is maintained for potentially uncollectible accounts receivable. The Company didnot have any single customer representing over10% of net revenues or accounts receivable during or as of the years ended* December 31, 2025,*2024, and2023, respectively.

Stock-Based Compensation

As of* December 31, 2025*, the Company maintainedtwo stock-based compensation plans under which awards are outstanding, as described in Note10. The Company accounts for stock-based compensation using the fair-value based method for costs related to share-based payments, including stock options and restricted share units. The Company uses the Black Scholes option pricing model for calculating the fair value of option awards issued under its stock-based compensation plans. The Company measures compensation cost of restricted share units based on the closing fair value of the Company’s stock on the date of grant. Stock-based compensation cost is measured at the grant date, based on the fair value of the award that is ultimately expected to vest by estimating forfeitures, and is recognized as an expense over the requisite service period. The Company has also granted performance restricted stock unit awards, which include a performance condition, to its executive officers. Stock-based compensation expense related to awards with a performance condition are measured based on the grant date closing stock price, and the expense related to these awards is recognized based on the requisite service period elapsed, as well as the probability of achievement of the performance condition as of the end of our reporting period. The Company recognizes tax benefits or deficiencies from stock-based compensation if an excess tax benefit or deficiency is realized. Excess tax benefits and deficiencies are reflected in the Consolidated Statements of Income as a component of the provision for income taxes when realized.

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Leases

The Company hasfour non-cancelable agreements to lease office space. For leases with a lease term greater than12 months, the Company recognizes a right-of-use ("ROU") asset and a lease liability on the balance sheet at the lease commencement date. Lease liabilities and their corresponding ROU assets are recorded based on the present value of the future lease payments over the expected lease term. The Company doesnot have any lease contracts that contain: (1) an option to extend that the Company is reasonably certain to exercise, (2) an option to terminate that the Company is reasonably certainnot to exercise, or (3) an option to extend (ornot to terminate) in which exercise of the option is controlled by the lessor. Additionally, the Company doesnot have any leases with residual value guarantees or material restrictive covenants. The Company’s lease agreements contain provisions for escalating rent payments over the terms of the leases, which are fixed within the contract. The Company’s leases donot contain readily determinable implicit discount rates, and as such the Company must use its incremental borrowing rate to discount the future lease payments based on information available at lease commencement. The incremental borrowing rate was estimated by determining the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Foreign Currency

The functional currency for the Company’s subsidiaries is determined based on the primary economic environment in which the subsidiary operates. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized as cumulative translation adjustments included in accumulated other comprehensive loss in the Consolidated Balance Sheets. Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the Company's functional currency are included within other (expense) income, net on the Consolidated Statements of Income.

Prior Period Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In* December 2023,the Financial Accounting Standards Board ("FASB") issued Account Standards Update ("ASU")2023-09, Income Taxes (Topic740): 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, 2025using a prospective method. Prior period disclosures havenot* been adjusted to reflect the new disclosure requirements. For further information, refer to Note9 - Income Taxes.

In* November 2024,the FASB issued ASU2024*-04, 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 ASU2025-06, 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. ASU2025-06 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. ASU2025-06 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.

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2. SHAREHOLDERS’** EQUITY**

Common Stock

The Company is authorized to issue up to 75 million shares of common stock. The number of common shares issued and outstanding as of* December 31, 2025and2024* was 29.6 million and 30.4 million, respectively.

Preferred Stock

The Company is authorized to issue up to 10 million shares of preferred stock inone or more series, having the relative voting powers, designations, preferences, rights and qualifications, limitations or restrictions, and other terms as the Board of Directors* mayfix in providing for the issuance of such series, without any vote or action of the shareholders. As of December 31, 2025and2024*, there wereno shares of preferred stock issued or outstanding.

Dividends on Common Stock

On* February 20, 2023**,* the Company's Board approved a quarterly cash dividend policy, marking thefirst dividend policy adopted by the Company ("Dividend Policy"). During the years ended* December 31, 2025,2024, and*2023*,* the Board declared quarterly dividends under the Dividend Policy totaling $0.124, $0.112, and $0.100 per share for the year, respectively, for a cash outlay of $3.7 million, $3.4 million, and $3.1 million, respectively.

Additionally, on* February 23, 2026,the Board approved the Company’sfirst* quarter2026 cash dividend of $0.035 per share, payable on* March 20, 2026 to holders of record on March 9, 2026**.*

Share Repurchase Plan

On* September 13, 2023,the Company announced that the Board authorized a share repurchase program to repurchase up to $10.0 million of the Company's outstanding shares of common stock. During the year ended December 31, 2023,the Company repurchased and subsequently retired 404,188 shares at an aggregate fair value of $8.9 million, reflecting an average price per share of $22.07 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of2022*). No repurchases occurred under this share repurchase program during the year ended* December 31, 2024.The share repurchase program expired according to its term on March 31, 2024.*

On* May 8, 2025,the Company’s Board of Directors 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 Rule10b5*-1 plan, through privately negotiated transactions, or otherwise. The 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 and subsequently retired 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 of2022*). This share repurchase program ended in* July 2025*when the maximum dollar amount under this program was expended.

On* November 11, 2025,the Company announced another share repurchase program approved by the Board of Directors 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 Rule10b5*-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 and subsequently retired 205,804 shares of common stock at an aggregate fair value of $5.0 million under this authorization, reflecting an average price per share of $24.29 (excluding the cost of broker commissions and the 1% share repurchase excise tax imposed by the Inflation Reduction Act of2022*), and the Company continued to repurchase shares pursuant to this authorization during thefirst quarter of2026, completing the program in* Januaryby 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.

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3. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for thethree years ended* December 31, 2025* (in thousands, except per share amounts):

Potentially dilutive shares representing 215,000,169,000, and 252,000 shares of common stock for the years ended* December 31, 2025,*2024, and2023, respectively, were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive.

4. MARKETABLE SECURITIES

At* December 31, 2025and2024*, the fair value of marketable securities, which were all classified as available for sale, included the following (in thousands):

The carrying amounts of the marketable securities reported in the Consolidated Balance Sheets approximate fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs. As of* December 31, 2025and2024*, the Company didnot recognize any allowance for credit impairments on its available for sale debt securities. All investments in marketable securities are classified as current assets on the Consolidated Balance Sheets because the underlying securities mature withinone year from the balance sheet date.

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5. REVENUE RECOGNITION

Revenue Recognition

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

The following table represents revenues disaggregated by revenue source for thethree years ended* December 31, 2025,*2024, and2023 (in thousands). Sales taxes are excluded from revenues.

During the years ended* December 31, 2025,2024, and2023, the Company recognized revenues of $85.4 million, $84.3 million, and $79.6 million, respectively, from amounts included in deferred revenue at the beginning of the respective period. As of December 31, 2025*, $691 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers. The Company expects to recognize revenue on approximately 39% of these remaining performance obligations over the next 12 months,67% over the next 24 months, and 85% over the next 36 months, with the remaining amounts recognized thereafter.

6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

Depreciation of property and equipment totaled $3.9 million, $3.8 million, and $4.2 million for the years ended* December 31, 2025,*2024, and2023, respectively.

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7. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended* December 31, 2025and2024* are as follows (in thousands):

Intangible assets other than goodwill that are considered to have finite useful lives include customer-related intangibles consisting of customer relationships, which are amortized over their estimated useful lives ranging from eight toeighteen years, and other intangible assets consisting of developed technology, non-competition agreements, and trade names, which are amortized over their estimated useful lives ranging from three toten years. Amortization of intangible assets was $13.7 million, $13.4 million, and $14.9 million for the years ended* December 31, 2025,*2024, and2023, respectively.

Identifiable intangible assets are comprised of the following (in thousands):

The expected future annual amortization expense for the years ending* December**31,* is as follows (in thousands):

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8. BUSINESS COMBINATIONS

Virsys12

On* October 8, 2025**,* the Company acquired all of the outstanding equity ofVirsys12, LLC ("Virsys12"), a Brentwood, Tennessee-based healthcare technology company that offers payers and health plans an innovative provider data management suite used for onboarding, credentialing, and network management. The consideration paid at closing forVirsys12 consisted of approximately $11.4 million payable in cash, giving effect to customary purchase price adjustments and a post-closing working capital adjustment. In addition, up to an additional $4.0 million in cash* maybe paid over athree*-year period following closing, contingent upon the achievement of certain financial targets. This acquisition expanded the Company's existing provider data management and credentialing solution for payers and health plan enterprises, called Network by HealthStream TM, which is a part of its broader, market-leading Credentialing application suite. The acquisition was accounted for using the acquisition method of business combination under ASC805**. The Company incurred $0.1 million in acquisition-related transaction costs, which are recorded in general and administrative expenses in the Consolidated Statement of Income. The results of operations forVirsys12 have been included in the Company’s Financial Statements from the date of acquisition.

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

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

The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up toone year from the acquisition date) as the Company finalizes the valuation of these items. The primary areas of the preliminary purchase price allocation that arenot finalized include the composition and valuation of an indemnification asset and liability related to sales tax attributes, which is preliminarily valued at $0.4 million. The primary intangible asset acquired was developed technology. The fair value estimate for developed technology intangible asset included significant assumptions in the prospective financial information, such as revenue growth, obsolescence factor, EBITDA margin, and the discount rate. Additionally, these assumptions are forward looking and could be affected by future economic and market conditions. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offeringVirsys12 products, and expected synergies from integratingVirsys12 with other products or other combined functional areas within the Company. The goodwill balance is deductible for U.S. income tax purposes.

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

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The following unaudited pro forma financial information summarizes the results of operations of the Company andVirsys12 as though the companies were combined as of* January 1, 2024** (*in thousands, except per share data):

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, and interest expense related toVirsys12's previously outstanding debt. The unaudited pro forma combined results of operations is for informational purposes only and isnot indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

MissionCare Collective

On* December 15, 2025**,* the Company acquired all of the outstanding equity of MissionCare Collective, LLC ("MissionCare"), a healthcare workforce company that includes the largest caregiver network in the U.S. The consideration paid at closing for MissionCare consisted of approximately $24.6 million payable in cash at closing, giving effect to customary purchase price adjustments, and is subject to a post-closing working capital adjustment. In addition,165,684 shares of HealthStream common stock valued at $4.0 million were issued at closing through a private placement, and up to an additional $10.0 million in cash* maybe paid over athree*-year period following closing, contingent upon the achievement of certain financial targets. The acquisition will be accounted for using the acquisition method of business combination under ASC805. The Company incurred $0.4 million in acquisition-related transaction costs, which are recorded in general and administrative expenses in the Consolidated Statement of Income. The results of operations for MissionCare have been included in the Company’s Consolidated Financial Statements from the date of acquisition.

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

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

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The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up toone year from the acquisition date) as the Company finalizes the valuation of these items. The entire purchase price allocation, including the composition and valuation of an indemnification asset and liability related to sales tax attributes, which is preliminarily valued at $1.0 million, is preliminary. Preliminarily, the primary intangible assets acquired were customer relationships and developed technology. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities arising from offering MissionCare products, and expected synergies from integrating MissionCare with other products or other combined functional areas within the Company. The goodwill balance is deductible for U.S. income tax purposes.

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

The following unaudited pro forma financial information summarizes the results of operations of the Company and MissionCare as though the companies were combined as of* January 1, 2024** (*in thousands, except per share data):

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets. The unaudited pro forma combined results of operations is for informational purposes only and isnot indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

During the year ended* December 31, 2024,the Company completed business combinations of Total Clinical Placement System ("TCPS") and The Clinical Hub, Inc. ("The Clinical Hub") for total purchase consideration of $1.3 million in cash paid at closing, with up to an additional $0.6 million in cash payable by the Company based on agreed upon metrics of the acquirees during certain periods following closing. Both TCPS and The Clinical Hub are clinical rotation management companies offering a process that streamlines the managing and placement of students into clinical rotations that include scheduling, onboarding, tracking, and ensuring proper compliance and credentials are in place for students, schools, and healthcare organizations, further enlarging the Company's footprint among nursing and allied healthcare students as they prepare for careers in healthcare. The acquisitions arenot* considered material to the Company's financial statements, either individually or in the aggregate. The acquisitions were accounted for using the acquisition method of business combination under ASC805.

9. INCOME TAXES

Components of income before income taxes are as follows (in thousands):

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The provision for income taxes is comprised of the following (in thousands):

As noted above, we adopted ASU2023-09 on a prospective basis effective* January 1, 2025.The following table presents required disclosure pursuant to ASU2023*-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended* December 31, 2025:*

(a) State taxes in California, Minnesota, Oregon, Pennsylvania, Tennessee, and Texas made up the majority (greater than50%) of the tax effect in this category

(b)Includes Australia, Canada, and New Zealand

The following table presents a pre-ASU2023-09 adoption reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying Consolidated Statements of Income is as follows (in thousands) for the years ended* December 31, 2024and2023:*

Management periodically assesses the realizability of its deferred tax assets, and to the extent that a recovery isnot likely, a valuation allowance is established to reduce the deferred tax asset to the amount estimated to be recoverable. At* December 31, 2025*, the Company has a valuation allowance of $2.0 million recorded against deferred tax assets for state net operating losses and certain foreign deferred tax assets.

As of* December 31, 2025*, the Company had federal, state, and foreign net operating loss carryforwards of $14.4 million, $9.9 million, and $8.0 million, respectively. Certain losses have an indefinite carryforward period, while other loss carryforwards will expire in years2032 through2045. A portion of the net operating loss carryforwards are subject to annual limitations under Internal Revenue Code Section382. The annual limitations could result in the expiration of net operating loss and tax credit carryforwards before they are fully utilized. The Company is subject to income taxation at the federal, foreign, and various state levels. The Company isno longer subject to U.S. federal tax examinations for tax years before2022, and with few exceptions, the Company isnot subject to examination by foreign or state tax authorities for tax years which ended before2022. Loss carryforwards and credit carryforwards generated or utilized in years earlier than2022 are also subject to examination and adjustment.

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A reconciliation of the beginning and ending liability for gross unrecognized tax benefits are as follows (in thousands):

Unrecognized tax benefits included tax positions of $1.2 million and $1.1 million for the years ended* December 31, 2025and2024*, respectively, that if recognized would impact the Company’s effective tax rate.

Significant components of deferred tax assets and deferred tax liabilities are as follows (in thousands):

We adopted ASU2023-09 on a prospective basis for the year ended* December 31, 2025and have included the following table as a result of our adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025:*

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10. STOCK-BASED COMPENSATION

Stock Incentive Plan

The Company has outstanding stock-based awards under its2016 Omnibus Incentive Plan and2022 Omnibus Incentive Plan ("2022 Plan"). The2022 Plan authorizes the grant of options, restricted share units ("RSUs"), or other forms of stock-based compensation to employees, officers, directors, and others, and such grants must be approved by the Compensation Committee of the Board of Directors. The2022 Plan allows the Compensation Committee of the Board of Directors to determine the vesting period and parameters of each grant. The vesting period of the options and RSUs granted has historically included annual vesting over a period of up tofive years, generally beginningone year after the grant date. As of* December 31, 2025*,651,250 shares of common stock were available to be granted under the2022 Plan.

Stock Option Activity

A summary of activity relative to stock options for the year ended* December 31, 2025* is as follows (in thousands, except weighted-average exercise price).

The weighted average remaining contractual term of options outstanding at* December 31, 2025* was 8 years.

Restricted Share Unit Activity

A summary of activity relative to RSUs for the year ended* December 31, 2025* is as follows (in thousands, except weighted-average grant date fair value):

The aggregate fair value of RSUs that vested during the year ended* December 31, 2025and2024*, as of the respective vesting dates, was $4.7 million and $4.0 million, respectively.

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Stock-Based Compensation

Total stock-based compensation expense recorded in the Consolidated Statements of Income for the years ended* December**31,* is as follows (in thousands):

The Company amortizes the fair value of all stock-based awards, net of estimated forfeitures, on a straight-line basis over the requisite service period, which generally is the vesting period. As of* December 31, 2025*, total unrecognized compensation expense related to non-vested stock options and RSUs was $7.9 million, net of estimated forfeitures, with a weighted average expense recognition period remaining of 2.8 years.

Stock Awards

During* December2025,* the Company’s Chief Executive Officer, Robert A. Frist, Jr., contributed 146,286 of his personally owned shares of HealthStream, Inc. common stock (valued at $3.5 million) to the Company, without any consideration paid to him, for the benefit of the Company’s employees. In connection therewith, effective* December9,* 2025 the Company approved the award of 146,286 fully vested shares of common stock to over 700 employees of the Company under the2022 Plan. These shares were issued in* December**2025.* As required by ASC718, Compensation – Stock Compensation, the Company recognized $3.5 million of stock-based compensation expense for these stock awards during thethree months ended* December 31, 2025based on the closing fair market value of the Company’s stock on the date of the Company’s approval of these grants. Total payments related to the employees’ tax obligations to taxing authorities for these stock awards were $1.1 million and are reflected as a financing activity within the Consolidated Statement of Cash Flows for2025.* In addition, the employer taxes and expenses associated with these grants were $0.3 million and were recorded as an expense during* December 2025.*Mr. Frist contributed an additional 11,492 of his personally owned shares to the Company to cover the amount of these employer taxes and expenses. The receipt of shares from Mr. Frist and in connection with the withholding of shares as set forth above are presented on the Company’s Statement of Shareholders’ Equity in a similar manner as a share repurchase (i.e., reduction of outstanding shares).

11. EMPLOYEE BENEFIT PLAN

401(k) Plan

The Company has a defined-contribution employee benefit plan (401(k) Plan) incorporating provisions of Section401(k) of the Internal Revenue Code. Employees must have attained the age of21 and have completedthirty days of service to be eligible to participate in the401(k) Plan. Under the provisions of the401(k) Plan, a plan member* maymake contributions, on a tax-deferred basis, subject to IRS limitations. The Company elected to provide eligible employees with matching contributions totaling $0.9 million, $1.7 million, and $1.6 million for the years ended December 31, 2025,*2024, and2023, respectively.

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12. DEBT

At* December 31, 2025and2024*, the Company hadno debt outstanding.

Revolving Credit Facility

On* October 6, 2023**,* the Company entered into an Amended and Restated Revolving Credit Agreement ("Revolving Credit Facility"), amending the Revolving Credit Facility dated as of* November 24, 2014**,* as amended, with certain lenders party thereto from time to time, and Truist, as Administrative Agent for the lenders. Under the Revolving Credit Facility, the Company* mayborrow up to $50.0 million, which includes a $5.0 million swingline sub-facility and a $5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $25.0 million, subject to securing additional commitments from existing lenders or new lending institutions. The Revolving Credit Facility has a maturity date of October 6, 2026**.*

The Company's obligations under the Revolving Credit Facility are unsecured. In addition, if the Company forms or acquires any domestic subsidiaries, the loans and other obligations under the Revolving Credit Facility will be guaranteed by such domestic subsidiaries.

At the Company’s election, the borrowings under the Revolving Credit Facility, other than the swingline loans, bear interest at either (1) a base rate defined as the highest of (a) the rate which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, or (b) the Federal Funds Rate, as in effect from time to time, plusone-half ofone percent (0.50%) per annum (any changes in such rates to be effective as of the date of any change in such rate), plus in each case an applicable margin that varies with the company’s funded debt leverage ratio; or (2) a term secured overnight financing rate (“SOFR”) defined as the greater of (a)(i) the forward-looking term rate based on SOFR determined as of the reference time for such interest period with a term equivalent to such interest period plus (ii) a term SOFR adjustment equal to 0.10% per annum and (b) zero, plus, in each case, an applicable margin that varies with the Company’s consolidated total leverage ratio. The Company’s borrowings under the swingline loans bear interest at the base rate plus the applicable margin. The initial applicable margin for base rate loans is 0.50% and the initial applicable margin SOFR loans is 1.50%. The applicable margins will be adjusted quarterly, in each casetwo (2) business days after the Administrative Agent's receipt of the Company's quarterly financial statements. The Company is also required to pay a commitment fee accruing on the unused revolving commitment, which fee initially is 20 basis points per annum and a letter of credit fee, accruing at a rate per annum equal to the applicable margin for SOFR loans then in effect on the daily average amount of such lender’s letter of credit exposure.

Principal is payable in full at maturity on* October 6, 2026**,* and there areno scheduled principal payments prior to maturity. Interest on base rate loans and swingline loans is payable quarterly in arrears, and interest on SOFR loans is payable at the end of each interest period, and in the case of interest periods longer thanthree months, on each day which occurs everythree months after the initial date of such interest period.

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

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

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

As of* December 31, 2025*, the Company was in compliance with all covenants. There wereno balances outstanding on the Revolving Credit Facility as of* December 31, 2025* and there wereno borrowings under the Revolving Credit Facility during the year ended* December 31, 2025*.

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13. LEASES

The Company’s operating lease expense as presented in general and administrative expense in the Consolidated Statements of Income was $3.9 million, $4.3 million, and $4.6 million for thetwelve months ended* December 31, 2025,2024, and2023, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $4.0 million and $4.3 million for the years ended December 31, 2025and2024*, respectively. As of* December 31, 2025and2024*, the weighted-average remaining lease term was 5.7 years and 6.6 years, respectively, and the weighted-average incremental borrowing rate was 6%. As of* December 31, 2025*, the Company didnot have any leases that hadnot yet commenced.

The table below presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of* December 31, 2025and2024* (in thousands).

The table below presents the maturities of lease liabilities under non-cancellable leases as of* December 31, 2025* (in thousands).

During the year ended* December 31, 2025*, the Company entered into an agreement to sublease a portion of its office space in the Capitol View building in Nashville, Tennessee to optimize the workforce performance to deliver positive results for customers, employees, and shareholders. The Company's corporate headquarters remains in Nashville in the Capitol View building, while the Company continues to hire new employees both locally and nationally to support growth. The sublease commenced in* April 2025and will expire in October 2031.The Company recorded sublease income, net of initial direct costs amortization, of $2.3 million during the year ended December 31, 2025.In addition, the Company expects to record sublease income, net, of approximately $3.2 million annually for the nextfive* years and $2.6 million thereafter.

14. LITIGATION

In connection with its business, the Company is from time to time involved in various legal actions. The litigation process is inherently uncertain, and it is possible that the resolution of such matters might have a material adverse effect upon the financial condition and/or results of operations of the Company. However, in the opinion of the Company’s management, matters currently pending or threatened against the Company arenot expected to have a material adverse effect on the financial position or results of operations of the Company. The Company accrues for loss contingencies when it is both probable that the Company will incur the loss and when the amount of the loss can be reasonably estimated.

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