expenses, delays, and difficulties in identifying and developing new products or services and integrating such new products or services into our existing organization;

inability to leverage our operational and financial systems and processes sufficiently to support our growth;

inability to generate sufficient revenue from our products to offset investment costs;

inability to effectively identify, manage, and exploit existing and emerging market opportunities;

inability to maintain our existing customer relationships;

increased competition from new and existing competitors;

lengthy sales cycles, or customers delaying purchasing decisions or payments due to economic conditions;

reduced spending within our target markets;

failure of the market for our products and services to grow to a sufficient size or at a sufficient rate; and

inability to hire sufficient number of qualified employees to execute and support the growth of the Company.

expenses, delays or difficulties in identifying and integrating acquired companies or joint venture operations, collaborative arrangements or other strategic investments into our organization;

inability to retain personnel associated with acquisitions, joint ventures, collaborative arrangements or other strategic investments;

diversion of management’s attention from other initiatives and/orday-to-day operations to effectively execute our growth strategy; and

Moreover, although we conduct what we believe to be a prudent level of investigation regarding the operating, financial, and information security conditions of acquired companies, joint ventures, collaborative arrangements, or other strategic investments, an unavoidable level of risk remains regarding the operating performance, financial condition, information and cyber security, and potential liabilities of these businesses, and we may not be able to offset our investment costs.fully assess these risks until a transaction has been completed.

Our ability to accurately forecast revenue for certain products and services

In addition, a significant portion of the purchase price of companies we acquire may be hindered by customer scheduling.

Whileallocated to acquired goodwill, which must be assessed for impairment at least annually, or to intangible assets, which are assessed for impairment upon certain triggering events. In the revenuefuture, if our acquisitions do not yield expected returns, we receive from particular products and services in our subscription business may be predictable during the term of the applicable contract, the performance ofrequired to take charges to our subscription business may become more subject to fluctuations between quarterly periods asoperating results based on this impairment assessment process, which could harm our solution offerings diversify and become more sophisticated. Certain project-based products, such as consulting, certain content development, and professional services,operating results.

We are subject to the customers’ involvementrisks associated with our equity investments, including partial or complete loss of invested capital, and significant changes in the provision of the product or service. The timing and magnitudefair value of these project-based product and service contracts may vary widely from quarter to quarter and year to year, and thus may affectinvestments could adversely impact our ability to accurately forecast quarterly and annual financial performance. In addition, some products, including thoseresults.

We have invested in, our Workforce Development and Provider Solutions segments, can require significant implementation lead times

and resources, and may requirecontinue to invest in, early-to-late stage companies for strategic reasons and to support key business initiatives, and we may not realize a levelreturn on our equity investments. Many such companies generate net losses and the market for their products, services, or technologies may be slow to develop or never materialize.

Further, valuations of change management efforts fromnon-marketable equity investments are inherently complex due to the lack of readily available market data. We may experience additional volatility to our clients, which may also impactfinancial results due to changes in market prices of our abilitymarketable equity investments, the valuation and timing of observable price changes or impairments of our non-marketable equity investments, including impairments to accurately forecast financial performance.such investments due to the COVID-19 pandemic, and changes in the proportionate share of earnings and losses or impairment of our equity investments accounted for under the equity method. This volatility could be material to our results in any particular period.

Our ability to accurately forecast revenuefinancial performance may be affected bydifficult to predict as the result of lengthy and widely varying sales cycles.cycles and other factors.

The period from our initial contact with a potential customer and theirsuch customer’s first purchase of our solution typically ranges from three to nine months, and in some cases has extended much further.may be significantly longer. Sales of additional solutions to existing customers may also experience sales cycles ranging from three to nine months, or longer. The range in the sales cycle can be impacted by multiple factors, including an increasing trend towards more formal request for proposal processes and more competition within our industry, delays associated with the impact of the pandemic, as well as formal budget timelines which impact timing of purchases by target customers. New products, including those that may compete with or replace our former product offerings, tend to have a longer and more unpredictable revenue ramp period because of varying customer adoption rates. As a result of these factors, we have only limitedour ability to forecastaccurately predict the timing and type of initial sales. This,sales may be limited. Moreover, while the revenue we receive from particular products and services in turn, makes itour subscription business may be predictable during the term of the applicable contract, the performance of our subscription business may become more difficultsubject to fluctuations between quarterly periods as our solution offerings are increasingly diversified and become more sophisticated. Certain professional services contracts are subject to the customers’ involvement in the provision of the product or service. The timing and magnitude of these product and service contracts may vary widely from quarter to quarter and year to year, and thus may affect our ability to accurately forecast quarterly and annualour financial performance. In addition, some products can require significant implementation lead times and resources and may require a level of change management efforts from our clients, which may also limit our ability to accurately predict our financial performance. Additionally, our ability to accurately predict our financial performance may be further limited as we expand our revenue generating model such that third parties may pay network connection fees based on sales they make.

We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, technical, marketing, or other resources.

Several

Many of our competitors and many potential competitors have longer operating histories and significantly greater financial, technical, marketing, or other resources than we do. We encounter direct competition from both large and small talent and human resource management companies and other companies focused on workforce development in the healthcare industry, as well as companiesproviding solutions that offer provider solutions.compete with those we offer. Given the profile and growth of the healthcare industry and the ongoing need for training, simulation, scheduling, credentialing, and other information products and services, it is likely that additional competitors will emerge. We believe we maintain a competitive advantage againstAdditionally, mergers of or other strategic transactions by our competitors by offering a comprehensive array of products and services; however,could weaken our competitive position. Moreover, our lack of market diversification resulting from our concentration on the healthcare industry may make us susceptible to losing market share to our competitors who also offer solutions, and in some cases a more robust suite of solutions, to a cross-section of industries. These companies may be able to respond more quickly than we can to new or changing opportunities, technologies, standards, or customer requirements. Additionally, given the evolving nature of technology, our technology enabled offerings may be disrupted by innovative or emerging technologies, such as blockchain, Web3, or quantum computing technologies, and such disruption could adversely impact our ability to compete. Further, most of our customer agreements are for terms ranging from one to threefive years, with no obligation to renew. The terms of these agreements may enable customers to more easily shift to one of our competitors.competitors following the expiration of the agreement.

Expanding our business model such that third parties may pay network connection fees in exchange for the ability to deliver their products through our technology platform and have them featured as part of our ecosystem may result in unpredictability to and/or harm to the operational and financial performance of our business.

The Company has expanded its business model by offering third parties the ability to utilize their sales teams to market and sell their third party products and have such products delivered through the Company’s technology platform, provided such third parties pay a network connectivity fee when such products are sold to customers in our network. Given that these third parties are responsible for their products and the marketing and selling thereof, the Company may not always be able to ensure the operational, financial, or security-related performance or impact of products controlled by a third party. While we have contractual protections with third parties regarding their products, including but not limited to service levels, information security, confidentiality, data rights, and indemnification against certain breaches, these may not be sufficient to ensure the predictability or performance of such products, or potential negative impacts related thereto.

The failure to maintain and strengthen our relationships with strategicecosystem partners or significant changes in the terms of the agreements we have with themecosystem partners may have an adverse impact on our ability to successfully market, our productssell, and services.deliver certain product and service offerings.

We have entered into contracts with strategic ecosystempartners, including content, application, infrastructure, technology, and retail channel vendors. Our ability to increase the sales of our products and services depends in part upon maintaining and strengthening relationships with these current and future strategic ecosystempartners. Most of these contracts are on anon-exclusive basis. Certain strategic ecosystempartners may offer multiple products and services, from multiple distinct companies, including, in some instances, products or services which may compete with ourother products and services.services we offer. Moreover, under contracts with some of our strategicecosystem partners, we may be bound by provisions that restrict our ability to market and sell our products and services to certain potential customers. The success of these contractual arrangements will depend in part upon the strategicecosystem partners’ own competitive, marketing, and strategic considerations, including the relative advantages for such strategicecosystem partners in using alternative products being developed and marketed by them or our competitors, rather than our products and services.

Moreover, most of our agreements with ecosystem partners are for initial terms of three or more years. These partners may choose not to renew their agreements with us or may terminate their agreements early if we do not fulfill our contractual obligations. If our partners terminate or fail to renew their agreements with us on as favorable terms, such as through a reduction in our revenue share arrangement, it could result in a reduction in the number of solutions we are able to distribute, declines in the number of subscribers to our platform, and decreased revenues. Some of our agreements with our ecosystem partners are non-exclusive, and our competitors offer, or could offer, solutions that are similar to or the same as those we offer. If our current partners offer or otherwise make available their products and services to users or our competitors on more favorable terms than those offered to us or increase our license fees, our competitive position, revenue, and our profit margins and prospects could be harmed.

We cannot guarantee that we will be able to maintain and strengthen our relationships with strategicecosystem partners, that we will be successful in effectively integrating or enhancing such partners’ products and technology, including without limitation through our emerging platform strategy, with, into, or through our own, or that such relationships will be successful in generating additional revenue. If any of these strategicecosystem partners have negative experiences with our products and services, or seek to amend or terminate the financial or other terms of the contracts or arrangements we have with them, we may need to increase our organizational focus on the types of services and solutions they sell and alter our development, integration, and/or distribution strategies, which may divert our planned efforts and resources from other projects.

Lastly, we

We could also be subject to claims and liability or related expenses as a result of the activities, products, or services of these strategicecosystem partners and/or our actual or alleged acts or omissions with regard to these strategic partners. Even if these claims do not result in liability to us, investigating and defending these claims could be expensive, time-consuming and result in suspension of or interference with certain offerings to our clients and/or adverse publicity that could harm our business.

We may not be able to retain distribution rights from our contentecosystem partners, which could adversely affectimpact our business and results of operations.business. 

Most of our agreements with content and technology providers are for initial terms of three or more years. These partners may choose not to renew their agreements with us or may terminate the agreements early if we do not fulfill our contractual obligations. If a significant number of our partners terminate or fail to renew their agreements with us on as favorable terms, such as a reduction in our revenue share arrangement, it could result in a reduction in the number of courses and solutions we are able to distribute and decreased revenues. Most of our agreements with our content partners arenon-exclusive, and our competitors offer, or could offer, content or solutions that are similar to or the same as ours. If our current partners offer or otherwise make available their products and services to users or our competitors on more favorable terms than those offered to us, or increase our license fees, our competitive position, revenue, and our profit margins and prospects could be harmed. In addition, the failure by our partners to deliver high-quality content and technology, and to revise their content and technology, in response to user demand and evolving healthcare

advances and trends could result in customer dissatisfaction and inhibit our ability to attract and retain subscribers.

We may not be able to develop new products and services or enhancements to our existing products and services, or be able to achieve widespread acceptance of new products, services, or features, or keep pace with technological developments.

Our growth strategy depends in part on our ability to generate revenue growth through sales to new customers as well as increasing sales of additional subscriptions and other products and services to existing customers. Our identification of additional features, content, products, and services may not result in timely development of complementary products. In addition, the success of certain new products and services may be dependent on continued growth in our customer base. Furthermore, we are not able to accurately predict the volume or speed with which existing and new customers willmay adopt such new products and services. Because healthcare technology continues to change and evolve, we may be unable to accurately predict and develop new products, features, content, and other products to address the needs of the healthcare industry. Further, the new products, services, and enhancements we develop may introduce significant defects into or otherwise negatively impact our core softwaretechnology platform. While all new products and services are subject to testing and quality control, all software and software-based services are subject to errors and malfunctions. If we release new products, services, and/or enhancements with bugs, defects, or errors or that cause bugs, defects, or errors in existing products, it could result in lost revenues and/or reduced ability to meet contractual obligations and would be detrimental to our business and reputation. If new products, features, or content are not accepted or integrated by new or existing customers, we may not be able to recover the cost of this development, and our financial performance willmay be harmed.adversely affected. Continued growth and maintenance of our customer population is dependent on our ability to continue to provide relevant products and services in a timely manner. The success of our business will depend on our ability to continue providing our products and services as well as enhancing our content, product, and service offerings that address the needs of healthcare organizations.organizations in a timely manner.

We may be unable to continue to license our third party software, on which a portion of our product and service offerings rely, or we may experience errors in this software, which could increaseadversely impact our costs and decrease our revenue.business.

We use technology components in some of our products that have been licensed from third parties. Future licenses to these technologies may not be available to us on commercially reasonable terms or at all. The loss of or inability to obtain or maintain any of these licenses could result in delays in the introduction of new products and services or could force us to discontinue offering portions of solutions until equivalent technology, if available, is identified, licensed, and integrated. In addition, customers may choose not to renew their agreements with us or to terminate their agreements early if we lose or are unable to maintain licenses to some of our product components. If our customers terminate or fail to renew their agreements with us on as favorable terms, it could result in a reduction in the number of content and solutions we are able to distribute, declines in the number of subscribers to our offerings, and decreased revenues. The operation of our products would be impaired if errors occur in third party technology or content that we incorporate, and we may incur additional costs to repair or replace the defective technology or content. It may be difficult for us to correct any errors in third party products because the products are not within our control. Accordingly, our revenue could decrease, and our costs could increase in the event of any errors in this technology. Furthermore, we may become subject to legal claims related to licensed technology based on product liability, infringement of intellectual property, or other legal theories. Even if these claims do not result in liability to us, investigating and defending these claims could be expensive and time-consuming and could result in suspension of or interference with certain offerings to our clients and/or adverse publicity that could harm our business.

Financial Risks

A significant portion of our revenue is generated from a relatively small number of customers.

We derive a substantial portion of our revenues from a relatively small number of customers. A termination or material modification of our agreements with any of our significant customers or a failure of these customers to renew their contracts on favorable terms, or at all, could have an adverse effect on our business.

A significant portion of our business is subject to renewal each year.renewal. Therefore, renewals have a significant impact on our revenue and operating results.

For the year ended December 31, 2017,2021, approximately 69%95% of our net revenue was derived from our workforce subscription-based solution products.SaaS-based subscriptions and software licensing agreements. Our subscription-basedproduct and service contracts typically range from one to five years in length, and customers have no obligationare not obligated to renew their subscriptions for our products or servicescontract with us after the expiration of the subscription agreement, andtheir contract term expires; in fact, some customers have elected not to renew their subscription.contract, and this risk has increased as the result of conditions related to the COVID-19 pandemic. In addition, our customers may renew at a lower pricingprice or activity level. Our customers’ renewals may decline or fluctuate as a result of a number of factors, including but not limited to, their dissatisfaction with our service, a dissipation or cessation of their need for one or more of our products or services, pricing, or competitive product offerings. If we are unable to renew a substantial portion of the contracts that are up for renewal or maintain our pricing, our results of operations and financial condition could be adversely affected. For example,

Failure to adequately expand and optimize our direct sales infrastructure will impede our growth.

We will need to expand and optimize our sales infrastructure in order to grow our customer base and our business. Identifying and recruiting qualified personnel and training them in our sales methodology, our sales systems, and the requirement mandated by CMS for healthcare organizationsuse of our software requires significant time, expense, and attention. Moreover, the current competitive labor market has increased the challenge of recruiting and retaining qualified sales representatives. It can take significant time before our sales representatives are fully trained and productive. Our business may be adversely affected if our efforts to transition to theICD-10 coding system, effective in October 2015, generated significant demand forexpand and train ourICD-10 readiness training courseware from 2012 through 2015, when subscriptions for that product positively influenced the Company’s revenue and operating income. However, direct sales of that product have ceased and revenue and operating income from that product declined significantly during 2016 and have ceased altogether as of December 31, 2017. HealthStream Provider Solutions product and service contracts typically range from one to three years in length, and customers are not obligated to renew their contract with us after their contract expires. If our customersteams do not renew their arrangements for our services,generate a corresponding increase in revenues. In particular, if we are unable to hire, develop, and retain talented sales personnel or if their activitynew direct sales personnel are unable to achieve desired productivity levels decline,in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue may decline and our business will suffer.

We may be unable to accurately predict the timing of revenue recognition from sales activity as it is often dependent on achieving certain events or performance milestones, and this inability could impact our operating results.

Our ability to recognize revenue is dependent upon several factors including the transfer of customer-specific information such as unique subscriber IDs, which are requiredin order for us to implement customers on our subscription-based platform and certain platform applications. Accordingly, ifIf customers do not provide us with the specified information required to complete implementations in a timely manner, our ability to recognize revenue willmay be delayed, which could adversely impact our operating results. In addition, implementation completion and acceptance of our subscription-based platform and certain platform applications by our customers must be achieved and delivery of services is required in connection with subscription-basedMoreover, some products for us to recognize revenue. Some products, including those in our Provider Solutions segment, can require significant implementation lead times and the rate at which customer orders move from backlog to revenue generation in connection with these products may significantly affect the timing of revenue recognition.

Because we recognize revenue from subscriptions for our products and services over the term of the subscription period, downturns or upturns in sales may not be immediately reflected in our operating results.

During the year ended December 31, 2017,2021, we recognized approximately 69%95% of our revenue from customers monthly over the terms of their subscription or software licensing agreements, which generally have initial contract terms ranging from one to five years. As a result, much of the revenue we report in each quarter is related to subscription or licensing agreements entered into during previous quarters. Consequently, a decline in new or renewed subscription or licensing agreements in any one quarter will not necessarily be fully reflected in the revenue in that quarter and will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our cost structure to reflect this reduced revenue. Accordingly, the effect of significant downturns in sales and market acceptance of our products and services may not be fully reflected in our results of operations until future periods. Additionally, our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term. Finally,

Moreover, as noted above, we generally have contract terms ranging from one to five years, and the majorityfees payable under such contracts are often determined without reference to any increases in the consumer price index or similar inflation-related metric over the term of costs associated with our sales cyclessuch contract. As such, particularly for longer term contracts, we may be adversely impacted by inflationary conditions such as those that the U.S. economy is currently experiencing given that the fees that we are incurred up front before revenue recognition commences, and therefore periodsreceiving during the outstanding term of strong sales performancesuch contracts will not be impacted by general price increases resulting from inflation whereas such inflationary conditions may increase the amount of labor, capital, and other expenditures we incur in connection with the operation of our costs in the near term, negatively affecting our financial performance.business.

We may not be able to meet our strategic business objectives unless we obtain additional financing, which may not be available to us on favorable terms or at all.

We believe that our existing cash and cash equivalents, marketable securities, cash generated from operations, and available borrowings under our revolving credit facility will be sufficient to meet anticipated working capital needs, new product development and capital expenditures for at least the next 12 months. However, we may need to raise additional funds in orderfor various purposes, including to:

At December 31, 2017,2021, we had approximately $131.1$51.9 million in cash, cash equivalents, and marketable securities. In addition, in connection with the sale of our Patient Experience business for $65.5 million in cash, which was completed in February 2018, we anticipate recording apre-tax book gain in the first quarter of 2018 between $34.0 million and $38.0 million. Following this disposition, our Board of Directors declared a dividend of $1.00 per common share, or approximately $32.5 million, payable on April 3, 2018 to shareholders of record on March 6, 2018. We also have up to $50.0$65.0 million of availability under our Revolving Credit Facility, subject to certain covenants, which expires in November 2018. We expect to incur approximately $20.0 million of capital expenditures, software development and content purchases during 2018.October 2023.

We actively review possible business acquisitions to complement or enhance our products and services. We may not have adequate cash and investments or availability under our Revolving Credit Facility to consummate one or more of these acquisitions. We cannot assure yoube assured that if we need additional financing, that it will be available on terms favorable to us or at all. Moreover, the COVID-19 pandemic has led to disruption and volatility in financial and capital markets and could lead to future disruption and/or volatility. If adequate funds are not available or are not available on acceptable terms, our ability to fund expansion, take advantage of available opportunities, develop or enhance services or products, or otherwise respond to competitive pressures would be significantly limited. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our existing shareholders may be reduced.

We have significant goodwill andGoodwill, identifiable intangible assets, long-lived assets, and strategic investments recorded on our balance sheet that may be subject to impairment losses that wouldcould reduce our reported assets and earnings.

As of December 31, 2017, our balance sheet included goodwill of $110.3 million and net identifiable intangible assets of $68.8 million.

There are inherent uncertainties in the estimates, judgments, and assumptions used in assessing recoverability of goodwill, intangible assets, long-lived assets, and intangible assets.strategic investments. Economic, legal, regulatory, competitive, reputational, contractual, and other factors could result in future declines in the operating results of our business units or market values that do not support the carrying value of goodwill, identifiable intangible assets, long-lived assets, and identifiable

intangible assets.strategic investments. Moreover, the risk of such declines in operating results and market values may be increased by conditions resulting from the COVID-19 pandemic. If the value of our goodwill, and/or intangible assets, long-lived assets, or strategic investments is impaired, accounting rulesprinciples require us to reduce their carrying value and report an impairment charge, which would reduce our reported assets and earnings for the period in which an impairment is recognized.

We may be affected by healthcare reform efforts and other changes in the healthcare industry that impact us and our clients.

Our clients are concentrated in the healthcare industry, which is subject to changing regulatory, economic, and political conditions. In 2017, we observed an increase in bankruptcies among healthcare providers. This decrease in creditworthiness among certain of our customers along with other economic challenges facing the healthcare sector caused our bad debt expense to increase from $640,000 in 2016 to $1.8 million in 2017. Continuance or escalation of this development could result in our inability to collect amounts owed from existing clients and decrease our ability to gain new clients, which could adversely impact our revenue, results of operations, and ability to execute on our growth strategy.

The U.S. Congress and certain state legislatures have passed or are considering laws and regulations intended to result in major changes to the U.S. healthcare system. The most prominent of these reform efforts, the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010 (collectively, Affordable Care Act)the ACA), was designed to increase access to affordable health insurance for U.S. citizens and improve quality of care, but it also has reduced government program spending and imposed operating costs and changes on many of our clients.

However, efforts by the presidential administration and certain members of Congress to repeal or make significant changes to the Affordable Care Act, its implementation and/or its interpretation have cast considerable uncertainty on the future of the law. For as part of tax reform legislation enacted in December 2017, Congress eliminated the financial penalty associated with the individual mandate, effective January 2019, which may impact the number of individuals that elect to purchase health insurance. In addition, a presidential executive order

The ACA has been signed that directs agenciessubject to minimize “economiclegislative and regulatory burdens” of the Affordable Care Act.changes and court challenges. There is uncertainty regarding whether, when, and how the Affordable Care ActACA will be further changed what alternative provisions, if any, will be enacted, the timing of enactment and implementation of alternative provisions, the impact of alternative provisions on providers as well as other healthcare industry participants, and how the law will be interpreted and implemented. Changes byThere is also uncertainty regarding whether, when, and what other health reform initiatives will be adopted and the impact of such efforts on the healthcare industry. For example, some members of Congress have proposed significantly expanding the coverage of government-funded programs, while others have proposed reducing them. There are also examples of additional reform efforts other than the ACA, such as the recently enacted No Surprises Act.

Other industry participants, such as large employer groups and their affiliates, may also introduce financial or government agencies could eliminatedelivery system reforms or alter provisions beneficial to us while leaving in place provisions reducing our reimbursement.otherwise intensify competitive pressures. Some of the recent changes in the healthcare industry have driven consolidation, particularly among health insurance providers.providers, which could affect the size of our customer base. Other reforms or industry participants, such as large employer groupschanges may reduce payments from third party healthcare payers, including Medicare and their affiliates, may intensify competitive pressures. EffortsMedicaid, to repealour customers.

Any legal or change the Affordable Care Act or implement other initiatives intended to reform healthcare delivery and financial systems may have an adverse effect on our clients. Any such regulatory developments, as well as other healthcare-related or other developments, that adversely impact the business or financial condition of our clients, could reduce the amount of business we receive from such clients and thus have an adverse effect on our results of operations.

We may not be able to demonstrate compliance with Sarbanes-Oxley discover weaknesses in our internal controls over financial reporting, which may adversely affect investor confidence in the accuracy and completeness of our financial reports and consequently the market price of our securities.

Section 404 in a timely manner, andof the correctionSarbanes-Oxley Act of any deficiencies identified during annual audits may be costly and could harm our business.

Sarbanes-Oxley Section 4042002 requires our management to report on and requires our independent public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. The rules governing the standards to be met are complex and may require significant process review, documentation, and testing, as well as remediation efforts for any identified deficiencies. This process of review, documentation, testing, and remediation may result in increased expenses and require significant attention from management and other internal and external resources. These requirements may also extend to acquired entities and our efforts to integrate those operations into our system of internal controls. Any material weaknesses identified during this process may preclude us from asserting the effectiveness of our internal controls. This may negatively affect our stock price if we cannot effectively remediate the issues identified in a timely manner.

Changes in accounting standards issued by the Financial Accounting Standards Board, or FASB, including the new revenue recognition accounting standard, could adversely effect on our balance sheet, revenue, and results of operations, and could require a significant expenditure of time, attention and resources, especially by senior management.

Our accounting and financial reporting policies conform to GAAP, which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC and our independent registered public accounting firm. Changes to regulations concerning revenue recognition could require us to alter our current revenue accounting practices and cause us to either defer revenue into a future period, or to recognize lower revenue in a current period. Likewise, changes to regulations concerning expense recognition could require us to alter our current expense accounting practices and cause us to defer recognition of expense into a future period, or to recognize increased expenses in a current period. Such changes could also cause us to alter the manner in which we contract for, sell, and incentivize sales of products and services. Changes to either revenue recognition or expense recognition accounting practices could affect our financial results.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards UpdateNo. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU2014-09”), which supersedes nearly all existing revenue recognition guidance. We have adopted

this standard utilizing the modified retrospective approach effective as of January 1, 2018. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. We will be finalizing our determination regarding the financial impact of the adoption of this accounting standard on our future financial statements in the first quarter of 2018, but it is possible that the adoption of such standard could have an adverse impact on the timing of our revenue recognition and thus adversely impact the amount of our revenue in any particular period.

Risks Related to Sales, Marketing and Competition

Our operating margins could be affected if our ongoing refinement to pricing models for our products and services is not accepted by our customers and the market.

We continue to make changes in the pricing of our product and service offerings so as to increase revenue and meet the needs of our customers. We cannot predict whether the current pricing of our products and services, or any ongoing refinements we make will be accepted by our existing customer base or by prospective customers. If our customers and potential customers decide not to accept our current or future pricing or product and service offerings, it could have an adverse effect on our business and results of operations.

Risks Related to Operations

Our operating margins could be affected if our ongoing refinement to pricing models for our products and services is not accepted by our customers and the market.

We continue to make changes in the pricing of our offerings so as to increase revenue and meet the needs of our customers. We cannot predict whether the current pricing of our offerings or any ongoing refinements we make will be accepted by our existing customer base or by prospective customers. If our customers and potential customers decide not to accept our current or future pricing or offerings, it could have an adverse effect on our business and results of operations. Additionally, ecosystem partners establish the price for some of the products we market and sell, and we do not have control over such price setting or customer acceptance thereof or reaction thereto.

We may be unable to adequately develop our systems, processes, and support in a manner that will enable us to meet the demand for our products and services.

We have provided our online products and services for over 18 yearsa significant period of time and continue to expand our ability to provide our solutions on both a subscription and transactional basis over the Internet or otherwise. Our future success will depend on our ability to effectively develop and maintain our infrastructure, including procurement of additional hardware and software, integrate and tointeroperate with third party systems, and implement the services, including customer support, necessary to meet the demand for our products and services.offerings. Our inability from time to time to successfully develop the necessary systems and implement the necessary services on a timely basis may result in our customers experiencing delays, interruptions, and/or errors in their service. Such delays or interruptions may cause customers to become dissatisfied with our service and move to competing providers of workforce development and provider solutions services.providers. If this happens, our reputation, results of operations, and financial condition could be adversely affected.

Our business operations could be significantly disrupted if we lose members of, orWe operate in a challenging market for talent and may fail to attract and integrate new members to, ourretain qualified personnel, including key management team.personnel.

Our future performance is substantially dependent on the continued services of our management team and our ability to attract, retain, and motivate them. The loss of the services of any of our officers or senior managers, or the inability to attract additional officers or senior managers as appropriate, could harm our business, as we may not be able to find suitable replacements. We do not have employment agreements with any of our key personnel, other than our chief executive officer, and we do not maintain any “key person” life insurance policies.

We Moreover, current competitive labor market conditions may not be ablemake it more difficult for us to attract hire and retain a sufficient number of qualified employees and, as a result, we may not be able to effectively executekey management personnel.

In addition, our growth strategy or maintain the quality of our services.

Our future success will depend on our ability to attract, train, motivate, and retain other highly skilled technical, managerial, marketing, sales, and customer support coaching, and survey personnel. Competition for certain personnel is intense and, during the so called "Great Resignation" has reached historically high levels, especially for software developers, web designers, user experience and interaction designers, and sales personnel, and we may be unable to successfully attract sufficiently qualified personnel. Additionally, current competitive labor market conditions have increased, and may continue to increase, our labor costs as well as the difficulty of hiring and retaining qualified personnel. We have experienced in the past, and continue to experience, difficulty hiring qualified personnel in a timely manner for these positions.positions, and we may not be able to fill positions in desired geographic areas or at all. The pool of qualified technical personnel, in particular, is limited in Nashville, Tennessee, where our headquarters are located. Similar challenges exist within our Provider Solutions segment in our locations in San Diego, California,limited. Many of the companies with which we compete for experienced personnel have greater resources than we have and Boulder, Colorado.some of these companies may offer more lucrative compensation packages. We will also needanticipate needing to continue to maintain or increase the size of our staff to support our anticipated growth, without compromising the quality of our offerings or customer service. Our inability to locate, attract, hire, integrate and retain qualified personnel in sufficient numbers may reduce the quality of our services and impair our ability to grow.grow and adversely impact our financial performance.

We may not be able to upgrade our hardware and software technology infrastructure quickly enough to effectively meet demand for our services or our operational needs.

We must continue to obtain reasonably priced, commercially available hardware, operating software, and hosting services, as well as continue to enhance our software and systems to accommodate the increased use of our platform, the increased content in our library, the expanding amount and type of data we store on behalf of our customers, and the resulting increase in operational demands on our business, including as imposed by new and changing legal and regulatory requirements applicable to our business. Decisions about hardware and software enhancements are based in part on estimated forecasts of the growth in demand for our services. This growth in demand for our services is difficult to forecast and the potential audience for our services is widespread and dynamic. If we are unable to increase the data storage and processing capacity of our systems at least as fast as the growth in demand, our customers may encounter delays or disruptions in their service. Unscheduled downtime or reduced response time of our platforms could harm our business and also could discourage current and potential customers from using or continuing to use our

services and reduce future revenue. If we are unable to acquire, update, or enhance our technology infrastructure and systems quickly enough to effectively meet increased operational demands on our business, that may also have an adverse effect on our results of operations or financial condition. Further, asour applications necessarily must integrate with a variety of systems and technologies. As we develop our platformsplatform and applications and rely on ever changing and improving technologies, we may be impeded by our customers’ and ecosystem partners’ inability to adopt new technologies such as web browsers,and technology standards upon which new platform enhancements may be based.

Our network infrastructure and computer systems and software may fail.

An unexpected event (including but not limited to a cyber-security incident, such as ransomware attack, security compromise, or other attempts to misappropriate our confidential information; telecommunications failure, fire, earthquake,failure; vandalism; fire; earthquake; public health crises; epidemics or pandemics; or other catastrophic loss) at or impacting our Internet service providers’ facilities, or at ouron-site data center facilities, or our public-cloud infrastructure providers, could cause the loss of critical data and prevent us from offering our products and services for an unknown period of time. Moreover, the ongoing COVID-19 pandemic could have a significant adverse operational impact on these facilities and/or these providers on which we rely, as such providers continue to navigate their own challenges resulting from their employee base continuing to work remotely and other impacts of the pandemic. In addition, in the remote work environments, the daily activities and productivity of our workforce is now more closely tied to key vendors, such as video conference services, consistently delivering their services without material disruption. Our ability to deliver information using the Internet and to operate in a remote working environment may be impaired because of infrastructure failures, service outages at third party internet providers, malicious attacks or other factors. System downtime could negatively affect our reputation and ability to sell our products and services and may expose us to significant third-partythird party claims. Our cyber liability and business interruption insurance may not adequately compensate us for losses that may occur. In addition, we rely on third parties to securely store our archived data, house our web serverinfrastructure and network systems, and connect us to the Internet. While our service providers have planned for certain contingencies, the failure by any of these third parties to provide these services satisfactorily and our inability to find suitable replacements would impair our ability to access archives and operate our systems and software, and our customers may encounter delays. Such disruptions could harm our reputation and cause customers to become dissatisfied and possibly take their business to a competing provider, which would adversely affect our revenues.financial performance.

A data breach or security incident could result in a loss of confidential data, give rise to remediation and other expenses, expose us to liability under HIPAA, the Family Educational Rights and Privacy Act (“FERPA”), foreign data privacy regulations, federal and state data protection and data privacy requirements, consumer protection laws, common law theories, and other laws, rules and regulations, subject us to litigation and governmental inquiries, damage our reputation, and otherwise adversely impact our business.

We collect and store sensitive information, including intellectual property, individually identifiable health and other information, provider credentialing and privileging data, education records, and other sensitive personal information, on our networks. We are directly subject to certain privacy and security requirements imposed under HIPAA and we collect and store data that qualifies as Protected Health Information (PHI) under HIPAA. In addition, there are a variety of other state, national, foreign, and international laws and regulations that apply to the collection, use, retention, protection, security, disclosure, transfer, and other processing of personal data, such as the California Consumer Protection Act (CCPA), which was recently significantly modified by the California Privacy Rights Act (CPRA), the Virginia Consumer Data Protection Act, and the Colorado Privacy Act, as well as the European Union’s General Data Protection Regulation (GDPR), Canada's Personal Information Protection and Electronic Documents Act, Australia's Privacy 1988, and New Zealand's Privacy Act 2020. The CCPA and CPRA also provide for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. We may lose usersalso be exposed to litigation, regulatory fines, penalties or other sanctions if the personal, confidential, or proprietary information of our customers is mishandled or misused by any of our suppliers, ecosystem partners, counterparties, or other third parties, or if such third parties do not have appropriate controls in place to protect such personal, confidential, or proprietary information. Moreover, several other states, as well as federal lawmakers, have proposed additional legislation. Further, many foreign data privacy regulations (including the GDPR) can be more stringent than those in the United States. The laws and lose revenue ifregulations to which we are subject are rapidly evolving and changing and could have an adverse effect on our security measures fail.operations. Companies’ obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by government authorities and regulators. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, affect our customers’ willingness to permit us to use and store personal data, prevent us from selling our products or services, and/or affect our ability to invest in or jointly develop products. Failure to comply with these laws may result in governmental enforcement actions, private claims, including class action lawsuits, and damage to our reputation. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations.

The secure maintenance of sensitive information is critical to our business operations. As a result, the continued development and enhancement of controls, processes, and practices designed to protect our information systems from attack, damage, or unauthorized access remain a priority for us. If the security measures that we use to protect customer or personal information are ineffective, we may lose users of our services, which could reduce our revenue, tarnish our reputation, and subject us to significant liability. In addition, if our subcontractors, subprocessors, or various other vendors on which we rely fail to use adequate security or data protection processes or use personal date in an unpermitted or improper manner, we may be liable for certain losses and may damage our reputation. Additionally, our costs and efforts associated with obtaining and maintaining certain certifications related to data privacy and protection may also increase, to the extent we are able to obtain or maintain such certifications at all.

We have implemented multiple layers of security measures to protect confidential data that we collect and store through technology, processes, and our people, and our defenses are monitored and routinely tested internally and by external parties. We rely, in part, on security and authentication technology licensed from third parties. With this technology, we perform real-time credit card authorization and verification, as well as the encryption of other selected secure customer data. We cannot predict whether these security measures could be circumvented by new technological developments. Moreover, advanced new attacks that may be directed at us or our third party vendors create risk of cybersecurity incidents, including ransomware, malware, and phishing incidents. We may also be subject to attacks in which malicious actors seek to, and potentially succeed in, exploiting our products or services as a vector to compromise the security or integrity of our customers, partners, or vendors. Further, the audit processes, penetration and vulnerability testing, and controls used within our production platforms may not be sufficient to identify and prevent errors or deliberate misuse. In addition, our software, databases, and servers may be vulnerablecontain vulnerabilities or irregularities that lead to computer viruses, physical or electronic attacks, and similar disruptions. We may needbe at increased risk because we outsource certain services or functions to, spend significant resourcesor have systems that interface with, third parties. Our contracts with service providers typically require them to implement and maintain adequate security controls, but we may not have the ability to effectively monitor these security measures. As a result, inadequacies of the third party security controls may not be detected until after a security breach has occurred. For example, third party IT vendors may not provide us with fixes or updates to hardware or software in a manner as to avoid an unauthorized loss, access, or disclosure of data or to address a known vulnerability, which may subject us to known threats and cause system failures or disruptions. Third party vendors that store or have access to our data may not have effective controls, processes, or practices to protect againstour information from attack, damage, or unauthorized access. These risks may be heightened in connection with employees and service providers working from remote work environments, as our dependency on certain service providers, such as video conferencing and web conferencing services, has significantly increased. In addition, to access our network, products, and services, customers and other third parties may use personal mobile computing devices that are outside of our network environment and subject to their own security breachesrisk. A breach or to alleviate problems caused byattack affecting any breaches.of these third parties could harm our business. We cannot assure that we can prevent all security breaches.

A

Like many organizations, we have experienced data breachand cyber incidents from time to time in the course of our business and have handled those incidents in accordance with our internal policies and our understanding of applicable laws. In the future, potential data breaches or security incident could result in a loss of confidential data, give rise to remediation and other expenses, expose us to liability under HIPAA, the Health Information Technology for Economic and Clinical Health Act (HITECH), state privacy laws, consumer protection laws, common law theories or other laws, subject us to litigation and federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.

We collect and store sensitive information, including intellectual property, individually identifiable health information, provider credentialing and privileging data, and other personally identifiable information, on our networks. The secure maintenance of this information is critical to our business operations. As a result, the continued development and enhancement of controls, processes, and practices designed to protect our information systems from attack, damage, or unauthorized access remain a priority for us. We have implemented multiple layers of security measures to protect this confidential data through technology, processes, and our people, and our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, a data breach or security incidentincidents could result from a variety of circumstances and events, including third-partythird party action or inaction, system errors or downtime, employee negligence or error, malfeasance, computer viruses, failures during the process of upgrading or replacing software, databases, or components thereof, power outages, hardware failures, telecommunication failures, user errors, catastrophic events, or threats from malicious persons and groups, new vulnerabilities, and advanced new attacks against information systems. In addition, third party IT vendorsData incidents could result in interruptions, delays, loss, access, misappropriation, and disclosure or corruption of data which could damage our reputation and could otherwise adversely impact our business. Moreover, in the current threat environment, cyberattacks have become increasingly frequent, sophisticated, and difficult to detect, and we may not provide us with fixesbe able to anticipate, prevent, or updates to hardware or software in a manner as to avoid an unauthorized loss or disclosure or to address a known vulnerability, which may subject us to known threats or downtime as a result of those delays.

detect all such attacks. There can be no assurance that we will not be subject to data incidents that bypass our security measures, result in loss of confidential information, or disrupt our information systems or business. Data incidents could result in interruptions, delays, loss, access, misappropriation, and disclosure or corruption of data and could damage our reputation. In addition, data and cyber incidents, particularly if a large number of individuals are affected or if the compromised information is highly sensitive, could expose us and our customers to liability under privacy, security, and consumer protection laws, such as HIPAA, FERPA, CCPA, CPRA, and foreign data privacy regulations or litigation under these or other laws, including common law theories, and subject us to federal and state governmental inquiries or enforcement, especiallycould require us to devote significant management resources to address the problems created by such events, could interfere with the pursuit of other important business strategies, and could cause us to incur additional expenditures, which could be material, including to investigate such events, remedy cybersecurity problems, recover lost data, and adapt systems and practices in response to such events. Moreover, our cyber liability and business interruption insurance may not adequately compensate us for losses that may occur.

Furthermore, we have acquired a number of companies, products, services, and technologies in recent years. Although we devote significant resources to address any security issues with respect to such acquisitions, we still may inherit additional security risks when we integrate those companies within HealthStream. Moreover, if a large number of individuals are affected or if the compromised information is highly sensitive. Like many other organizations, we have experienced data incidents from timehigh-profile security breach occurs with respect to timean industry peer, our customers and potential customers may lose trust in the coursesecurity of our business and handled these incidentssolutions in accordance with our internal policies and understanding of the applicable laws.general.

As cyber and other threats to confidential information continue to evolve, we may be required to continue to expend significant additional resources to continue tomaintain, modify, or enhance our internal processes, governance, or protective measures, or to investigate and remediate any security vulnerabilities. The occurrence of a data incident and the resulting potential costs and liabilities could have an adverse effect on our financial position and results of operations and harm our business reputation.

We may experience errors or omissions in our software products or processes, including those that deliver provider credentialing, privileging, and payer enrollment services for our hospitals and medical practicehealthcare customers and those that administer and report on hospitalhealthcare facility performance, and these errors could result in action taken against us that could harm our business.

Hospitals and medical practices use our credentialing, privileging, and payer enrollment software to manage, validate, and maintain their providers’ and other staff credentials and authorization to practice in a particular facility and to maintain authorization to perform care covered by insurance providers. In some instances, we rely on sources outside the Company for information that we use in our credentialing and privileging products. If errors or omissions occur that inaccurately validate or invalidate the credentials of a provider or staff, or improperly deny or authorize a provider or staff to practice in a hospital or medical practice, these errors or omissions could result in litigation brought against us either by our customers, the provider or staff member, or other interested parties. For example, an important element in a malpractice case brought against a hospital or other provider could be the validation of proper credentialing for the provider, and any errors or omissions in our products that provide these services could subject us to claims. Further, a list of providers’ privileges may be made available to the general public by hospitals and medical practices, and errors in credentialing and privileging may result in damage to the hospital, medical practice, or provider.

Certain survey data will continue to be reported by us in relation to the Shared Contracts (as defined and described below), such as the survey data included as part of our CAHPS^® Hospital survey is used by CMS to determine, in part, the amount of reimbursement payments to hospitals, and any errors in data collection, survey sampling, or statistical reporting could result in reduced reimbursements to our hospital customers if we are unable to correct these errors or ensure that they are corrected, and this could, in turn, result in litigation or claims against us. Further, this survey data reported to CMS is then published by CMS to the general public, and any errors we experience that result in incorrect scoring of our hospital customer We may result in damage to that hospital’s reputation, and the hospital may in turn bring litigation against us.

We mayalso be required to indemnify against such claims and defending against any such claims could be costly and time-consuming and could negatively affect our business.

Thenon-renewal

As previously announced, Laerdal Medical A/S, a Norwegian company (“Laerdal”), provided notice that, upon the December 31, 2018 expiration of our existing agreements with Laerdal regarding the HeartCode and Resuscitation Quality Improvement (RQI) products, Laerdal does not intend to continue these existing agreements or enter into new agreements with HealthStream in relation to such products.Our Joint Marketing and Licensing Agreements with Laerdal for HeartCode and for RQI, respectively, will expire on December 31, 2018.

Revenues associated with the sales of HeartCode and RQI products have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin. While we are in active negotiations to deliver resuscitation programs to our customers following the expiration of our agreements with Laerdal, there is no assurance that we will be successful in these efforts. To the extent we are not successful in these efforts and new resuscitation programs do not generate revenue and/or earnings in a manner that supplants the impact of these Laerdal agreements, our revenue and results of operations will be adversely affected.

There are certain risks associated with the sale of our Patient Experience business which was completed in February 2018.

In February 2018, we completed the sale of our PX business to Press Ganey. As a result of this transaction, we are now highly dependent on the success of our two remaining business segments, our workforce solutions segment and provider solutions segment. In addition, in connection with the sale of our PX business to Press Ganey, we agreed to indemnify Press Ganey with respect to certain matters, including the breach of our representations, warranties and covenants contained in the agreements related to this transaction. A material breach or inaccuracy of these representations, warranties and covenants in any of the agreements related to those transactions could lead to a claim against us, which could require us to pay substantial sums and incur related costs and expenses.

In addition, many of the customer contracts associated with the PX business were shared contracts (“Shared Contracts”) under which we provide services in connection with our existing businesses and under which we previously (prior to the closing of the sale of our Patient Experience business) provided services in connection with the Patient Experience business. Under the terms of our agreement with Press Ganey, these Shared Contracts will be retained by us; however, Press Ganey will provide services to our customers under these Shared Contracts to the extent related to the Patient Experience business (and will be entitled to receive the benefit of payments made by our customers in connection therewith) until such time that Press Ganey obtains a replacement contract and/or an assignment with respect to the portion of the Shared Contract that relates to the Patient Experience business. As a result, if Press Ganey is unable to satisfy its obligations under the Shared Contracts or if other issues arise in connection this arrangement, we could incur operational or reputational losses that may adversely affect our results of operations or business. Moreover, under the terms of our transition services agreement with Press Ganey, we will provide certain technology, financial and operational transitional services for a period of time following the closing (not to exceed one year). In connection therewith, we have certain obligations (including indemnification obligations) in respect of which we may incur additional expense or liability.

Risks Related to Government Regulation, Content, and Intellectual Property

Government regulation may subject us to investigation, litigation, or liability or require us to change the way we do business.

The laws and regulations that govern our business change rapidly. Evolving areas of law that are relevant to our business include privacy and security laws (as discussed above), proposed encryption laws, content regulation, information security accountability regulation, privacy laws, sales and use tax laws, and regulations and attempts to regulate activities on the Internet. For example, we are directly subject to certain requirements of the HIPAA privacy and security regulations. In addition, we are required through contractsbusiness associate agreements with our customers known as “business associate agreements” to protect the privacy and security of certain personal and health related information. Further, government laws and regulations such as the Affordable Care Act, that directly affect our customers, can have an indirect impact on our business. We may also be required to develop features, enhancements, or modifications to our products to support our customers’ evolving compliance obligations. This may require us to divert development and other resources from other areas, incur significant expenditures, or, if we are unsuccessful in delivering these features, enhancements, or modifications, result in monetary damages, loss of revenue or customers, reputational harm, or other adverse impacts to our business.

We may lose sales from existing or potential customers or incur significant expenses if states are successful in imposing state sales and use taxes on our services to a greater degree than is currently the case or we inherit potential state sales and use tax compliance issues in connection with acquisitions we may make from time to time. A successful assertion by one or more states that we should collect sales or uses taxes on the sale of our services to a greater degree than is our current practice could result in substantial tax liabilities for past sales, decrease our ability to compete on pricing with other vendors, and otherwise harm our business. Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. We cannot be assured that we will not be subject to sales and use taxes or related penalties for past sales in states where we believe no compliance is necessary.

We are also subject to income and other taxes in the United States as well as in those states and foreign jurisdictions in which we do business. Changes in federal tax laws applicable to U.S. corporations and/or other laws, or interpretations of tax laws by taxing authorities or other standard setting bodies, could increase our tax obligations and adversely impact our results of operations. Additionally, we may be subject to taxes and tax laws in foreign jurisdictions where we do business.

The rapidly evolving and uncertain regulatory and technology environment could require us to change how we do business or incur additional costs. It may be difficult to predict how changes to these laws and regulations might affect our business. Our current

While we strive to adhere our practices and past privacy and security practices, including any breaches of protected health information or other data, could beprocedures to the laws that are applicable to our business, they are subject to reviewevolving rules and regulations, interpretations, and regulator discretion. To the extent a regulator or other investigation by various statecourt disagrees with our interpretation of these laws and federal regulatory authorities or could become the subject of future litigation.

Failure to complydetermines that our practices are not in compliance with applicable laws and regulations, including those governing privacy and security,we could be subject us to civil and criminal penalties that could adversely affect the continued operation of our business, including significant fines or monetary damages and/or penalties. In addition, failure to comply with applicable legal or regulatory requirements in the U.S. or in any of the countries in which we operate could result in significant legal and financial exposure, damage to our reputation, subject us to contractual penalties (including termination of our customer agreements), adversely affect our ability to retain clients and attract new clients, damage our reputation, or otherwise have a detrimental impactmaterial adverse effect on our business.business operations, financial condition, and results of operations.

Any reduction or change in the regulation of continuing education and training in the healthcare industry may adversely affect our business.

A portion of our business model is dependent in part on required training and continuing education for healthcare professionals and other healthcare workers resulting from regulations of state and federal agencies, state licensing boards, and professional organizations. Any change in these regulations that reduce the requirements for continuing education and training for the healthcare industry could harm our business. In addition, a portion of our business with pharmaceutical and medical device manufacturers and hospitals is predicated on our ability to maintain accreditation status with organizations such as the ACCME ANCC, and ACPE.ANCC. The failure to maintain status as an accredited provider could have a detrimental effect on our business.

We may be liable to third parties for content that is sold or made available from our online library.by us.

We may be liable to third parties for the content in our online librarysold or made available by us if the text, graphics, software, or other content in our librarytherein violates copyright, trademark, or other intellectual property rights, if our contentecosystem partners violate their contractual obligations to others by providing content to our library,that we sell or make available, or if the content is inaccurate, incomplete, or does not conform to accepted standards of care in the healthcare profession. Further, we may be liable to these contentecosystem partners if we improperlyallow access or release and lose control of their contentintellectual property stored on our platform either due to security issues or through improper release to customers who have not paid for access to this content.such intellectual property. We attempt to minimize these types of liabilities by requiring representations and warranties relating to our contentintellectual property partners’ ownership of the rights to distribute as well as the accuracy of their content.intellectual property. We also take necessary measures to review this contentintellectual property ourselves. Although our agreements with our contentecosystem partners in most instances contain provisions providing for indemnification by the content providersecosystem partners in the event of inaccurate content,intellectual property, our contentecosystem partners may not have the financial resources to meet these indemnification obligations. Alleged liability could harm our business by damaging our reputation, requiring us to incur legal costs in defense, exposing us to awards of damages and costs, and diverting management’s attention away from our business.

Protection of certain intellectual property may be difficult and costly, and our inability to protect our intellectual property could reduce the value of our products and services.services or reduce our competitive advantage.

Despite our efforts to protect our intellectual property rights, as well as the intellectual property rights of our strategicecosystem partners, a third party could, without authorization, copy or otherwise misappropriate our content, information from our databases, or other intellectual property, including that of our third party strategicecosystem partners. Our agreements with employees, consultants, and others who participate in development activities could be breached and result in our trade secrets becoming known. Alternatively, competitors and other third parties may independently develop or create content or systems that do not infringe our intellectual property rights. We may not have adequate remedies for such breaches or protections against such competitor developments. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and effective intellectual property protection may not be available in those jurisdictions.

Our business could be harmed if unauthorized parties infringe upon or misappropriate our intellectual property, proprietary systems, content, platform, applications, services, or other information or the intellectual property of our strategicecosystem partners. Our efforts to protect our intellectual property through copyright, trademarks, trade secrets, patents, and other controls,forms of protection, as well as our efforts to protect the intellectual property of our strategicecosystem partners, may not be adequate. For instance, we may not be able to secure trademark or service mark registrations for marks in the United States or in foreign countries or to secure patents for our proprietary products and services, and even if we are successful in obtaining patent and/or trademark registrations, these registrations may be opposed or invalidated by a third party. We also have certain contractual obligations to protect the intellectual property of our strategicecosystem partners and could be required to indemnify such strategicecosystem partners if we do not adequately provide such protections.

There has been substantial litigation in the software services and healthcare technology industries regarding intellectual property assets, particularly patents. Third parties may claim infringement by us with respect to current and future products, trademarks, or other proprietary rights, and we may counterclaim against such third parties in such actions. Any such claims or counterclaims could be time-consuming, result in costly litigation, divert management’s attention, cause product release delays, require us to redesign our products, restrict our use of the intellectual property subject to such claim, or require us to enter into royalty or licensing agreements, any of which could have an adverse effect upon our business, financial condition, and operating results. Such royalty and licensing agreements may not be available on terms acceptable to us, if at all.

We may be liable for infringing the intellectual property rights of others.

Our competitors may develop similar intellectual property, duplicate our products and/or services,offerings, or design around any patents or other intellectual property rights we hold. In the future, litigationLitigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the patents, intellectual property, or other proprietary rights of third parties, which could be time consuming and costly and have an adverse effect on our business and financial condition. Intellectual property infringement claims could be made against us and our ecosystem partners, especially as the number of our competitors grows. These claims, even if not meritorious, could be expensive and divert our attention from operating our company and result in a temporary inability to use the intellectual property subject to such claim. In addition, if we, our ecosystem partners, and/or our affiliates and customers become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial damage award and develop comparablenon-infringing intellectual property, to obtain a license, or to cease providing the content or services that contain the infringing intellectual property. We may be unable to developnon-infringing intellectual property or obtain a license on commercially reasonable terms, if at all.

A variety

We use open source software in our products, which could subject us to litigation or other state, national, foreign,actions.

We use open source software in our products and international laws and regulations apply to the collection,may use retention, protection, security, disclosure, transfer, and other processing of personal data. Many foreign data privacy regulations (including the General Data Protection Regulation (GDPR), which becomes effectivemore open source software in the European Union on May 25, 2018, and China’s new Cybersecurity Law) are more stringent than those infuture. From time to time, there have been claims challenging the United States. These laws and regulations are rapidly evolving and changing, andownership of open source software against companies that incorporate it into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have an adversea negative effect on our operations. Companies’operating results and financial condition, or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products to the public. If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products, or take other remedial actions.

Our sources of data might restrict our use of or refuse to license data, which could adversely impact our ability to provide certain products or services.

A portion of the data that we use is either purchased or licensed from third parties or public records or is obtained from our customers for specific customer engagements. We believe that we have all rights necessary to use the data that is incorporated into our products and services. However, if new laws or regulations impose restrictions on our use of the data or regulators’ or courts’ interpretations result in restrictions of the data that we currently use in our products and services, or a large number of data providers withdraw their data from us, our ability to provide our products and fulfill our contractual obligations to our customers could be materially adversely impacted.

Risks Related to International Operations

We face risks arising from our international operations.

Following our acquisition of ANSOS, which was completed in December 2020, we have international offices and/or operations in several countries outside of the United States, including Canada, Australia, and requirements under theseNew Zealand. Conducting our business internationally, particularly with expansion into countries in which we have limited experience, subjects us to a variety of risks that that we do not necessarily face to the same degree in the US. These risks include, among others:

Risks Related to Provisions in Our Organizational Documents and Tennessee Corporate Law

It may be difficult for a third party to acquire our company.

Tennessee corporate law and our charter and bylaws contain provisions that could delay, defer, or prevent a change in control of our company or our management. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. These provisions in our organizational documents:

In addition, we are subject to uncertaintycertain provisions of Tennessee law which limit, in how they may be interpreted by government authorities and regulators. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, prevent us from selling our products or services, and/or affectsome cases, our ability to investengage in certain business combinations or jointly develop products. We may also face auditstransactions with significant shareholders.

These provisions, either alone or investigations by one or more domestic or foreign government agencies relatingin combination with each other, give our current directors a substantial ability to our compliance with these regulations.

The Tax Cuts and Jobs Act could significantly impactinfluence the Company.

The Tax Cuts and Jobs Actoutcome of 2017 (“Tax Act”), which was signed into law on December 22, 2017, makes significant changes to the taxation of U.S. business entities. These changes include a permanent reduction to the federal corporate income tax rate to 21 percent from 35 percent, among others. The Company is currently evaluating the Tax Act with its professional advisors; the full impactproposed acquisition of the Tax Act onCompany. These provisions would apply even if an acquisition or other significant corporate transaction was considered beneficial by some of our shareholders. If a change in control or change in management is delayed or prevented by these provisions, the Company in future periods cannot be determined at this time and the Company provides no assurances in that regard.market price of our securities could decline.

Item1B.Unresolved Staff Comments

None.

Item2.Properties

Our principal office is located in Nashville, Tennessee, which is primarily used to support our workforce solutions operations and corporate functions. Our lease for approximately 73,00092,000 square feet at this location expireswill end in April 2019, at or near which time we expect to relocate our corporate headquarters to nearby space with approximately 66,000 square feet in Nashville, the lease for which we entered into in April 2017.October 2031. As of December 31, 2017,2021, we leased other facilities in Columbia, Maryland (such leased facility was included in the sale of our PX business); Nashville, Tennessee; Jericho, New York; Brentwood, Tennessee; San Diego, California; Chicago, Illinois;Denver, Colorado; Boulder, Colorado; Durham, North Carolina; Raleigh, North Carolina; and Boulder, Colorado.Christchurch, New Zealand.

Item3.Legal Proceedings

None.

Item4.Mine Safety Disclosures

Not applicable.

PART II

Item5.Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Select Market under the symbol “HSTM”. Our common stock began trading on the Nasdaq National Market on April 14, 2000.

The following table sets forth, for each quarter of the two most recent years, the high and low closing prices per share of our common stock as reported on the Nasdaq Global Select Market:

As of February 13, 2018,11, 2022, the Company had a total of 10,57610,672 shareholders, including 5471,389 registered holders and 10,0299,283 beneficial holders.

DIVIDEND POLICY

We

In our history, we have only declared and paid a dividend one time. In connection with the proceeds from divestiture of the Patient Experience business unit in 2018, we declared a $1.00 per common share special cash dividend, with the proceeds from the divestiture of the Patient Experience business segment payablewhich was paid on April 3, 2018 to shareholders of record on March 6, 2018. We do not anticipate paying normal cash dividends in the future as we intend to retain earnings for use in the operation of our business.

See the table labeled “SecuritiesSecurities Authorized for Issuance Under Equity Compensation Plans”Plans to be contained in our 20182022 Proxy Statement, incorporated by reference in Part III, Item 12 of this Annual Report on Form10-K.

STOCK PERFORMANCE GRAPH

The graph below comparesmatches HealthStream, Inc.’s's cumulative 5-year total shareholder return on common stock with the cumulative total returns of companies on the NasdaqNASDAQ Composite Indexindex and the NasdaqNASDAQ Computer & Data Processing Index forindex. The graph tracks the performance of a $100 investment in our common stock and in each of the last five fiscal years ended December 31, 2017, assuming an initial investment of $100. Data for the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index assumeindex (with the reinvestment of dividends.all dividends) from 12/31/2016 to 12/31/2021.

The comparisons in the graph below are based on historical data and are not necessarily indicative of future performance of our common stock.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN⁽¹⁾

Among HealthStream, Inc., the Nasdaq Composite Index

And the Nasdaq Computer & Data Processing Index

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

(1) $100 invested on 12/31/12 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

RECENT SALES OF UNREGISTERED SECURITIES

None.

ISSUER PURCHASES OF EQUITY SECURITIES

None.

Item 6.Selected Financial Data

The selected statementOn November 30, 2021, the Company announced a share repurchase program authorized by the Company’s Board of incomeDirectors under which the Company may purchase up to $20.0 million of its common stock. Pursuant to this authorization, repurchases have been made, and balance sheet data formay continue to be made from time to time, in the past five years is derivedopen market through privately negotiated transactions or otherwise, including under a Rule 10b5-1 plan, which permits shares to be repurchased when the Company might otherwise be precluded from our audited consolidated financial statements. You should readdoing so under insider trading laws in accordance with specific prearranged terms related to timing, price, and volume (among others), without further direction from the following selected financial data in conjunction with our consolidated financial statements andCompany. Under this program, during 2021 the notes to those statements and “Management’s Discussion and AnalysisCompany repurchased 203,284 shares of Financial Condition and Resultscommon stock at an aggregate fair value of Operations” located elsewhere in this report.

In February 2018 HealthStream divested its PX business to Press Ganey. The results$5.1 million, reflecting an average price per share of operations for$25.14 (excluding the PX business are included within the consolidated statementcost of income data set forth below.

broker commissions). In addition, HealthStream acquired substantially all ofany future repurchases under the assets of Baptist Leadership Group on September 9, 2013, Health Care Compliance Strategies, Inc. on March 3, 2014, HealthLine Systems, Inc. on March 16, 2015, Performance Management Services, Inc. on June 30, 2016, Nursing Registry Consultants Corporation on July 25, 2016, and MAI on August 8, 2016. The results of operations for these acquired companies are included within our consolidated statement of income data effective from the respective date of acquisition. Revenues mayauthorization will be subject to fluctuations as discussed further in “Management’s Discussionprevailing market conditions, liquidity and Analysis of Financial Conditioncash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Results of Operations” located elsewhere in this report. As a result of these factors, the annual results presented below are not comparable. The operating results for any single year are not necessarily indicativeRule 10b5-1 of the results to be expected inSecurities Exchange Act of 1934, as applicable), and other factors. The share repurchase program will terminate on the future.earlier of November 29, 2022 or when the maximum dollar amount has been expended. The table below sets forth activity under the stock repurchase plan for the three months ended December 31, 2021.

Item6.Reserved

Item7.Management’sManagement’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 “Selected Financial Data” and 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 thosethe risks described under “Risk Factors”Risk Factors and elsewhere in this report.report, as well as additional risks or uncertainties not presently known to us or that we currently deem immaterial.

The following discussion addresses our 2021 and 2020 results and year-to-year comparisons between 2021 and 2020. A discussion of year-to-year comparisons between 2020 and 2019 can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 26, 2021, under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

HealthStream provides workforce development and provider solutionsprimarily SaaS based applications for healthcare organizations—all designed to assess and develop the people that deliver patient care, which, in turn, supports the improvement ofimprove business and clinical outcomes by supporting the people who deliver patient care.

We are in the process of more completely unifying the Company under a single platform strategy that will serve as the foundation for the entire enterprise. By enabling our applications through a common technology platform known as hStream, we believe that stand-alone applications, which already provide a powerful value proposition, will begin to leverage each other to more efficiently and effectively empower our customers to manage their businesses and improve their outcomes. As we continue to achieve this goal of orienting multiple applications in relation to a single technology platform, distinctions between our current reporting segments of Workforce Solutions and Provider Solutions may become less applicable, or even obsolete, in terms of how we operate and report on the Company's business. At the current time, what we characterize and report on as Workforce Solutions products are used by healthcare organizations to meet a broad range of their training,clinical development, learning and performance, certification, scheduling, safety and compliance, and competency assessment performance appraisal, and development needs. Provider Solutions products are used by healthcare organizations for provider credentialing, privileging, call center, and enrollment needs. HealthStream’s primary customers include healthcare organizations pharmaceutical and medical device companies, and other participants in the healthcare industry.

On February 12, 2018, the Company divested its PX business to Press Ganey for $65.5 million in cash (subject to adjustment based on the working capital

Prior the disposition of the PX business, our Patient Experience Solutions products provided our customers information about patients’ experiences and how to improve them, workforce engagement, physician relations, and community perceptions of their services.Our results of operations for the years ended December 31, 2017, December 31, 2016 and December 31, 2015 presented in this Annual Report on Form10-K include the results of the PX business. Beginning with the quarter ending March 31, 2018, the historical financial results of the PX business for periods prior to the closing of the disposition of the PX business will be reflected in the Company’s consolidated financial statements as discontinued operations. This sale of the PX business resulted in the Company’s divestiture of the Company’s patient experience solutions business segment.

HealthStream anticipates recording apre-tax book gain in the first quarter of 2018 on the sale of its PX business between $34.0 million to $38.0 million. With the proceeds from this transaction, our Board of Directors declared a $1.00 per common share special cash dividend payable on April 3, 2018 to shareholders of record on March 6, 2018. For additional information regarding the disposition of the PX business, including certain pro forma financial information reflecting the disposition of the PX business, see our Current Report on Form8-K filed on February 12, 2018.

Revenues for the year ended December 31, 20172021 were approximately $247.7$256.7 million, compared to $226.0$244.8 million for the year ended December 31, 2016,2020, an increase of 10%5%. Revenues were positively impacted from recent acquisitions (detailed below) of $27.2 million, net of deferred revenue write-downs, and growth in other workforce and provider revenues of $19.6 million. The contributions from recent acquisitions and growth in other revenues more than offset the decline of $34.9 million from the legacy resuscitation products. Gross margins improved to 64.5% during 2021 compared to 63.5% in 2020. Operating income increaseddecreased by 76%49% to $9.8$8.1 million for 2017,2021, compared to $5.6$15.8 million for 2016.2020. Net income increased by 166%decreased to $10.0$5.8 million for 2017,2021, compared to $3.8$14.1 million for 2016.2020. Earnings per share (EPS) were $0.31$0.18 per share (diluted) for 20172021, compared to $0.12$0.44 per share (diluted) for 2016.2020. Revenues from HealthStream Workforce Solutions grewincreased by 6%4%, or $10.0 million; revenues from HealthStream Patient Experience Solutions declined by 3%, or $1.1 million;$7.9 million, and revenues from HealthStream Provider Solutions grew by 53%9%, or $12.8$4.0 million. As of December 31, 2017,2021, the Company had approximately 4.775.04 million total subscribers,contracted subscriptions to hStream, our emerging technology platform. During 2021, the Company deployed capital to fund two acquisitions for approximately $6.0 million in cash and made approximately $5.1 million of which approximately 4.65 million were fully implemented subscribers on its SaaS-based platform.share repurchases. As of December 31, 2017,2021, cash and investment balances approximated $131.1$51.9 million, and the Company maintained full availability under its $50.0$65.0 million revolving credit facility.

Since the beginning of 2020, we have completed six acquisitions. We acquired NurseGrid in March 2020, we acquired ShiftWizard in October 2020, and in December 2020, we acquired ANSOS and substantially all of the assets of myClinicalExchange. In January 2021, we acquired ComplyALIGN and substantially all the assets of Rievent in December 2021. For additional information regarding acquisitions, please see Note 8 of the Consolidated Financial Statements included elsewhere in this report.

IMPACT AND RESPONSE TO COVID-19 PANDEMIC

The COVID-19 pandemic persists and continues to cause uncertainty and potential economic volatility, including with regard to the pandemic’s various and unpredictable impacts on our healthcare customers and our business.

Our business is focused on providing solutions to healthcare organizations, and as such the pandemic’s adverse impact on healthcare organizations has resulted in an adverse impact on our Company. We believe that certain developments related to the pandemic negatively impacted our business in 2021, and are expected to continue to negatively impact our business during 2022 and potentially thereafter, as described below. In particular, sales cycles have been delayed or postponed such that declines in sales bookings by customers since the beginning of the pandemic will result in a negative impact to revenue and earnings in 2022 and potentially thereafter.

Similar to the year ended December 31, 2020, our operating income for the year ended December 31, 2021 benefited from a temporary reduction of operating expenses related to the pandemic, but the operating expense reduction itself—despite its positive impact on our operating results—is indicative of the negative impact the pandemic is having on new bookings and renewals. We have experienced, and expect to continue to experience, delayed and reduced bookings and renewals due to the pandemic. Given that we sell multiple year subscriptions to our solutions, the revenue impact of lost or delayed sales in a given period generally does not manifest until future periods, just as the revenue we recognize in a given period is generally the result of sales from a prior period. Since mid-March 2020, our sales organization has had limited opportunities to travel and conduct onsite sales meetings with existing or prospective customers, and we have also cancelled tradeshows, which typically provide future sales opportunities. 

When travel restrictions lessen and travel resumes at a more normal level, we expect operating expenses associated with travel to have a negative impact on our operating results, and we do not expect revenue generated from such activities to begin offsetting such increases to operating expenses at the same time we incur such expenses. However, the uncertain trajectory of the pandemic may impact when and to what extent normal operating expenses, including expenses related to sales travel and in-person tradeshows, increases or remains abated. 

We continue to closely monitor developments related to the pandemic that may have an adverse impact on our operational and financial performance. We also continue to take actions focused on the safety and well-being of our employees, assisting our customers in this time of need, and mitigating operational and financial impacts to our business. We intend to continue serving our customers both in their battle to defeat the coronavirus and across the continuum of their other workforce and provider solution needs.

Additionally, to promote the safety and well-being of our employees, we required our entire workforce to begin working remotely from home beginning March 16, 2020. Beginning December 1, 2021, we allowed employees who demonstrated proof of vaccination the option to work in our offices at their discretion, but a large majority of our workforce continues to work remotely. In 2021, we also adopted a hybrid work policy that allows employees the choice of whether to work in an office or remotely, and we expect this policy to govern our work after the pandemic ends.

Many healthcare organizations have been, and may continue to be, substantially adversely impacted by the pandemic. The period of time over which this adverse impact continues, the extent to which certain healthcare organizations continue to receive and/or are eligible to utilize governmental funds as the result of federal stimulus and relief measures, and ongoing public health conditions related to the pandemic are important factors that may impact our business. 

In light of adverse developments with respect to healthcare organizations as noted above, we are continuing to monitor the ability or willingness of our customers to:

We monitor our cash position and credit exposure by evaluating, among other things, weekly cash receipts, days sales outstanding (DSO), customer requests to modify payment or contract terms, and bankruptcy notices. We experienced modest decreases in DSO during 2021 compared to 2020 as a result of faster payments from customers, and bad debts were not significantly different from pre-pandemic levels. However, while we have not experienced any adverse impacts to customer defaults resulting from COVID-19, we are unable to know whether or to what extent future negative trends related to the pandemic may arise or increase over time. Any deterioration in the collectability (or the timing of payments) of our accounts receivable could adversely impact our financial results.

The timing of implementation of our services is also relevant to our business because our software solutions do not result in revenue recognition until they are made available for use. To the extent our customers delay or fail to implement products they have previously purchased, our financial results will be adversely impacted. While we have experienced a negative impact from certain implementation delays related to COVID-19, these delays have not been consistent across products or across customers. In fact, we have become more efficient in implementing certain products during the pandemic, particularly with regard to products focused on workforce development solutions such as hStream and the HealthStream Learning Center. In contrast, solutions like CredentialStream that require greater change management efforts on the part of our customers have, in some instances, been more sensitive to implementation delays.

The U.S. economy has recently experienced various disruptions, including inflationary pressures, significant disruptions to global supply networks, and challenging labor market conditions. In this regard, we have recently experienced, and believe that some of our customers have experienced, increased labor, supply chain, capital, and other expenditures associated with current inflationary pressures. We may be unable to fully offset the impact of these increased expenditures, which may adversely impact our business and results of operations.

Conditions related to the pandemic have caused, and may continue to cause, some customers to delay purchasing decisions they otherwise would have made. Such conditions also adversely impacted the ability or willingness of some customers to renew their contracts with us or to renew contracts at the same levels. Pandemic-related conditions have also delayed or otherwise adversely impacted our ability to enter into contracts with new potential customers, as some potential customers have been focused on dealing with the impact and demands that the pandemic is having on their businesses. In addition, the limitations noted above on onsite sales meetings and in-person trade shows, as well as our customers’ ongoing uncertainties due to the pandemic, have reduced, and may continue to reduce, the ability of our sales team to make sales they otherwise would likely make but for the impact of the pandemic. As the pandemic has persisted, we have, however, continued to evolve our sales approach such that our sales representatives are in frequent contact with customers via video conference and other remote means that do not require physical travel or onsite visits to our customers’ facilities. The timing and extent of the resumption of in-person activities will be dependent on the prevalence and severity of future COVID-19 outbreaks, including with regard to new variants of COVID-19 that may emerge.

Given the uncertainty surrounding the adverse impacts that the pandemic could have on our business, we took certain expense management measures in 2020 as previously disclosed. For the year ended December 31, 2021, we generally discontinued these expense management measures taking into account the improved economic environment and current conditions related to the pandemic, provided that certain expenses such as those associated with travel and tradeshows remain significantly lower than pre-pandemic levels due to limitations on our ability to engage in such activities at the same levels as prior to the pandemic. We are continuing to monitor developments related to the pandemic and will continue to make such expense management adjustments as we deem necessary.

CRITICAL ACCOUNTING POLICIES AND 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 from subscription-based workforce development productswhen 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 content subscriptions basedservices. 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 per person subscription basis, and in some cases on a per licenserelative standalone selling price basis. Fees areWe generally determine standalone selling prices based on the size of the facilities’ or organizations’ employee user populationstandard list price for each product, taking into consideration certain factors, including contract length and the service offerings to which they subscribe. Subscription-based revenue is recognized ratably over the service periodnumber of the underlying contract. Implementation services revenue is deferred until the subscription-based product is implemented, at which time revenues are recognized ratably over the subscription service period. All other service revenues are recognized as the related services are performed or products are delivered.

Revenues from provider solutions products are predominantly related to software licensing and support/maintenance renewals. Revenues derived from the license of installed software products are recognized using the residual method upon delivery of the software when vendor specific objective evidence (VSOE) of fair value for the undelivered elementssubscriptions within the contract can be established. For installed software products, ifcontract. Judgment is required in determining whether performance obligations are distinct, standalone selling prices, and the Company cannot objectively determine the fair valueamount of each undelivered element based on the VSOE of fair value, the Company defers revenue recognition until all elements are delivered, all services have been performed, or until fair value can be objectively determined. Software support and maintenance revenues are recognized ratably over the term of the related agreement.variable consideration to reflect as transaction price.

Revenues from patient experience services are recognized when survey results are delivered to customers via either Internet-based reporting throughout the survey period or by providing final survey results once all services are complete. A significant portion of revenues for survey and reporting services that are provided through the use of Internet-based reporting methodologies are recognized using the proportional performance method, reflecting recognition throughout the service period which corresponds with the survey cycle and reporting access by the customer, which typically ranges from one to five months. If survey results are delivered to the customer after all services have been completed, then the corresponding revenues are recognized in full in the period such results are provided to the customer. Coaching and consulting revenues are generally recognized using the proportional performance method as these services are performed throughout the contract term. All other revenues are recognized as the related services are performed or products are delivered to the customer. Revenues for these services can be subject to seasonal factors based on customers’ requirements that can impact the timing, frequency, and volume of survey cycles.

Revenues from professional services primarily include consulting and content development services. Fees are based on the time and efforts involved, and revenue is recognized upon completion of performance milestones using the proportional performance method.

The Company offers training services for clients to facilitate integration of its software solutions. Fees for training are based on the time and efforts of the personnel involved. Training revenues are generally recognized upon completion of training services.

In May 2014, the FASB issued ASU2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The Company will adopt this standard using the modified retrospective approach effective January 1, 2018. For additional information regarding the Company’s adoption of this standard and its potential impact on the Company, see “Recent Accounting Pronouncements” below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 affect taxable income. Management periodically assessesevaluates 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 itsour 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. TheAs of December 31, 2021, the Company maintainsestablished a valuation allowance of approximately $1.1$2.0 million for the portion of its deferred tax assets that are not more likely than not expected to be realized.realized, compared to a valuation allowance of $0.6 million as of December 31, 2020.

Software Development Costs

Capitalized software development includes costs to develop and maintain our products and applications, including our SaaS-based workforce development platform products and our survey reporting applications, which are accounted for as internal use software. For internal use software development, once planning is completed andGoodwill

Goodwill represents the software development process begins, internal costs and payments to third parties associated withexcess of purchase price in a business combination over the software development efforts are capitalized when the life expectancy is greater than one year and the anticipated cash flows are expected to exceed the costfair value of the related asset. During 2017 and 2016, we capitalized approximately $12.5 million and $10.0 million, respectively, for software development. Such amounts are included in the accompanying consolidated balance sheets under the caption “capitalized software development.” The Company amortizes capitalized software development costs over their expected life of three years using the straight-line method. Capitalized software development costs are subject to a periodic impairment review in accordance with our impairment review policy. In connection with capitalized software development, significant estimates involve the assessment of the development period for new products and feature enhancements, as well as the expected useful life of underlying software, feature enhancements, or product created. Once capitalized, software development costs are subject to the policies and estimates described below regarding goodwill, intangibles, and other long-lived assets.

Goodwill, Intangibles, and Other Long-lived Assets

The Company evaluatesnet identifiable assets acquired. We evaluate goodwill for impairment at the reporting unit level by assessing whether it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If this assessment concludes that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, then goodwill is not considered impaired and no further impairment testing is required. Conversely, if the assessment concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a goodwill impairment test is performed to compare the fair value of the reporting unit to its carrying value. The Company determines fair value of the reporting units using both income and market basedmarket-based models. Our models contain significant assumptions and accounting estimates about discount rates, future cash flows, and terminal values that could materially affect our operating results or financial position if they were to change significantly in the future and could result in an impairment. We perform our goodwill impairment assessment whenever events or changes in facts or circumstances indicate that impairment may exist and also during the fourth quarter each year. Intangible assets and other long-lived assets are also reviewed for events or changes in facts and circumstances, both internally and externally, which may indicate an impairment is present. We measure any impairment using observable market values or 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.

Allowance for Doubtful Accounts

The Company estimates the allowance for doubtful accounts using both a specific andnon-specific identification method. Management’s evaluation includes reviewing past due accounts on acase-by-case basis and determining whether an account should be reserved based on the facts and circumstances surrounding each potentially uncollectible account. An allowance is also maintained for accounts not specifically identified For 2021, our qualitative assessment indicated that may become uncollectible in the future. Uncollectible accounts arewritten-off in the period management believes it has exhausted every opportunity to collect payment from the customer. Bad debt expense is recorded when events or circumstances indicate an additional allowance is necessary based on our specific andnon-specific identification approach. Our allowance for doubtful accounts totaled approximately $2.2 million as of December 31, 2017.

Stock Based Compensation

The Company recognizes compensation expense using a fair-value based method for costs related to share based payments including stock options and restricted share units. Measurement of such compensation expense requires significant estimation and assumptions; however, we believe that the Black Scholes option pricing model used for calculating the fair value of our stock based compensation plans providesreporting units substantially exceeded their carrying values such that a reasonable measurement methodology using a framework that is widely adopted.quantitative assessment was not necessary.

As

$3.3 million of stock based compensation expense was recorded, respectively. The Company has historically granted equity based awards to both its management group and members of the Company’s board of directors on an annual basis under stockholder-approved plans, and expects to continue providing equity awards to these groups for the foreseeable future. The Company also provides grants of equity based awards when new members of the management group begin their employment, or when new members join the Company’s board of directors. As of December 31, 2017, total future compensation cost related tonon-vested awards not yet recognized was approximately $3.4 million net of estimated forfeitures, with a weighted average expense recognition period of 2.6 years. Future compensation expense recognition for new equity based award grants will vary depending on the timing and size of new awards granted, changes in the market price or volatility of our common stock, changes in risk-free interest rates, or if actual forfeitures vary significantly from initial estimates.

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. Revenues for our HealthStream Workforce Solutions business segment primarily consist of the following products and services: provision of services through our SaaS-based platform, authoring tools,learning management applications, a variety of training and development content subscriptions, staff scheduling software solutions, competency tools, training, implementation and performance appraisal tools, implementationonboarding, and consulting services content development, online sales training courses, and a variety of other educational activities to serve professionals that work within healthcare organizations. Revenues for our HealthStream Patient Experience Solutions business segment (prior to our disposition of such business) consisted of quality and satisfaction surveys, data analyses of survey results, coaching/consulting services, and other research-based measurement tools focused on patients, employees, physicians, and other members of the community. Revenues for our HealthStream Provider Solutions business segment consist ofare generated from our proprietary software and SaaS-based applications to help facilitate provider credentialing, privileging, call center, and enrollment administration for healthcare organizations.

Cost of Revenues (excluding depreciation and amortization). Cost of revenues (excluding depreciation and amortization) consistsconsist primarily of salaries and employee benefits, stock basedstock-based compensation, employee travel and lodging, materials, outsourced phone survey support, contract labor, hosting costs, third party software licensing costs, and other direct expenses associated with revenues, as well as royalties paid by us to content providers based on a percentage of revenues.providers. Personnel costs within cost of revenues are associated with individuals that facilitate product delivery;delivery, provide services; conduct, process, and manage customer surveys;services, handle customer support calls or inquiries;inquiries, manage the technology infrastructure for our hosted applications;applications, manage content, and survey services; coordinate content maintenance services; and provide training or implementation services.

Product Development.Product development consists primarily of salaries and employee benefits, contract labor, stock basedstock-based compensation, costs associated with the development of new software feature enhancements, new products, third party software licensing costs, and costs associated with maintaining and developing our platform 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 consistsconsist primarily of salaries commissions and employee benefits, stock basedcommissions, stock-based compensation, employee travel and lodging, third party software licensing costs, advertising, trade shows, customer conferences, promotions, and related marketing costs. We have historically hosted a national customer conference in Nashville, Tennessee known as “Summit,” a significant portion of the costs of which are included in sales and marketing expenses. Personnel costs within sales and marketing include our sales teams and marketing personnel.

Other General and Administrative Expenses. Other general and administrative expenses consist primarily of salaries and employee benefits, stock basedstock-based compensation, employee travel and lodging, facility costs,expenses, office expenses, fees for professional services, business development and acquisition relatedacquisition-related costs, third party software licensing costs, and other operational expenses. Personnel costs within general and administrative expenses include individuals associated with normal corporate functions (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.

Other (Loss) Income, (Expense), Net. The primary componentcomponents of other income is interest income related to interest earned on cash and cash equivalents and investments in marketable securities. The primary component of other expense is interest expense related to our revolving credit facility. In addition, the income or loss attributed to equity method investments and fair value adjustments related to non-marketable equity investments is included in this category.

20172021 Compared to 20162020

Revenues, net.Revenues increased approximately $21.7$11.9 million, or 10%5%, to $247.6$256.7 million for 20172021 from $226.0$244.8 million for 2016.2020. At December 31, 2021, the Company had 5.04 million contracted subscriptions to hStream, our emerging technology platform, as compared to 4.22 million contracted subscriptions at December 31, 2020. A comparison of revenues by business segment is as follows (in thousands):

Revenues for HealthStream Workforce Solutions, which are primarily subscription-based, increased approximately $10.1$7.9 million, or 6%4%, to $178.1$205.4 million in 2021 from $197.6 million in 2020. Revenues from recent acquisitions contributed to the year-over-year growth of approximately $27.2 million, net of deferred revenue write-downs, while growth from other solutions accounted for an additional $15.6 million compared to last year. Partially offsetting this revenue growth were reductions from our legacy resuscitation products, which were $3.5 million for 2017 from $168.02021 compared to $38.4 million for 2016. Revenues in 2017 were positively influenced by growth in content subscriptions and our enterprise applications, but were partially offset by an expected decline inICD-10 readiness revenues. Revenues fromICD-10 readiness products declined by $7.6 million to $909,000 in 2017 compared to $8.5 million in 2016. The requirement mandated by CMS for healthcare organizations to transition to theICD-10 coding system was effective in October 2015, and generated significant demand for ourICD-10 readiness training courseware from 2012 through 2015. However, as2020, a resultdecrease of the effectiveness of such mandate in October 2015, sales of that product have ceased and there will not be renewals of the specificICD-10 readiness product. Implemented subscribers increased by 4% during 2017 to 4.65 million subscribers at the end of 2017 compared to 4.47 million subscribers at the end of 2016. Additionally, total subscribers increased by 5%, with 4.77 million total subscribers at December 31, 2017 compared to 4.55 million total subscribers at December 31, 2016.$34.9 million. 

Revenues for HealthStream Patient Experience Solutions decreased approximately $1.1 million, or 3%, to $32.8 million for 2017 from $33.9 million for 2016. Revenues from Patient Insights™ surveys, our survey research product that generates recurring revenues, decreased by $386,000, or 1%, to $26.3 million for 2017 from $26.7 million for 2016. The decline in our patient survey revenues is partially due to changes in product mix, such as the adoption of oure-survey products, which have both lower revenue and cost per survey than our traditional phone survey products. Revenues from other products, including surveys conducted on annual orbi-annual cycles and consulting/coaching services, collectively decreased by $701,000, or 10%, compared to 2016 due to fewer engagements compared to 2016.

Revenues for HealthStream Provider Solutions increased approximately $12.8$4.0 million, or 53%9%, to $36.8$51.3 million for 20172021 from $24.1$47.2 million for 2016. Revenues from the MAI acquisition, which2020. Revenue growth in 2021 was consummated in August 2016, accounted for $8.1 million of the increase in revenues during 2017. Revenues from other provider solutions products accounted for the remaining $4.7 million increase in revenues in 2017.primarily attributable to new subscription revenues.

Cost of Revenues (excluding depreciation and amortization).Cost of revenues increased approximately $9.4$1.7 million, or 10%2%, to $106.0$91.0 million for 20172021 from $96.6$89.3 million for 2016.2020. Cost of revenues as a percentage of revenues was approximately 43%35% and 36% of revenues for both 20172021 and 2016.2020, respectively

Cost of revenues for HealthStream Workforce Solutions increased approximately $7.9$0.7 million to $75.3$74.1 million and approximated 42%36% and 40%37% of revenues for HealthStream Workforce Solutions for 20172021 and 2016,2020, respectively. The increase in both amount and as a percentage of revenues is primarily associated with increased royalties paid by us resulting from growthexpenses related to recent acquisitions, the one-time contractual adjustment to cost of revenues in content subscriptionthe amount of $3.4 million recorded during the first quarter of 2020, an increase in software expense classified as cost of revenues, and increased personnel costs.stock-based compensation related to the stock awards granted during the three months ended December 31, 2021 in connection with the contribution of stock by our chief executive officer to enable such grants. These increases in cost of revenues were partially offset by lower royalty expense associated with the decline in the legacy resuscitation revenues. Cost of revenues for HealthStream Patient ExperienceProvider Solutions decreased approximately $2.9increased $1.0 million to $18.8$16.9 million and approximated 57%33% and 64%34% of revenues for HealthStream Patient Experience Solutions for 2017 and 2016, respectively. The decrease in both amount and as a percentage of revenue is primarily due to reductions in personnel costs and lower costs associated with declines in phone based survey volume compared to 2016. Cost of revenues for HealthStream Provider Solutions increased approximately $4.3 million to $11.9 million and approximated 32% of HealthStream Provider Solutions revenues for both 20172021 and 2016.2020, respectively. The increase in amount and as a percentage of revenue is primarily the resultassociated with an increase in software expense classified as cost of the MAI acquisition and additions torevenues as well as an increase in personnel and increased hosting costs.expenses.

Product Development. Product development expenses decreased approximately $1.0increased $9.4 million, or 3%29%, to $27.9$41.7 million for 20172021 from $28.9$32.3 million for 2016.2020. Product development expenses as a percentage of revenues were approximately 11%16% and 13% of revenues for 20172021 and 2016,2020, respectively.

Product development expenses for HealthStream Workforce Solutions decreased approximately $800,000increased $9.9 million to $19.6$35.4 million and

approximated 11%17% and 12%13% of revenues for HealthStream Workforce Solutions for 20172021 and 2016,2020, respectively. The decrease in amount and as a percentage of revenuesincrease is primarily due to lower outsourced labor expenses, but partially offset by an increase in personnel costs.associated with the recent acquisitions, increased product development efforts across other workforce solutions, and stock-based compensation related to stock awards granted during the three months ended December 31, 2021 as noted above. Product development expenses for HealthStream Patient ExperienceProvider Solutions decreased approximately $912,000$0.5 million to $3.8$6.3 million and approximated 11%12% and 14% of revenues for HealthStream Patient ExperienceProvider Solutions for 20172021 and 2016,2020, respectively. The decrease in both amount and as a percentage of revenue is primarily due to higher labor capitalization for internal software development and lower outsourced labor costs, partially offset by an increase in personnel costs. Product development expenseslabor capitalized for HealthStream Provider Solutions increased approximately $714,000internally developed software related to $4.5 million and approximated 12% and 16% of revenues for HealthStream Provider Solutions for 2017 and 2016, respectively. The increase in amount is primarily associated withadditional product investments across the MAI acquisition and additions to personnel over the year, but partially offset by higher labor capitalization for internal software development.VerityStream product suite. 

Sales and Marketing. Sales and marketing expenses, including personnel costs, increased approximately $3.9$4.2 million, or 10%12%, to $42.9$39.5 million for 20172021 from $39.0$35.3 million for 2016.2020. Sales and marketing expenses were approximately 17%15% and 14% of revenues for both 20172021 and 2016.2020, respectively.

Sales and marketing expenses for HealthStream Workforce Solutions increased approximately $2.9$3.5 million to $31.4$31.5 million and approximated 18%15% and 17%14% of revenues for HealthStream Workforce Solutions for 20172021 and 2016,2020, respectively. The increase in amount and as a percentage of revenues is primarily due to additionsincreases in personnel associated with recent acquisitions, stock-based compensation related to personnelstock awards granted during the three months ended December 31, 2021 as noted above, and highermarketing expenses, but was partially offset by lower sales commissions compared to 2016.associated with the decline in legacy resuscitation revenues and decreases in travel and entertainment expenses as a result of the COVID-19 pandemic. Sales and marketing expenses for HealthStream Patient ExperienceProvider Solutions increased approximately $235,000$0.5 million to $4.3$6.7 million and approximated 13% and 12% of revenues for HealthStream Patient Experience Solutions for 2017 and 2016, respectively. The increase in both amount and as a percentage of revenues is primarily due to higher sales commissions compared to 2016. Sales and marketing expenses for HealthStream Provider Solutions increased approximately $674,000 to $5.9 million and approximated 16% and 22% of revenues for HealthStream Provider Solutions for 2017both 2021 and 2016, respectively.2020. The increase in amount is primarily due to increases in general marketing expenses and stock-based compensation related to stock awards granted during the result of higher sales commissions resulting from growth in sales.three months ended December 31, 2021 as noted above. The unallocated corporate portion of sales and marketing expenses increased by $165,000$0.2 million to $1.3 million over 2016 primarilyfor 2021 compared to 2020 due to higher personnel costs and increased marketing spending.increases in investor relation expenses.

Other General and Administrative Expenses. Other general and administrative expenses increased approximately $1.1decreased $2.2 million, or 3%5%, to $34.8$39.7 million for 20172021 from $33.7$41.9 million for 2016.2020. Other general and administrative expenses as a percentage of revenues were approximately 14%15% and 15%17% of revenues for 20172021 and 2016,2020, respectively.

Other general and administrative expenses for HealthStream Workforce Solutions increased approximately $2.1decreased $4.0 million to $8.1$12.1 million and approximated 5%6% and 4%8% of revenues for HealthStream Workforce Solutions for 20172021 and 2016,2020, respectively. The increase in amount and as a percentage of revenuesdecrease is primarily dueassociated with a decrease in software expense classified as general and administrative expenses, partially offset by expenses associated with recent acquisitions and stock-based compensation related to higher facility costs and increases in technology infrastructure investments.stock awards granted during the three months ended December 31, 2021 as noted above. Other general and administrative expenses for HealthStream Patient ExperienceProvider Solutions increased approximately $89,000$0.2 million to $2.9$3.6 million and approximated 9% and 8%7% of revenues for HealthStream Patient Experience Solutions for 2017 and 2016, respectively. The increase in amount and as a percentage of revenues is due to an increase in general administrative expenses. Other general and administrative expenses for HealthStream Provider Solutions increased approximately $1.7 million to $5.5 million and approximated 15% and 16% of revenues for HealthStream Provider Solutions for 2017both 2021 and 2016, respectively.2020. The increase in amount is primarily associated with increased facility costs, contract labor, and higher bad debt expense. The unallocated corporate portion of other general and administrative expenses decreased approximately $2.7 million to $18.2 million over 2016, primarily due to lower professional serviceincreases in personnel expenses as a result of the implementation of a new financial systems platform and the MAI transactionstock-based compensation related to stock awards granted during the prior year period, reductions to contract labor, and reductions of other general administrative expenses, but were partially offset by implementation costs for compliance with ASC 606.

Depreciation and Amortization.Depreciation and amortization increased approximately $4.1 million, or 18%, to $26.3 million for 2017 from $22.2 million for 2016. The increase primarily resulted from amortization of capitalized software development, amortization of intangible assets from recent acquisitions, and depreciation expense associated with capital expenditures.

Other Income (Expense), Net. Other income (expense), net was income of approximately $733,000 for 2017 compared to $581,000 for 2016. The increase is primarily due to an increase in interest income from cash and investments in marketable securities.

Income Tax Provision.The Company recorded a provision for income taxes of approximately $529,000 for 2017 compared to $2.4 million for 2016. The Company’s effective tax rate was approximately 5% for 2017 compared to approximately 39% for 2016. The decrease in income tax expense during 2017 is primarily attributable to the enactment of the Tax Cuts and Jobs Act on December 22, 2017, which reduced the corporate federal income tax rate from 35% to 21%. This change in tax law resulted in an income tax benefit of approximately $2.7 million during the fourth quarter of 2017 through the revaluation of our net deferred tax liabilities.

Net Income. Net income increased approximately $6.2 million, or 166%, to $10.0 million for 2017 compared to $3.8 million for 2016. The increase resulted from the factors mentioned above. Earnings per diluted share were $0.31 per share for 2017 compared to $0.12 per diluted share for 2016.

Adjusted EBITDA (anon-GAAP financial measure which we define as net income before interest, income taxes, stock based compensation, and depreciation and amortization) increased approximately 27% to approximately $37.9 million for 2017 compared to $29.9 million for 2016. The increase resulted from the factors mentioned above. See Reconciliation ofNon-GAAP Financial Measures below for our reconciliation of this calculation to measures under US GAAP.

2016 Compared to 2015

Revenues, net.Revenues increased approximately $16.9 million, or 8%, to $225.9 million for 2016 from $209.0 million for 2015. A comparison of revenues by business segment is as follows (in thousands):

Revenues for HealthStream Workforce Solutions, which are primarily subscription-based, increased approximately $6.7 million, or 4%, to $168.0 million compared to 2015. Revenues in 2016 were positively influenced by growth in courseware subscriptions and our enterprise applications, but were partially offset by an expected decline inICD-10 readiness revenues. Revenues fromICD-10 readiness products declined by $18.2 million to $8.5 million in 2016 compared to $26.7 million in 2015. The requirement mandated by CMS for healthcare organizations to transition to theICD-10 coding system was effective in October 2015, and generated significant demand for ourICD-10 readiness training courseware from 2012 through 2015. However, as a result of the effectiveness of such mandate in October 2015, sales of that product have ceased and there will not be renewals of the specificICD-10 readiness product. Implemented subscribers decreased by less than 1% during 2016 to 4.47 million subscribers at the end of 2016 compared to 4.48 million subscribers at the end of 2015. Additionally, total subscribers decreased by less than 2%, with 4.55 million total subscribers atthree months ended December 31, 2016 compared to 4.62 million total subscribers at December 31, 2015.

Revenues for HealthStream Patient Experience Solutions decreased approximately $343,000, or 1%, to $33.9 million compared to 2015. Revenues from Patient Insights™ surveys, our survey research product that generates recurring revenues, decreased by $239,000, or 1% compared to 2015. The decline in our patient survey revenues is partially due to changes in product mix, such2021 as the adoption of oure-survey products, which have both lower revenue and cost per survey than our traditional phone survey products. Revenues from other products, including surveys conducted on annual orbi-annual cycles and consulting/coaching services, collectively decreased by $101,000, or 1%, compared to 2015.

Revenues for HealthStream Provider Solutions increased approximately $10.6 million, or 78%, to $24.1 million compared to 2015. Revenues from both the HLS and MAI acquisitions, which were consummated in March 2015 and August 2016, respectively, accounted for the majority of the increase in revenues during 2016. Revenues from the MAI acquisition, which was consummated on August 8, 2016, were approximately $2.6 million during 2016.

Cost of Revenues (excluding depreciation and amortization).Cost of revenues increased approximately $7.2 million, or 8%, to $96.6 million for 2016 from $89.4 million for 2015. Cost of revenues as a percentage of revenues was approximately 43% of revenues for both 2016 and 2015. Cost of revenues for HealthStream Workforce Solutions increased approximately $3.8 million to $67.4 million and approximated 40% and 39% of revenues for HealthStream Workforce Solutions for 2016 and 2015, respectively. The increase in both amount and as a percentage of revenues is primarily associated with increased royalties paid by us resulting from growth in courseware subscription revenues, increased personnel costs, and other support costs. The increase wasnoted above, partially offset by a decrease in stock based compensation. Cost of revenues for HealthStream Patient Experience Solutions decreased approximately $697,000 to $21.7 million and approximated 64% and 65% of revenues for HealthStream Patient Experience Solutions for 2016 and 2015, respectively. The decrease in amount is primarily associated with lower personnel costs and stock based compensation. Cost of revenues for HealthStream Provider Solutions increased approximately $4.1 million to $7.6 million and approximated 32% and 26% of HealthStream Provider Solutions revenues for 2016 and 2015, respectively. The increase in amount andsoftware expense classified as a percentage of revenues is primarily the result of increased personnel and related costs, including additional personnel from MAI.

Product Development. Product development expenses increased approximately $4.7 million, or 19%, to $28.9 million for 2016 from $24.2 million for 2015. Product development expenses as a percentage of revenues were approximately 13% and 12% of revenues for 2016 and 2015, respectively.

Product development expenses for HealthStream Workforce Solutions increased approximately $1.0 million to $20.4 million and approximated 12% of revenues for HealthStream Workforce Solutions for both 2016 and 2015. The increase in amount is due to additional personnel expenses associated with new product development initiatives for our subscription-based products. This increase was partially offset by lower stock based compensation. Product development expenses for HealthStream Patient Experience Solutions

increased approximately $2.3 million to $4.7 million and approximated 14% and 7% of revenues for HealthStream Patient Experience Solutions for 2016 and 2015, respectively. The increase in both amount and as a percentage of revenue is due to additional personnel expenses associated with new product development initiatives. Product development expenses for HealthStream Provider Solutions increased approximately $1.3 million to $3.8 million and approximated 16% and 18% of revenues for HealthStream Provider Solutions for 2016 and 2015, respectively. The increase in amount is primarily the result of increased personnel costs, including additional personnel from MAI.

Sales and Marketing. Sales and marketing expenses, including personnel costs, increased approximately $3.4 million, or 10%, to $39.0 million for 2016 from $35.6 million for 2015. Sales and marketing expenses were approximately 17% of revenues for both 2016 and 2015.

Sales and marketing expenses for HealthStream Workforce Solutions increased approximately $1.6 million to $28.6 million and approximated 17% of revenues for HealthStream Workforce Solutions for both 2016 and 2015. The increase in amount is mainly due to additional personnel, sales commissions, and increased marketing spending. Sales and marketing expenses for HealthStream Patient Experience Solutions decreased approximately $446,000 to $4.1 million and approximated 12% and 13% of revenues for HealthStream Patient Experience Solutions for 2016 and 2015, respectively. The decrease in both amount and as a percentage of revenues is primarily due to reduced marketing personnel and related costs. Sales and marketing expenses for HealthStream Provider Solutions increased approximately $1.7 million to $5.2 million and approximated 22% and 26% of revenues for HealthStream Provider Solutions for 2016 and 2015, respectively. The increase in amount is primarily the result of increased personnel costs, sales commissions, and marketing spending. The unallocated corporate portion of sales and marketing expenses increased by $584,000 to $1.1 million primarily due to additional marketing personnel and related costs.

Other General and Administrative Expenses. Other general and administrative expenses increased approximately $4.4 million, or 15%, to $33.7 million for 2016 from $29.3 million for 2015. Other general and administrative expenses as a percentage of revenues were approximately 15% and 14% of revenues for 2016 and 2015, respectively.

Other general and administrative expenses for HealthStream Workforce Solutions increased approximately $1.4 million to $6.1 million over 2015 primarily associated with increased technology infrastructure investments. Other general and administrative expenses for HealthStream Patient Experience Solutions increased approximately $443,000 to $2.8 million over 2015 due to additional personnel and facility costs. Other general and administrative expenses for HealthStream Provider Solutions increased approximately $1.3 million to $3.8 million over 2015 primarily associated with increased personnel expenses and facility costs, including costs associated with the MAI acquisition.expenses. The unallocated corporate portion of other general and administrative expenses increased approximately $1.3$1.6 million to $20.9 million$24.0 for 2021 from $22.5 for 2020. The increase is primarily due to increased personnel expenses over 2015, primarily associated with additional personnelthe prior year and stock-based compensation related costs, higher due diligence costs of approximately $260,000 to , and costs associated with the implementation of a new financial systems platform of approximately $600,000, which was substantially completedstock awards granted during the second quarter of 2016.three months ended December 31, 2021 as noted above, partially offset by a reduction in acquisition-related expenses.

Depreciation and Amortization.Depreciation and amortization increased approximately $5.2$6.6 million, or 31%22%, to $22.2$36.8 million for 20162021 from $17.0$30.2 million for 2015.2020. The increase primarily resulted from higher amortization of capitalized software development, amortization of intangible assetsand intangibles resulting from our recent acquisitions (including amortization of software acquired for resale), and depreciation expense associated with capital expenditures.acquisitions.

Other (Loss) Income, (Expense), Net. Other (loss) income, (expense), net was a loss of $0.3 million for 2021 compared to income of approximately $581,000$2.0 million for 2016 compared to $162,000 for 2015.2020. The increasedecrease is primarilydriven by the $1.2 million gain associated with a gain recordedthe change in relationfair value of the non-marketable equity investment in NurseGrid prior to the acquisition of all of the remaining outstanding stock of Nursing Registry Consultants Corporation (see Note 5 in the Notes to Consolidated Financial Statements for further discussion), an increase inNurseGrid on March 9, 2020, coupled with lower interest income from investmentsdue to reductions in marketable securities,bond yields and lowerbank interest expense.rates.

Income Tax Provision.The Company recorded a provision for income taxes of approximately $2.4$1.9 million and $3.7 million for 2016 compared to $5.1 million for 2015.2021 and 2020, respectively. The Company’s effective tax rate was approximately 39%25% for 20162021 compared to approximately 37%21% for 2015.2020. The decrease inCompany's effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, foreign income taxes, and the effect of various permanent tax differences. During the year ended December 31, 2021, the Company recorded discrete tax expense of $0.5 million, which included changes in state tax rates enacted during 2016the period and lower research and development tax credits recognized than previously estimated. During the year ended December 31, 2020, the Company recorded a $1.2 million change in the fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is attributable to lowernot a taxable income compared to the prior year period.transaction, resulting in a tax benefit of $0.3 million, and recognized tax benefits from higher research and development tax credits than previously estimated. 

Net Income. Net income decreased approximately $4.8$8.3 million, or 56%59%, to $3.8$5.8 million for 20162021 compared to $8.6$14.1 million for 2015.2020. Earnings per diluted share were $0.18 per share (diluted) for 2021, compared to $0.44 per share (diluted) for 2020.

Adjusted EBITDA increased 15% to $52.7 million for 2021 compared to $46.0 million for 2020. The decreaseincrease resulted from the factors mentioned above. Earnings per diluted share were $0.12 per share for 2016 compared to $0.28 per diluted share for 2015.

Adjusted EBITDA (ais a non-GAAP financial measure which we define as net income excluding the impact of the deferred revenue write-downs associated with fair value accounting for acquired businesses and before interest, income taxes, stock basedstock-based compensation, and depreciation and amortization) decreased approximately 12% to approximately $29.9 million for 2016 compared to $33.8 million for 2015. The decrease resultedamortization, changes in fair value of non-marketable equity investments, the de-recognition of non-cash expense resulting from the factors mentioned above.PTO expense reduction in the first quarter of 2021 and the de-recognition of non-cash royalty expense resulting from our resolution of a mutual disagreement related to various elements of a past partnership which resulted in a reduction to cost of sales in the first quarter of 2020. See Reconciliation"Reconciliation ofNon-GAAP Financial MeasuresMeasures" below for oura reconciliation of this calculation to measuresthe most comparable measure under US GAAP.

Other Developments

As previously announced, Laerdal Medical A/S, a Norwegian company (“Laerdal”), provided notice that, uponKey Business Metrics

Our management utilizes the December 31, 2018 expirationfollowing financial and non-financial metrics in connection with managing our business.

Revenues associated with the sales of HeartCode and RQI products have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin. We are actively engaged in efforts to broaden the scope and utilization of our simulation-related offerings to include a range of clinical competencies that extend beyond resuscitation, and integrate with our platform in ways that HeartCode and RQI never have. We intend to bring to market a broadened scope of simulation-based offerings, including— following the December 31, 2018 expiration date of our agreements with Laerdal—resuscitation programs. We believe these efforts have the potential to give rise to additional and higher margin opportunities than currently exist under the Laerdal agreements for HeartCode and RQI, and will likely feature solutions with a lower price point than our current offerings. However, there is no assurance that we will be successful in these efforts, and to the extent that new simulation-based or other solutions do not generate revenue and/or earnings following the December 31, 2018 expiration date in a manner that supplants the impact of these agreements with Laerdal, our revenue and results of operations following this expiration date may be adversely affected.

Reconciliation ofNon-GAAP Financial Measures

This report contains certainnon-GAAP financial measures, includingnon-GAAP net income,non-GAAP operating income,presents adjusted EBITDA and adjusted EBITDA from continuing operations, both of which are non-GAAP financial measures used by management in analyzing the Company’sour financial results and ongoing operational performance. Thesenon-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance which are prepared in accordance with US GAAP and may be different fromnon-GAAP financial measures used by other companies.

In order to better assess the Company’s financial results, management believes that adjusted EBITDAnet income excluding the impact of the deferred revenue write-downs associated with fair value accounting for acquired businesses and before interest, income taxes, stock-based compensation, depreciation and amortization, changes in fair value of non-marketable equity investments, the de-recognition of non-cash expense resulting from the paid time off expense reduction in the first quarter of 2021, and the resolution of a mutual disagreement related to various elements of a past partnership which resulted in a reduction to cost of sales in the first quarter of 2020 (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 and/or non-operating items. The Company items which may not, in any such case, fully reflect the underlying operating performance of our business. Management also believes that adjusted EBITDA from continuing operations is a useful measure for evaluating the operating performance of the Company because such measure excludes the gain on sale in connection with the sale of the PX business in February 2018 included in our results of operations during the year ended December 31, 2019, and thus reflects the Company’s ongoing business operations and assists in comparing the Company’s results of operations between periods. We also used bybelieve that adjusted EBITDA and adjusted EBITDA from continuing operations are useful to many investors and securities analysts to assess the Company’s ongoing results from current operations. Adjusted EBITDA is anon-GAAP financial measure and should not be considered as a measure of financial performance under US GAAP. Because adjusted EBITDA is not a measurement determinedIn addition, beginning in accordance with US GAAP, it is susceptible to varying calculations. Accordingly, adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.

The Company understands that, although adjusted EBITDA is frequently used by investors and securities analysts in their evaluation of companies, this measure has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of2021, executive bonuses are based on the Company’s results as reported under US GAAP.

Management addresses these inherent limitations associated with using adjusted EBITDA through disclosure of such limitations, presentation of our financial statements in accordance with US GAAP, and reconciliationachievement of adjusted EBITDA to net income,targets.

As noted above, the most directly comparable US GAAP measure.

In recent years, includingdefinition of adjusted EBITDA and adjusted EBITDA from continuing operations includes an adjustment for the March 2015 acquisitionimpact of HLS and the August 2016 acquisition of MAI, the Company hasdeferred revenue write-downs associated with fair value accounting for acquired businesses whose net tangible assets include deferred revenue. In accordance with GAAP reporting requirements, followingbusinesses. Following the completion of any such acquisition by the Company, maythe Company must record a write-down ofthe acquired deferred revenue toat fair value as defined in GAAP.GAAP, which may result in a write-down of deferred revenue. If the Company is required to record a write-down of deferred revenue, it may result in lower recognized revenue, operating income, and net income in subsequent periods.

In connection therewith, this report presents belownon-GAAP revenues,non-GAAP operating income andnon-GAAP net income, which in each Revenue for any such case reflects the corresponding GAAP figures adjusted to exclude the impact of the deferred revenue write-down associated with fair value accounting for acquired businesses as referenced above. Management believes that the presentation of thesenon-GAAP financial measures assists investors in understanding the Company’s performance between periods by excluding the impact of this deferred revenue write-down and provides a useful measure of the ongoing performance of the Company. Both on a quarterly andyear-to-date basis, the revenue for the acquired business is deferred and is typically recognized over aone-to-two year period following the completion of any particular acquisition, so our GAAP revenues for thisone-to-two year period will not reflect the full amount of revenues that would have been reported if the acquired deferred revenue was not written down to fair value. Management believes that including an adjustment in the definition of adjusted EBITDA and adjusted EBITDA from continuing operations for the impact of the deferred write-downs associated with fair value accounting for acquired businesses provides useful information to investors because the deferred revenue write-down recognized in periods after an acquisition may, given the nature of this non-cash accounting impact, cause our GAAP financial results during such periods to not fully reflect our underlying operating performance and thus adjusting for this amount may assist in comparing the Company’s results of operations between periods.

Adjusted EBITDA and adjusted EBITDA from continuing operations are non-GAAP financial measures and should not be considered as measures of financial performance under GAAP. Because adjusted EBITDA and adjusted EBITDA from continuing operations are not measurements determined in accordance with GAAP, such non-GAAP financial measures are susceptible to varying calculations. Accordingly, adjusted EBITDA and adjusted EBITDA from continuing operations, as presented, may not be comparable to other similarly titled measures of other companies.

These non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance which are prepared in accordance with US GAAP.

A reconciliation of thesenon-GAAP financial measuresadjusted EBITDA and adjusted EBITDA from continuing operations to the correspondingmost directly comparable GAAP measures for the years ended December 31, 2021, December 31, 2020, and December 31, 2019, is set forth below.

		2017				2016				2015
GAAP net income		$	10,004			$	3,755			$	8,621
Interest income			(870	)			(574	)			(401	)
Interest expense			131				102				188
Income tax provision			529				2,393				5,098
Stock based compensation expense			1,852				1,968				3,280
Depreciation and amortization			26,283				22,207				16,997
Adjusted EBITDA		$	37,929			$	29,851			$	33,783
GAAP operating income		$	9,800			$	5,567			$	13,557
Adjustment for deferred revenue write-down			1,621				3,838				6,822
Non-GAAP operating income		$	11,421			$	9,405			$	20,379
GAAP net income		$	10,004			$	3,755			$	8,621
Adjustment for deferred revenue write-down, net of tax			1,295				2,345				4,287
Non-GAAP net income		$	11,299			$	6,100			$	12,908

FINANCIAL OUTLOOK FOR 2018

The Company provides projections and other forward-looking information in this “Financial Outlook for 2018” section within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” This section contains many forward-looking statements, particularly relating to the Company’s future financial performance. These forward-looking statements are estimates based on information currently available to the Company, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to the precautionary statements set forth in the introduction in Part I of this Annual Report on Form10-K and the risks and uncertainties described in Item 1A, Risk Factors and elsewhere in this document. Actual results are likely to differ, and in the past have differed, materially from those forecast by the Company, depending on the outcome of various factors, including, but not limited to, those set forth in Item 1A, Risk Factors.

As noted above, the Company adopted the new revenue recognition standard (ASC 606), utilizing the modified retrospective approach effective January 1, 2018, such that the Company will recognize revenue under this new standard for periods beginning on and after January 1, 2018, but will continue to report results for periods prior to January 1, 2018 under the old revenue recognition standard (ASC 605). To allow for comparability against 2017 results, the financial outlook below with respect to anticipated 2018 results does not include the impact of ASC 606 but instead has been determined utilizing the ASC 605 revenue recognition standard.

Beginning with our financial statements for the quarter ending March 31, 2018, the historical financial results of the PX business for periods prior to the closing of this transaction will be reflected in the Company’s consolidated financial statements as discontinued operations. Accordingly, this financial outlook does not include (a) the gain on the sale of our Patient Experience business, which we completed on February 12, 2018, or (b) the results of our Patient Experience business during the period in 2018 prior to the sale of such business, or the results of our Patient Experience in 2017 for financial outlook comparison purposes.

For 2018 we anticipate that consolidated revenues will increase six to eight percent as compared to 2017. We anticipate that revenue growth in our Workforce Solutions segment will be in the four to six percent range and our Provider Solutions segment to grow 10 to 20 percent when compared to 2017.

We anticipate operating income for 2018 to increase between 20 and 30 percent as compared to 2017.

We anticipate that capital expenditures will be approximately $20 million during 2018. We expect the annual effective income tax rate to range between 26 percent and 28 percent for 2018.

This guidance does not include the impact of any acquisitions that we may complete during 2018.

SELECTED QUARTERLY OPERATING RESULTS

The following tables set forth selected statements of income data for each of the four quarters in the periods ended December 31, 2017 and December 31, 2016, respectively. The information for each quarter has been prepared on the same basis as the audited statements included in other parts of this report and, in our opinion, includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. You should read this information in conjunction with HealthStream’s Consolidated Financial Statements and related notes thereto included elsewhere in this report. The operating results for any quarter are not necessarily indicative of the results to be expected in the future.

Revenues from our subscription-based products are recognized ratably over the subscription term. Patient experience revenues are impacted by seasonal factors resulting from the volume, timing, and frequency of survey cycles.(in thousands).