Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April ~~29, 2019,~~28, 2020, there were ~~32,388,307~~31,997,499 shares of the registrant’s common stock outstanding.

	March 31,		December 31,			March 31,			December 31,
	2019		2018			2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	110,610	$	134,321		$	107,425		$	131,538
Marketable securities		36,322		34,497			34,585			41,328
Accounts receivable, net of allowance for doubtful accounts of $936 and $1,161 at March 31, 2019 and December 31, 2018, respectively		37,432		38,124
Accounts receivable, net of allowance for doubtful accounts of $1,004 and $843 at March 31, 2020 and December 31, 2019, respectively							32,301			27,650
Accounts receivable - unbilled		3,156		2,880			2,454			2,726
Prepaid royalties, net of amortization		16,416		13,596			15,100			11,898
Other prepaid expenses and other current assets		19,806		18,016			8,791			9,432
Total current assets		223,742		241,434			200,656			224,572

Property and equipment, net of accumulated depreciation of $22,351 and $20,827 at March 31, 2019 and December 31, 2018, respectively		23,708		15,866
Capitalized software development, net of accumulated amortization of $49,223 and $46,757 at March 31, 2019 and December 31, 2018, respectively		20,425		18,352
Property and equipment, net of accumulated depreciation of $21,155 and $19,291 at March 31, 2020 and December 31, 2019, respectively							24,425			26,065
Capitalized software development, net of accumulated amortization of $60,752 and $57,768 at March 31, 2020 and December 31, 2019, respectively							22,209			21,445
Operating lease right of use assets, net		31,710		—			29,135			29,615
Goodwill		95,252		86,144			123,283			102,196
Customer-related intangibles, net of accumulated amortization of $24,952 and $23,245 at March 31, 2019 and December 31, 2018, respectively		57,263		53,469
Other intangible assets, net of accumulated amortization of $10,505 and $9,663 at March 31, 2019 and December 31, 2018, respectively		7,792		5,909
Customer-related intangibles, net of accumulated amortization of $31,446 and $29,760 at March 31, 2020 and December 31, 2019, respectively							50,904			52,554
Other intangible assets, net of accumulated amortization of $13,651 and $12,735 at March 31, 2020 and December 31, 2019, respectively							8,421			7,527
Deferred tax assets		257		145			269			269
Deferred commissions		15,731		16,470			17,088			17,645
Non-marketable equity investments		6,772		3,376			4,329			6,782
Other assets		848		783			792			874
Total assets	$	483,500	$	441,948		$	481,511		$	489,544

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	19,281	$	25,037		$	16,366		$	22,938
Accrued royalties		19,099		15,756			13,738			16,736
Deferred revenue		72,602		66,061			72,370			65,511
Total current liabilities		110,982		106,854			102,474			105,185

Deferred tax liabilities		11,503		11,068			11,565			13,183
Deferred revenue, noncurrent		2,868		2,868			1,591			1,918
Operating lease liability, noncurrent		32,390		—			30,108			30,733
Other long term liabilities		616		2,211
Other long-term liabilities							357			357
Commitments and contingencies

Shareholders’ equity:
Common stock, no par value, 75,000 shares authorized; 32,388 and 32,325 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		286,785		286,597
Common stock, no par value, 75,000 shares authorized; 32,003 and 32,379 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							280,322			290,021
Retained earnings		38,347		32,373			55,235			48,143
Accumulated other comprehensive income (loss)		9		(23	)
Accumulated other comprehensive (loss) income							(141	)		4
Total shareholders’ equity		325,141		318,947			335,416			338,168
Total liabilities and shareholders’ equity	$	483,500	$	441,948		$	481,511		$	489,544

See accompanying notes to the unaudited ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

	Three Months Ended					Three Months Ended
	March 31, 2019		March 31, 2018			March 31, 2020		March 31, 2019
Revenues, net	$	65,187	$	54,858		$	61,572	$	65,187
Operating costs and expenses:
Cost of revenues (excluding depreciation and amortization)		26,861		22,248			20,359		26,861
Product development		6,927		6,001			7,468		6,927
Sales and marketing		9,521		9,064			9,188		9,521
Other general and administrative expenses		9,970		7,742			9,864		9,970
Depreciation and amortization		6,539		6,073			7,449		6,539
Total operating costs and expenses		59,818		51,128			54,328		59,818

Operating income		5,369		3,730			7,244		5,369

Other income, net		822		313			1,706		822

Income from continuing operations before income tax provision		6,191		4,043			8,950		6,191
Income tax provision		1,411		414			1,858		1,411
Income from continuing operations		4,780		3,629			7,092		4,780
Discontinued operations:
Loss from discontinued operations before income tax provision		—		(64	)
Gain on sale of discontinued operations		1,620		30,991			—		1,620
Income tax provision		426		10,710			—		426
Income from discontinued operations		1,194		20,217			—		1,194
Net income	$	5,974	$	23,846		$	7,092	$	5,974

Net income per share - basic:
Continuing operations	$	0.15	$	0.11		$	0.22	$	0.15
Discontinued operations		0.03		0.63			—		0.03
Net income per share - basic	$	0.18	$	0.74		$	0.22	$	0.18

Net income per share - diluted:
Continuing operations	$	0.15	$	0.11		$	0.22	$	0.15
Discontinued operations		0.03		0.63			—		0.03
Net income per share - diluted	$	0.18	$	0.74		$	0.22	$	0.18

Weighted average shares of common stock outstanding:
Basic		32,337		32,097			32,334		32,337
Diluted		32,377		32,132			32,357		32,377
Dividends declared per share	$	—	$	1.00

See accompanying notes to the unaudited ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

	Three Months Ended				Three Months Ended
	March 31, 2019		March 31, 2018		March 31, 2020			March 31, 2019
Net income	$	5,974	$	23,846	$	7,092		$	5,974

Other comprehensive income, net of taxes:
Unrealized gain on marketable securities		32		15
Total other comprehensive income		32		15
Foreign currency translation adjustments						(44	)		(1	)
Unrealized (loss) gain on marketable securities						(101	)		33
Total other comprehensive (loss) income						(145	)		32
Comprehensive income	$	6,006	$	23,861	$	6,947		$	6,006

See accompanying notes to the unaudited ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

	Three Months Ended March 31, 2019													Three Months Ended March 31, 2020
	Common Stock					Retained		Accumulated Other Comprehensive			Total Shareholders’			Common Stock						Retained		Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount			Earnings		Income (Loss)			Equity			Shares			Amount			Earnings		Income (Loss)			Equity
Balance at December 31, 2018		32,325	$	286,597		$	32,373	$	(23	)	$	318,947
Balance at December 31, 2019															32,379		$	290,021		$	48,143	$	4		$	338,168
Net income		—		—			5,974		—			5,974			—			—			7,092		—			7,092
Comprehensive income		—		—			—		32			32
Comprehensive loss															—			—			—		(145	)		(145	)
Stock based compensation		—		516			—		—			516			—			550			—		—			550
Common stock issued under stock plans, net of shares withheld for employee taxes		63		(328	)		—		—			(328	)		62			(373	)		—		—			(373	)
Balance at March 31, 2019		32,388	$	286,785		$	38,347	$	9		$	325,141
Repurchase of common stock															(438	)		(9,876	)		—		—			(9,876	)
Balance at March 31, 2020															32,003		$	280,322		$	55,235	$	(141	)	$	335,416

	Three Months Ended March 31, 2018													Three Months Ended March 31, 2019
	Common Stock				Retained			Accumulated Other Comprehensive			Total Shareholders’			Common Stock					Retained		Accumulated Other Comprehensive			Total Shareholders’
	Shares		Amount		Earnings			Loss			Equity			Shares		Amount			Earnings		(Loss) Income			Equity
Balance at December 31, 2017		31,908	$	282,666	$	17,542		$	(38	)	$	300,170
Cumulative effect of accounting change		—		—		15,132			—			15,132
Balance at December 31, 2018															32,325	$	286,597		$	32,373	$	(23	)	$	318,947
Net income		—		—		23,846			—			23,846			—		—			5,974		—			5,974
Comprehensive income		—		—		—			15			15			—		—			—		32			32
Dividends declared on common stock ($1.00 per share)		—		—		(32,518	)		—			(32,518	)
Stock based compensation		—		328		—			—			328			—		516			—		—			516
Common stock issued under stock plans, net of shares withheld for employee taxes		394		2,071		—			—			2,071			63		(328	)		—		—			(328	)
Balance at March 31, 2018		32,302	$	285,065	$	24,002		$	(23	)	$	309,044
Balance at March 31, 2019															32,388	$	286,785		$	38,347	$	9		$	325,141

See accompanying notes to the unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements.

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
OPERATING ACTIVITIES:
Net income	$	5,974		$	23,846		$	7,092		$	5,974
Income from discontinued operations		(1,194	)		(20,217	)		—			(1,194	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,539			6,073			7,449			6,539
Stock-based compensation		516			419
Stock based compensation								550			516
Amortization of deferred commissions		2,121			1,827			2,159			2,121
Provision for doubtful accounts		2			390			288			2
Deferred income taxes		433			608			500			433
Gain on non-marketable equity investments		(54	)		(7	)
Loss (gain) on non-marketable equity investments								11			(54	)
Non-cash royalty expense								(3,440	)		—
Change in fair value of non-marketable equity investments								(1,152	)		—
Other		(28	)		30			47			(28	)
Changes in operating assets and liabilities:
Accounts and unbilled receivables		1,387			(1,864	)		(4,573	)		1,387
Prepaid royalties		(2,820	)		(2,467	)		(3,202	)		(2,820	)
Other prepaid expenses and other current assets		251			(530	)		735			251
Deferred commissions		(1,382	)		(1,654	)		(1,602	)		(1,382	)
Other assets		(16	)		248			134			(16	)
Accounts payable and accrued expenses		(5,386	)		(6,074	)		(5,775	)		(5,386	)
Accrued royalties		3,342			506			442			3,342
Deferred revenue		6,400			8,417			6,453			6,400
Net cash provided by continuing operating activities		16,085			9,551
Net cash used in discontinued operating activities		—			(1,002	)
Net cash provided by operating activities		16,085			8,549			6,116			16,085

INVESTING ACTIVITIES:
Business combinations, net of cash acquired		(18,002	)		—			(21,421	)		(18,002	)
Proceeds from sale of discontinued operations		—			58,203
Proceeds from maturities of marketable securities		28,337			19,600			20,725			28,337
Purchases of marketable securities		(30,101	)		(12,612	)		(14,130	)		(30,101	)
Payments to acquire cost method investments		(3,342	)		—
Payments to acquire non-marketable equity investments								—			(3,342	)
Payments associated with capitalized software development		(4,933	)		(2,541	)		(4,068	)		(4,933	)
Purchases of property and equipment		(11,338	)		(1,858	)		(1,010	)		(11,338	)
Net cash (used in) provided by continuing investing activities		(39,379	)		60,792
Net cash used in discontinued investing activities		—			(115	)
Net cash (used in) provided by investing activities		(39,379	)		60,677
Net cash used in investing activities								(19,904	)		(39,379	)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options		31			2,368			—			31
Taxes paid related to net settlement of equity awards		(359	)		(297	)		(373	)		(359	)
Payments of earn-outs related to acquisitions		(37	)		(37	)		—			(37	)
Repurchase of common stock								(9,876	)		—
Payment of cash dividends		(52	)		—			(30	)		(52	)
Net cash (used in) provided by continuing financing activities		(417	)		2,034
Net cash used in discontinued financing activities		—			—
Net cash (used in) provided by financing activities		(417	)		2,034
Net cash used in financing activities								(10,279	)		(417	)

Net (decrease) increase in cash and cash equivalents		(23,711	)		71,260
Effect of exchange rate changes on cash and cash equivalents								(46	)		—
Net decrease in cash and cash equivalents								(24,113	)		(23,711	)
Cash and cash equivalents at beginning of period		134,321			84,768			131,538			134,321
Cash and cash equivalents at end of period	$	110,610		$	156,028		$	107,425		$	110,610

See accompanying notes to the unaudited ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S‑X. Accordingly, ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All intercompany transactions have been eliminated in consolidation. Operating results for the three months ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~

The Company receives royalties and recognizes revenues (through its Workforce Solutions business segment) from teaming agreements that are entered into on a discrete basis from time-to-time with one of its content partners. Upon review of the teaming agreements with this content partner, the Company discovered that this content partner had failed during certain prior periods to remit royalties to which the Company was entitled. The Company determined such royalties should have been recognized in prior periods as revenue in relation to amounts due and payable under this arrangement and that certain expenses were overstated in connection with this arrangement. If accounted for in these prior periods, the Company would have recognized additional revenue of approximately $689,000 and $172,000 in the years ended December 31, 2018 and 2017, respectively, and would have incurred lower operating expense of $56,000 and $63,000 in the years ended December 31, 2018 and 2017, respectively. These adjustments collectively resulted in additional revenue of $861,000, lower operating expense of $119,000 and additional income from continuing operations of $744,000 during the three months ended March 31, 2019, and additional accounts receivable of $861,000 as of March 31, 2019. The Company concluded that this error was immaterial to the Company’s consolidated financial statements for the three months ended March 31, 2019 and prior affected periods.2020.

On February 12, 2018, the Company divested its Patient Experience (“PX”) business to Press Ganey Associates, Inc. (“Press Ganey”). The sale of the PX business resulted in the divestiture of the Company’s patient experience solutions business segment. The Company has classified the ~~results~~gain on sale of its previously owned PX business as discontinued operations in its ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~income and cash flows~~Income for all periods presented. See Note 810 for additional information.

The ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet at December 31, ~~2018~~2019 was derived from the audited ~~consolidated financial statements~~Consolidated Financial Statements at that date but does not include all of the information and footnotes required by US GAAP for a complete set of financial statements. For further information, refer to the ~~consolidated financial statements~~Consolidated Financial Statements and footnotes thereto for the year ended December 31, ~~2018~~2019 (included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February ~~25, 2019)~~26, 2020).

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (“ASC 842”),~~ which, among other things, requires an entity to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, including operating leases. The Company adopted ASC 842 effective January 1, 2019 utilizing the modified retrospective approach such that prior year financial statements were not recast under the new standard. Adoption of this standard resulted in changes to the Company’s condensed consolidated balance sheets and accounting policies for leases but did not have an impact on the condensed consolidated statements of income or cash flows. See Note 12 for additional information regarding the new standard and its impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-03, Financial Instruments—Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, ASC 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The ~~standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2019. The~~ Company ~~will adopt~~adopted this ASU on January 1, 2020, and ~~is currently evaluating~~ the ~~impact that~~effect of adoption ~~of this ASU will have~~ on the Company’s ~~consolidated financial position~~Consolidated Financial Statements and ~~results of operations.~~related disclosures was not material.

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

The following table represents revenues ~~included in continuing operations~~ disaggregated by revenue source for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands). Sales taxes are excluded from revenues.

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018						Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
Business Segments	Workforce Solutions		Provider Solutions		Consolidated		Workforce Solutions		Provider Solutions		Consolidated		Workforce Solutions		Provider Solutions		Consolidated		Workforce Solutions		Provider Solutions		Consolidated
Subscription/SaaS services	$	52,805	$	9,080	$	61,885	$	43,702	$	9,032	$	52,734
Subscription services													$	48,717	$	9,627	$	58,344	$	52,805	$	9,080	$	61,885
Professional services		1,490		1,812		3,302		1,245		879		2,124		1,107		2,121		3,228		1,490		1,812		3,302
Total revenues, net	$	54,295	$	10,892	$	65,187	$	44,947	$	9,911	$	54,858	$	49,824	$	11,748	$	61,572	$	54,295	$	10,892	$	65,187

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

Professional services revenues primarily consist of fees for implementation services, custom courseware development, and training. The majority of our professional services contracts are billed in advance based on a fixed price basis, and revenue is recognized over time as the services are performed. For both subscription/SaaS services and professional services, t~~he time between billing the customer and when performance obligations are satisfied is not significant.~~

Our contracts with customers often contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The contract price, which represents transaction price, is allocated to the separate performance obligations on a relative standalone selling price basis. ~~We generally determine standalone selling prices based on the standard list price for each product,~~ ~~taking into consideration certain factors, including contract length and the number of subscriptions within the contract.~~6

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

~~Other receivables, which are included within Accounts Receivable, include receivables from certain content partners and are not material.~~ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$2,000~~$288,000 and ~~$390,000,~~$2,000, respectively, in impairment losses on receivables and contract assets arising from the Company’s contracts with customers.

Deferred revenue represents contract liabilities that are recorded when cash payments are received or are due in advance of our satisfaction of performance obligations. During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we recognized revenues of approximately ~~$31.2~~$31.6 million and ~~$29.2~~$31.2 million, respectively, from amounts included in deferred revenue at the beginning of the respective periods. As of March 31, ~~2019,~~2020, approximately ~~$422~~$402 million of revenue is expected to be recognized from remaining performance obligations under contracts with customers. We expect to recognize revenue related to approximately ~~49%~~47% of these remaining performance obligations over the next 12 months, with the remaining amounts recognized thereafter.

Sales commissions earned by our sales ~~organization~~force are considered incremental and recoverable costs of obtaining a contract with a customer. The ~~Company’s~~ sales commission ~~plans~~plan for ~~2018 and 2019~~2020 typically ~~include multiple payments, including~~includes two payments; the initial ~~payments~~payment is due in the period a customer contract is obtained and the final payment is due 60 days after product implementation is completed. The sales commission plan for 2019 typically included an initial payment in the period a customer contract was obtained and subsequent payments either 15 or 27 months after the initial ~~payment.~~payment depending on the contract term. Under ASC 606, costs to acquire contracts with customers, such as the initial sales commission payment, are capitalized in the period a customer contract is obtained and are amortized consistent with the transfer of the goods or services to the customer over the expected period of benefit, whereas subsequent sales commission payments which require a substantive performance condition of the employee are expensed ratably through the payment date. Under the 2020 plan, both the initial payment and subsequent payment are capitalized in the period the contract is obtained, whereas under the 2019 plan, only the initial payment was capitalized, and the subsequent payment was expensed ratably through the payment date. The primary change from an accounting perspective under the 2020 plan compared to the 2019 plan is the time between when the contract is obtained and when it is implemented does not result in a substantive performance condition of the employee. The capitalized contract cost is included in Deferred commissions in the accompanying ~~condensed consolidated balance sheet.~~Condensed Consolidated Balance Sheet. The expected period of benefit is the contract term, except when the capitalized commission is expected to provide economic benefit to the Company for a period longer than the contract term, such as for new customer or incremental sales where renewals are expected and renewal commissions are not commensurate with initial commissions. Non-commensurate commissions are amortized over the greater of the contract term or ~~expected customer relationship period, limited by the~~ technological obsolescence period of approximately three years. The Company recorded amortization of deferred commissions of approximately ~~$2.1~~$2.2 million and ~~$1.8~~$2.1 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, which is included in ~~Sales~~sales and marketing expenses in the accompanying ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~income.~~Income.

Income taxes are accounted for using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income.

During the three months ended March 31, ~~2019~~2020 and ~~2018~~2019, the Company recorded a provision for income taxes from continuing operations of approximately ~~$1.4~~$1.9 million and ~~$414,000,~~$1.4 million, respectively. The Company’s effective tax rate for continuing operations for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was ~~23%~~21% and ~~10%~~23%, respectively. ~~During the~~ ~~three months ended March 31, 2019 and 2018, the Company recorded excess tax benefits related to stock based awards of approximately $83,000 and $636,000, respectively, as a component of the provision for income taxes.~~ The Company’s effective tax rate primarily reflects the statutory corporate income tax rate, the net effect of state taxes, and the effect of various permanent tax differences. During the three months ended March 31, 2020, the Company recorded a $1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax benefit of $0.3 million. The Company recognizes excess tax benefits and tax deficiencies associated with stock based awards as a component of its provision for income taxes. The Company recorded additional income tax expense associated with tax deficiencies of approximately $26,000 during the three months ended March 31, 2020 and recorded a reduction to income tax expense for excess tax benefits of approximately $83,000 during the three months ended March 31, 2019.

~~On February 12, 2018, the Company’s Board of Directors declared a $1.00 per common share special cash dividend, which was paid on April 3, 2018 to shareholders of record on March 6, 2018.~~

The Company has stock awards outstanding under ~~two stock incentive plans: the Company’s~~its 2016 Omnibus ~~Incentive Plan and 2010 Stock~~ Incentive Plan. The Company accounts for its stock based compensation ~~plans~~plan using the fair-value based method for costs related to share based payments, including ~~stock options and~~ restricted share units (“RSUs”). During the three months ended March 31, 2020, the Company issued 111,510 RSUs, subject to service-based time vesting, with a grant date fair value of $22.96 per share, measured based on the closing fair market value of the Company’s stock on the date of grant. During the three months ended March 31, 2019, the Company issued 86,220 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $27.39 per share, measured based on the closing fair market value of the Company’s stock on the date of grant. During the three months ended March 31, 2018, the Company issued 83,168 RSUs, subject to service-based time vesting, with a weighted average grant date fair value of $24.70 per share, measured based on the closing fair market value of the Company’s stock on the date of grant.

During the three months ended June 30, 2018, the Company issued 70,000 performance-based RSUs, the vesting of which occurs over a five-year period and is contingent upon continued service and achieving certain performance criteria established by the Compensation Committee on an annual ~~basis.~~basis in increments of 10%, 15%, 20%, 25%, and 30% based on performance in 2018, 2019, 2020, 2021, and 2022, respectively. The performance criteria for ~~7,000~~14,000 of these performance-based RSUs was determined in the three months ended June 30, 2018, and was based on 2018 performance, 3,500 of which RSUS vested. In addition, the performance criteria for 10,500 of these performance-based RSUs, along with 3,500 performance-based catch-up RSUs which did not vest based on 2018 performance as noted above but remained eligible for vesting, will be based on ~~2019~~2020 performance. The measurement date for these ~~10,500~~14,000 performance-based ~~RSUs, along with the 3,500 catch-up~~ RSUs was established during the three months ended March 31, ~~2019,~~2020 with a grant date fair value of ~~$27.61~~$22.96 per share, measured based on the closing fair market value of the Company’s stock on the date the performance criteria was established. The performance criteria for 17,500 of these performance-based RSUs was previously established based on performance in 2018 and 2019, as applicable, and the performance criteria for the remaining ~~52,500~~38,500 performance-based RSUs has not yet been determined and will be established on an annual basis based on performance in ~~2020,~~ 2021 and 2022, as applicable; therefore, the measurement date for these remaining 38,500 performance-based RSUs cannot be determined until the performance criteria have been established.

Total stock based compensation expense recognized for the three months ended March 31, ~~2019~~2020 and ~~2018, which is recorded within continuing operations~~2019 in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~income,~~Income is as follows (in thousands):

	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Cost of revenues (excluding depreciation and amortization)	$	1	$	8	$	7	$	1
Product development		53		74		81		53
Sales and marketing		56		31		49		56
Other general and administrative		406		306		413		406
Total stock based compensation expense	$	516	$	419	$	550	$	516

On March 13, 2020, the Company’s Board of Directors authorized a share repurchase program to repurchase up to $30.0 million of outstanding shares of common stock. The share repurchase program will terminate on the earlier of March 12, 2021 or when the maximum dollar amount has been expended. Pursuant to this authorization, repurchases have been made, and may continue to be made from time to time in the open 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 doing so under insider trading laws in accordance with specific prearranged terms related to timing, price, and volume (among others), without further direction from the Company. The share repurchase program does not require the Company to acquire any amount of shares and may be suspended or discontinued at any time. Under this program during the first quarter of 2020, the Company repurchased 438,142 shares at an aggregate fair value of $9.9 million, reflecting an average price per share of $22.52 (excluding the cost of broker commissions).

Basic earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing the net income available to common shareholders for the period by the weighted average number of potentially dilutive common and common equivalent shares outstanding during the period. Common equivalent shares are composed of incremental common shares issuable upon the exercise of stock options and RSUs subject to vesting. The dilutive effect of common equivalent shares is included in diluted earnings per share by application of the treasury stock method. The total number of common equivalent shares excluded from the calculations of diluted earnings per share, due to their anti-dilutive effect or contingent performance conditions, was approximately ~~136,000~~106,000 and ~~159,000~~136,000 for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019, respectively.

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands, except per share data):

	Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Numerator:
Income from continuing operations	$	4,780	$	3,629	$	7,092	$	4,780
Income from discontinued operations		1,194		20,217		—		1,194
Net income	$	5,974	$	23,846	$	7,092	$	5,974
Denominator:
Weighted-average shares outstanding		32,337		32,097		32,334		32,337
Effect of dilutive shares		40		35		23		40
Weighted-average diluted shares		32,377		32,132		32,357		32,377

Net income per share - basic:
Continuing operations	$	0.15	$	0.11	$	0.22	$	0.15
Discontinued operations		0.03		0.63		—		0.03
Net income per share - basic	$	0.18	$	0.74	$	0.22	$	0.18

Net income per share - diluted:
Continuing operations	$	0.15	$	0.11	$	0.22	$	0.15
Discontinued operations		0.03		0.63		—		0.03
Net income per share - diluted	$	0.18	$	0.74	$	0.22	$	0.18

At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of marketable securities, which were all classified as available for sale, included the following (in thousands):

	March 31, 2019									March 31, 2020
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	27,235	$	11	$	(3	)	$	27,243	$	34,686	$	—	$	(101	)	$	34,585
Government-sponsored enterprise debt securities		9,078		1		—			9,079
Total	$	36,313	$	12	$	(3	)	$	36,322	$	34,686	$	—	$	(101	)	$	34,585

	December 31, 2018									December 31, 2019
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Level 2:
Corporate debt securities	$	31,521	$	—	$	(23	)	$	31,498	$	37,325	$	7	$	(5	)	$	37,327
Government-sponsored enterprise debt securities		2,999		—		—			2,999		4,001		—		—			4,001
Total	$	34,520	$	—	$	(23	)	$	34,497	$	41,326	$	7	$	(5	)	$	41,328

The carrying amounts reported in the ~~condensed consolidated balance sheet~~Condensed Consolidated Balance Sheet approximate the fair value based on quoted market prices or alternative pricing sources and models utilizing market observable inputs. As of March 31, ~~2019, the Company does not consider any of its marketable securities to be other than temporarily impaired. During the~~ ~~three months ended March 31, 2019 and 2018~~,2020, the Company did ~~not reclassify~~0t recognize any ~~items out of accumulated other comprehensive income to net income.~~allowance for credit impairments on its available for sale debt securities. All investments in marketable securities are classified as current assets on the balance sheet because the underlying securities mature within one year from the balance sheet date.

On ~~February 12, 2018,~~December 16, 2019, the Company ~~divested its PX business~~acquired substantially all the assets of Covenant Technology Group, LLC (“CredentialMyDoc”), a Savannah, Georgia-based company focusing on intuitive, easy to ~~Press Ganey~~use, and fast to implement software-as-a-service solution, especially in ambulatory care settings. The consideration paid for ~~$65.2~~CredentialMyDoc consisted of $9.0 million in cash, ~~(after giving effect~~subject to ~~the~~a post-closing working capital ~~adjustment), resulting in a gain, net of tax, of $20.2~~adjustment. Of the purchase price paid at closing, $1.1 million of which $19.0 million was recorded during the year ended December 31, 2018 and $1.2 million was recorded during the three months ended March 31, 2019. Approximately $6.55 million of the proceeds wereis being held in escrow for a period of time following the closing to serve as a source of recovery for the working capital adjustment and certain potential indemnification claims by ~~Press Ganey,~~the Company. The results of ~~which $6.2 million was released and paid to the Company in April 2019. Approximately $328,000 remains in escrow through August 12, 2019 as a source of recovery~~operations for potential indemnification claims. The Company previously recorded the escrow funds as a contingent asset, and estimated the probability of receiving the full escrow amount when determining the gain on the sale. Given substantially all of the escrow hasCredentialMyDoc have been received, the Company recorded a change in its previous estimate through the “Gain on sale of discontinued operations” caption within the condensed consolidated statement of income for the three months ended March 31, 2019.

~~This sale of the PX business resulted~~included in the ~~divestiture~~Provider Solutions segment of the Company’s ~~patient experience solutions business segment.~~ Financial Statements from the date of acquisition.

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

The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. The primary intangible assets acquired were customer relationships and developed technology. The fair value estimate for customer relationships intangible asset included significant assumptions in the prospective financial information, such as revenue growth, customer attrition, and EBITDA margin, and the discount rate. The fair value estimate for developed technology intangible asset included significant assumptions, including the estimate of employee hours that would be needed to recreate the technology. Additionally, these assumptions are forward looking and could be affected by future economic and market conditions. The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company ~~has classified~~finalizes the valuation of these items. The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of intangible assets and working capital. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering CredentialMyDoc products, and expected synergies from integrating CredentialMyDoc with other products or other combined functional areas within the Company. The goodwill balance is deductible for U.S. income tax purposes. The net tangible assets include deferred revenue, which was adjusted down from a book value at the acquisition date of $595,000 to an estimated fair value of $280,000. The $315,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

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

The following unaudited pro forma financial information summarizes the results of ~~its PX business segment~~operations of the Company and CredentialMyDoc as ~~discontinued operations in its condensed consolidated statements~~though the companies were combined as of ~~income and cash flows for all periods presented.~~January 1, 2019 (in thousands, except per share data):

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

On March 9, 2020, the Company acquired all of the outstanding stock of HcT2 Co. dba NurseGrid (“NurseGrid”), a Portland, Oregon-based healthcare technology company offering NurseGrid Mobile and its corollary application for nurse managers, NurseGrid Enterprise for net cash consideration ofapproximately $21.4 million, subject to a post-closing working capital adjustment. The Company accounted for this transaction as a business combination achieved in stages which required the Company to remeasure its previously existing minority ownership interest, which was accounted for as a non-marketable equity investment measured using the fair value alternative, to fair value at the acquisition date based on the total enterprise value, adjusting for a control premium. The fair value of the Company’s interest in NurseGrid was $3.6 million at closing, resulting in a gain of $1.2 million, recorded as a change in fair value of non-marketable equity investments in the Company’s Condensed Consolidated Statement of Income. Additionally, the Company’s previously recorded non-marketable equity investment in NurseGrid was de-recognized from the Company’s Condensed Consolidated Balance Sheet. The financial results of NurseGrid have been included in the ~~PX business~~Workforce Solutions segment from March 9, 2020.

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

The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. The preliminary fair values of assets acquired and liabilities assumed continue to be subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items. The primary areas of the preliminary purchase price allocation that are not finalized include the composition and valuation of intangible assets, income tax attributes, and working capital. The goodwill balance is primarily attributed to the assembled workforce, future market opportunities to engage and support the NurseGrid Mobile user community, and expected synergies from integrating NurseGrid with other combined functional areas within the Company. The goodwill balance is not deductible for U.S. income tax purposes. The net tangible assets include deferred revenue, which was adjusted down from a book value at the ~~period prior~~acquisition date of $157,000 to ~~divestiture during~~an estimated fair value of $78,000. The $78,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services.

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

The amounts of revenue and operating loss of NurseGrid included in the Company’s Consolidated Statement of Income since the date of acquisition of March 9, 2020 for the three months ended March 31, ~~2018~~2020 are as follows (in thousands):

The following unaudited pro forma financial information summarizes the results of operations of the Company and NurseGrid as though the companies were combined as of January 1, 2019 (in thousands, except per share data):

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to NurseGrid’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations is for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented ~~in discontinued~~or to project the Company’s results of operations in ~~the Company’s condensed consolidated statements of income. The following table presents the financial results of the PX business (in thousands):~~any future period.

The Company provides services to healthcare organizations and other members within the healthcare industry. The Company’s services are focused on the delivery of workforce development products and services ~~(HealthStream Workforce~~(Workforce Solutions) and provider credentialing, privileging, and enrollment products and services ~~(HealthStream Provider~~(Provider Solutions).

~~As noted above, the sale of the PX business on February~~ 12 2018 resulted in the divestiture of the Company’s Patient Experience Solutions segment. Beginning with the first quarter of 2018, the Company classified the results of its Patient Experience Solutions segment as discontinued operations in its condensed consolidated statements of income and cash flows for all periods presented. See Note 8 for additional information.

The Company measures segment performance based on operating income before income taxes and prior to the allocation of certain corporate overhead expenses, interest income, interest expense, and depreciation. The Unallocated component below includes corporate functions, such as accounting, human resources, legal, investor relations, information systems, administrative and executive personnel, depreciation, a portion of amortization, and certain other expenses, which are not currently allocated in measuring segment performance. The following is the Company’s business segment information for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 and as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands).

	Three Months Ended March 31,						Three Months Ended March 31,
Revenues, net:	2019			2018			2020			2019
Workforce Solutions	$	54,295		$	44,947		$	49,824		$	54,295
Provider Solutions		10,892			9,911			11,748			10,892
Total revenues, net	$	65,187		$	54,858		$	61,572		$	65,187
Operating income from continuing operations:
Workforce Solutions	$	11,529		$	9,235		$	13,370		$	11,529
Provider Solutions		1,436			514			1,197			1,436
Unallocated		(7,596	)		(6,019	)		(7,323	)		(7,596	)
Total operating income from continuing operations	$	5,369		$	3,730		$	7,244		$	5,369

Segment assets *	March 31, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Workforce Solutions	$	134,249	$	104,668	$	146,895	$	118,382
Provider Solutions		143,297		145,637		143,842		148,398
Unallocated		205,954		191,643		190,774		222,764
Total assets	$	483,500	$	441,948	$	481,511	$	489,544

On ~~January 10, 2019,~~February 12, 2018, the Company acquired the outstanding equity of Providigm, LLC (“Providigm”), a Denver, Colorado based company focusing on quality assurance and performance improvement in healthcare, primarily serving skilled nursing facilities. The Company acquired Providigmdivested its PX business to ~~add its comprehensive quality management system, known as “abaqis®,” to its product portfolio and gain customers in the skilled nursing market. The consideration paid~~Press Ganey for ~~Providigm consisted of approximately $18.0~~$65.2 million in cash ~~which~~(after giving effect to the ~~Company funded with cash on hand (subject to a~~ post-closing working capital adjustment)~~. In addition, up to an additional $500,000~~, resulting in ~~cash may be paid by the Company based on the financial performance~~a gain, net of ~~Providigm during an 18-month period following closing. Of the purchase price paid by the Company at closing, $500,000 will be held in escrow for a period~~tax, of ~~time following the closing to serve as a source~~$20.5 million, of ~~recovery for any post-closting working capital adjustment claims in favor of the Company, and an additional $3.65~~which $19.0 million will be held in escrow for a period of time following the closing to serve as a source of recovery for certain potential indemnification claims by the Company. The Company incurred approximately $329,000 in transaction costs, which were primarily incurredwas recorded during the year ended December 31, ~~2018. The transaction costs were~~2018 and $1.5 million was recorded during the year ended December 31, 2019. This sale of the PX business resulted in the “other general and administrative” caption in the condensed consolidated statements of income for such periods. The results of operations for Providigm have been included in the HealthStream Workforce Solutions segmentdivestiture of the Company’s ~~condensed consolidated financial statements from~~patient experience solutions business segment. The Company has classified the ~~date~~gain on sale of ~~acquisition.~~

~~A summary of the purchase price is~~its PX business segment as ~~follows (in thousands):~~

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

The excess of preliminary purchase price over the preliminary fair values of net tangible and intangible assets is recorded as goodwill. The preliminary fair values of tangible and identifiable intangible assets and liabilities are based on management’s estimates and assumptions. The preliminary fair values of assets acquired and liabilities assumed are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of these items. The primary areas of the preliminary purchase price allocation that are not finalized include working capital, the composition and valuation of intangible assets, goodwill, indemnification asset and liability, and contingent consideration. The goodwill balance is primarily attributed to the assembled workforce, additional market opportunities from offering Providigm’s products, and expected synergies from integrating Providigm with other products or other combined functional areas within the Company. The goodwill balance is deductible for U.S. income tax purposes. The net tangible assets include deferred revenue, which was preliminarily adjusted down from a book value at the acquisition date of $266,000 to an estimated fair value of $141,000. The preliminary $125,000 write-down of deferred revenue will result in lower revenues than would have otherwise been recognized for such services. The acquired assets and liabilities include a $750,000 indemnification asset and liability related to tax liabilities. The purchase agreement also contains a provision for up to $500,000 of additional consideration based on the achievement of financial performance targets by Providigm during an 18-month period following the closing date. Management assessed the likelihood of achieving the financial performance targets, which has been included in the preliminary purchase price allocation.

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

The amounts of revenue and operating loss of Providigm included in the Company’s condensed consolidated statement of income from the date of acquisition of January 10, 2019 to the period ending March 31, 2019 are as follows (in thousands):

~~The following unaudited pro forma financial information summarizes the combined results of continuing and~~ discontinued operations in its Condensed Consolidated Statements of ~~the Company, unless otherwise noted, and Providigm as though the companies were combined as of January 1, 2018 (in thousands, except per share data):~~

These unaudited pro forma combined results of operations include certain adjustments arising from the acquisition, such as amortization of intangible assets, depreciation of property and equipment, interest expense related to Providigm’s previously outstanding debt, and fair value adjustments of acquired deferred revenue balances. The unaudited pro forma combined results of operations isIncome for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transaction occurred at the beginning of the earliest period presented or to project the Company’s results of operations in any future period.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~all periods presented.

On December 31, 2018, the Company entered into a Second Amendment to its Revolving Credit Agreement, dated as of November 24, 2014 (as amended, the “Revolving Credit Facility”), with SunTrust Bank (“SunTrust”), which extended the maturity date to November 24, 2020. Under the Revolving Credit Facility, the Company may borrow up to $50.0 million, which includes a $5.0 million swing line sub-facility and a $5.0 million letter of credit sub-facility, as well as an accordion feature that allows the Company to increase the Revolving Credit Facility by a total of up to $25.0 million, subject to securing additional commitments from existing lenders or new lending institutions. The obligations under the Revolving Credit Facility are guaranteed by each of the Company’s subsidiaries. At the Company’s election, the borrowings under the Revolving Credit Facility bear interest at either (1) a rate per annum equal to the highest of SunTrust’s prime rate or 0.5% in excess of the Federal Funds Rate or 1.0% in excess of one-month LIBOR (the “Base Rate”), plus an applicable margin, or (2) the one, two, three, or six month per annum LIBOR for deposits in the applicable currency (the “Eurocurrency Rate”), as selected by the Company, plus an applicable margin. The applicable margin for Eurocurrency Rate loans depends on the Company’s funded debt leverage ratio and varies from 1.50% to 2.00%. The applicable margin for Base Rate loans depends on the Company’s funded debt leverage ratio and varies from 0.50% to 1.50%. Commitment fees and letter of credit fees are also payable under the Revolving Credit Facility. Principal is payable in full at maturity on November 24, 2020, and there are no0 scheduled principal payments prior to maturity.

The Company is required to pay a commitment fee ranging between 20 and 30 basis points per annum of the average daily unused portion of the Revolving Credit Facility, depending on the Company’s funded debt leverage ratio.

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

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

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

As of March 31, ~~2019,~~2020, the Company was in compliance with all covenants. There were no0 balances outstanding on the Revolving Credit Facility as of or during the three months ended March 31, ~~2019.~~2020.

~~Effective January 1, 2019, the Company adopted ASC 842, which requires~~ ~~an entity to recognize a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, using the modified retrospective approach.~~ The Company elected to use the package of practicable expedients which allows companies to not reassess the following: (1) the lease classification for any expired or existing leases, (2) the treatment of initial direct costs as they related to existing leases, and (3) whether expired or existing contracts are or contain leases. The Company did not elect the use of the hindsight practical expedient, but did elect the practical expedient not to separate lease components from non-lease components related to its office space leases.

Upon adoption of ASC 842, the Company had non-cancellable operating leases for office space subject to recognition as ROU assets. Accordingly, on January 1, 2019 the Company recorded $4.8 million in ROU assets and $6.4 million in operating lease liabilities (the difference of $1.6 million related to existing deferred rent liabilities as of December 31, 2018 which had the effect of reducing our ROU asset upon adoption). During the first quarter of 2019, the Company acquired an operating lease as part of its acquisition of Providigm, resulting in a $1.2 million ROU asset and lease liability, and another operating lease for office space commenced for the Company’s new corporate headquarters in Nashville, TN, resulting in a $26.5 million ROU asset and lease liability. As of March 31, 2019, the Company does not have any leases that have not yet commenced.

The Company does not have any lease contracts that contain: (1) an option to extend that the Company is reasonably certain to exercise, (2) an option to terminate that the Company is reasonably certain not to exercise, or (3) an option to extend (or not to terminate) in which exercise of the option is controlled by the lessor. Additionally, the Company does not have any leases with residual value guarantees or material restrictive covenants. For leases already commenced, the lease term was determined to be the remaining months in the lease term as of January 1, 2019, the date of adoption. The Company has elected not to recognize leases with initial terms of one year or less on the balance sheet. Lease liabilities and their corresponding right-of-use assets have been recorded based on the present value of the future lease payments over the expected lease term. Most of the Company’s lease agreements contain provisions for escalating rent payments over the term of the lease.

The Company’s leases do not contain readily determinable implicit discount rates, therefore, the Company must use its incremental borrowing rate to discount the future lease payments based on information available at lease commencement. The incremental borrowing rate was estimated by determining the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company’s operating lease cost as presented in the “other general and administrative” caption in the condensed consolidated statement of income was approximately $1.2 million for three months ended March 31, 2019. Cash paid for amounts included in the measurement of operating lease liabilities was approximately $724,000 for the three months ended March 31, 2019. As of March 31, 2019, the weighted-average remaining lease term was 11.07 years, and the weighted-average incremental borrowing rate was 6.04%.

~~The table below presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2019 (in thousands).~~

~~The table below presents the maturities of lease liabilities under non-cancellable leases as of March 31, 2019 (in thousands).~~

Non-marketable equity investments are accounted for using the equity method when the Company can exercise significant influence over the investee. The aggregate carrying amount of all equity method investments was $1.4 million and $1.3 million as of March 31, 2019 and December 31, 2018, respectively.

Non-marketable equity investments where the Company is not able to exercise significant influence over the investee are accounted for ~~under~~using the ~~cost method.~~measurement alternative for equity investments that do not have readily determinable fair values. ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10)~~, became effective for the Company as of January 1, 2018 and~~ requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The aggregate carrying amount of all ~~cost method~~non-marketable equity investments was ~~$5.4~~$3.0 million and ~~$2.1~~$5.4 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which carrying value we evaluate for impairment at each reporting period. During the three months ended March 31, 2020, the Company recorded a $1.2 million upward adjustment to the carrying value of our non-marketable equity investment in NurseGrid due to a change in fair value based on the consideration paid upon our acquisition of NurseGrid on March 9, 2020 (See Note 8). Cumulatively, the Company has recorded ~~$1.3~~$0.1 million in ~~reductions~~downward adjustments to the carrying value of ~~cost method investments due to~~non-marketable equity investments. Such is the combination of cumulative downward adjustments of $1.3 million offset by cumulative upward adjustments of $1.2 million. These adjustments are the result of changes in fair value based on observable prices from orderly transactions for similar investments made in ~~the investee.~~investees. The fair value of ~~cost method~~non-marketable equity investments is not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment.

In June 2018, a contract with one of our royalty partners expired and was not renewed. However, the contract required continued royalty payments for any subscriptions that extended beyond the contract termination date. Following the contract termination, there was a mutual disagreement related to various elements of this past partnership, and the Company accrued but did not pay royalties to the partner following the contract expiration. During the first quarter of 2020, the Company received a release of liability from the partner associated with this contract, resulting in no royalties to be paid to the partner. The de-recognition of this royalty liability and related expense was recorded as a $3.4 million reduction to cost of revenues in the first quarter of 2020.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and related notes included elsewhere in this report and our audited ~~consolidated financial statements~~Consolidated Financial Statements and the notes thereto for the year ended December 31, ~~2018,~~2019, appearing in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (“SEC”) on February ~~25, 2019~~26, 2020 (the ~~“2018~~“2019 Form 10-K”). Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements that the Company intends to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend on or refer to future events or conditions, or that include words such as “anticipates,” “believes,”�� “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions are forward-looking statements.

The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

In evaluating any forward-looking statement, you should specifically consider the information regarding forward-looking statements and the information set forth under the caption Part II, Item 1A. Risk Factors in this Quarterly Report and under the caption Part I, Item 1A. Risk Factors in our ~~2018~~2019 Form 10-K and the information regarding forward-looking statements and other disclosures in our ~~2018~~2019 Form 10-K, earnings releases and other filings with the SEC from time to time, as well as other cautionary statements contained elsewhere in this report, including the matters discussed in “Critical Accounting Policies and Estimates.” We undertake no obligation beyond that required by law to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. You should read this report and the documents that we reference in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we currently expect.

HealthStream provides workforce and provider solutions for healthcare organizations—all designed to assess and develop the people that deliver patient care, which, in turn, supports the improvement of business and clinical outcomes. Workforce Solutions products are used by healthcare organizations to meet a broad range of their clinical development, talent management, training, certification, competency assessment, and performance appraisal needs. Provider Solutions products are used by healthcare organizations for provider credentialing, privileging, and enrollment needs. HealthStream’s customers include healthcare organizations, pharmaceutical and medical device companies, and other participants in the healthcare industry. At March 31, ~~2019,~~2020, we had approximately ~~1.84~~3.40 million contracted subscriptions to hStream^TM, our Platform-as-a-Service technology. hStream technology enables healthcare organizations and their respective workforces to easily connect to and gain value from the growing HealthStream ecosystem of applications, tools, and content.

On February 12, 2018, the Company divested its Patient Experience (“PX”) business to Press Ganey for $65.2 million in cash (after giving effect to the post-closing adjustment)~~, resulting in a gain, net of tax, of $20.2 million.~~

. Prior to 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. The ~~historical financial results~~gain on sale of the PX business ~~for~~recorded in prior periods ~~prior to the closing of the disposition of the PX business on February 12, 2018~~ are reflected in the Company’s ~~consolidated financial statements~~Consolidated Financial Statements as discontinued operations. This sale of the PX business resulted in the Company’s divestiture of the patient experience solutions business segment.

~~Key~~Significant financial ~~indicators of operations~~metrics for the first quarter of ~~2019~~2020 are set forth in the bullets below.

On ~~January 10, 2019,~~March 9, 2020, the Company acquired all of the outstanding equity of ~~Providigm, LLC~~HcT2 Co. dba NurseGrid (“~~Providigm”~~NurseGrid”), a ~~Denver-based~~Portland, Oregon-based healthcare technology company ~~focused on quality assurance~~offering NurseGrid Mobile and ~~performance improvement in healthcare, primarily serving skilled nursing facilities,~~its corollary application for ~~approximately $18.0~~nurse managers, NurseGrid Enterprise, for $25.0 million, ~~in cash,~~ subject to a post-closing working capital adjustment. ~~In addition, up to an additional $500,000~~The net cash paid for NurseGrid was approximately $21.4 million after taking into consideration the existing minority non-marketable equity investment in ~~cash may be paid by~~NurseGrid that the Company ~~contingent upon the performance of Providigm during an 18-month period following closing.~~previously had held since January 31, 2019. The financial results of ~~operations for Providigm~~NurseGrid have been included in the ~~HealthStream~~ Workforce Solutions segment ~~of our condensed consolidated financial statements~~ from the date of acquisition.

The COVID-19 pandemic has resulted in authorities throughout the United States and the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders, the promotion of social distancing, and limitations on business activity. These measures and the pandemic have caused a significant economic downturn in the United States and globally, resulted in increased unemployment and underemployment levels, and have adversely impacted consumer confidence and spending. Moreover, differing approaches among governmental authorities in the United States regarding whether and how to begin lifting shelter-in-place and business restriction orders have caused additional uncertainty. This pandemic has also led to significant disruption and volatility in financial and capital markets.

Our business is focused on providing workforce and provider solutions to healthcare organizations, such that an adverse impact on healthcare organizations is likely to result in an adverse impact on our Company. Though COVID-19 did not have a significant impact on our first quarter financial results, developments related to the COVID-19 have negatively impacted, and are expected to continue to negatively impact, our financial results beginning in the second quarter of 2020. The extent, timing, and duration of such impacts on our business remain uncertain, and will depend upon, among other things, the length and severity of the COVID-19 pandemic, particularly with respect to its impact on healthcare organizations.

We are closely monitoring developments related to COVID-19 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.

We have focused efforts of providing COVID-19 courses, free of charge, to all caregivers in support of their preparation to provide safe and effective care to COVID-19 patients. Additionally, as previously announced, HealthStream, in partnership with the State of Tennessee Office of the Governor, is providing its COVID-19 Rapid Response Program, which includes training bundles and its workforce platform, along with other workforce resources to support the state’s efforts to rapidly train new, returning, and current caregivers who are volunteering to work in Alternate Healthcare Facilities being set-up across the state. This COVID-19 Rapid Response Program is being provided free of charge for 90 days.

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, and the entire workforce continues to work remotely to date.

Many healthcare organizations have been, and will likely continue to be, substantially adversely impacted by the COVID-19 pandemic. The period of time over which this adverse impact continues and whether conditions continue to deteriorate are important factors that may impact our business. The pandemic has resulted in a significant reduction of revenue generating services for many healthcare organizations, such as elective surgeries and other elective procedures, while, in some cases, their cost of providing emergency care as the result of treating COVID-19 patients has increased. Adverse COVID-19 impacts such as these are resulting, and will likely continue to result, in healthcare organizations curtailing operations, furloughing employees, eliminating positions, and even, in some instances, declaring bankruptcy.

In ~~April 2019,~~light of adverse developments with respect to healthcare organizations as noted above, we ~~began relocating~~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” or “DSO”, customer requests to modify payment or contract terms, and bankruptcy notices. Since March, each of

these areas has begun to show signs of adverse impacts, though we are unable to quantify the impacts of such negative trends or know whether or to what extent such trends may increase over time. Any deterioration in the collectability (or the timing of payments) of our accounts receivable will 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 implemented. To the extent our customers delay or fail to implement products they have previously purchased, our financial results will be adversely impacted. Implementation delays driven by our customers are increasing as their focus becomes redirected to addressing COVID-19. Our Provider Solutions business segment may be more sensitive to implementation delays than our Workforce Solutions segment as the result of complexities associated with implementing certain of the solutions offered through that business segment.

Conditions related to the pandemic may also adversely impact the ability or willingness of our customers to renew their contracts with us, to renew contracts on comparable terms, or to expand the quantity and type of solutions they purchase from us. Pandemic-related conditions are also delaying or otherwise adversely impacting our ability to enter into contracts with new ~~corporate office,~~potential customers, as such potential customers may be focused on the dealing with the impact and demands COVID-19 is having on their business. In this regard, many of our customers are not currently allowing vendors, including representatives of the Company, on their premises, which is ~~located at 500 11~~^th ~~Avenue North, Suite 1000, Nashville, Tennessee 37203.~~reducing the ability of our sales team to make sales they otherwise would likely make but for the impact of COVID-19.

Given the uncertainty surrounding the adverse impact that COVID-19 may have on our business, we have taken certain expense management measures. These include:

As mentioned above, we are continuing to monitor developments regarding the COVID-19 pandemic and may undertake further expense management initiatives if we deem necessary.

Our management utilizes the following financial and non-financial metrics in connection with managing our business. These performance indicators include measurements of gross margin, adjusted EBITDA, and hStream subscriptions.

The Company’s ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements are prepared in accordance with US GAAP. These accounting principles require us to make certain estimates, judgments, and assumptions during the preparation of our financial statements. We believe the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time they are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected.

The accounting policies and estimates that we believe are the most critical in fully understanding and evaluating our reported financial results include the following:

In many cases, the accounting treatment of a particular transaction is specifically dictated by US GAAP and does not require management’s judgment in its application. There are also areas where management’s judgment in selecting among available alternatives would not produce a materially different result. See Notes to the Consolidated Financial Statements in our ~~2018~~2019 Form 10-K and the Notes to the Condensed Consolidated Financial Statements herein which contain additional information regarding our accounting policies and other disclosures required by US GAAP. There have been no changes in our critical accounting policies and estimates from those reported in our ~~2018~~2019 Form 10-K, except as disclosed in the Notes to the Condensed Consolidated Financial Statements herein. Note 2 in the Notes to Condensed Consolidated Financial Statements summarizes new accounting guidance issued by the Financial Accounting Standards Board (“FASB”) that has been recently adopted by the Company, or not yet adopted by the Company, and our evaluation of such accounting guidance and the anticipated impact of such guidance (if known) on the Company. Note 12 in the Notes to Condensed Consolidated Financial Statements summarizes our critical accounting polices related to the new lease accounting standard and its impact on our financial results.10-K.

Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Revenues, net. Revenues ~~increased~~decreased approximately ~~$10.3~~$3.6 million, or ~~19%~~6%, to $61.6 million for the three months ended March 31, 2020 from $65.2 million for the three months ended March 31, ~~2019 from $54.9 million for the three months ended March 31, 2018.~~2019.

	Three Months Ended March 31,									Three Months Ended March 31,
Revenues by Business Segment:	2019			2018			Percentage Change			2020			2019			Percentage Change
Workforce Solutions	$	54,295		$	44,947			21	%	$	49,824		$	54,295			-8	%
Provider Solutions		10,892			9,911			10	%		11,748			10,892			8	%
Total revenues, net	$	65,187		$	54,858			19	%	$	61,572		$	65,187			-6	%

% of Revenues
Workforce Solutions		83	%		82	%					81	%		83	%
Provider Solutions		17	%		18	%					19	%		17	%

Revenues for ~~HealthStream~~ Workforce Solutions ~~increased approximately $9.3~~decreased $4.5 million, or ~~21%~~8%, to $49.8 million for the three months ended March 31, 2020 from $54.3 million for the three months ended March 31, ~~2019~~2019. Revenue from ~~$44.9~~our legacy resuscitation products declined by $6.1 million, while revenue from other workforce solutions products increased by $1.6 million. Revenues from legacy resuscitation products were $11.2 million in the first quarter of 2020, compared to $17.3 million in the first quarter of 2019. Revenues from NurseGrid acquisition, which was completed on March 9, 2020, were not material to the first quarter of 2020.

Revenues for Provider Solutions increased $0.8 million, or 8%, to $11.7 million for the three months ended March 31, ~~2018. Revenue growth in 2019 was positively influenced by an increase in subscription-based product revenues, including higher revenues~~2020 from our legacy resuscitation products, which were $17.3 million in the first quarter of 2019 compared to $12.3 million in the first quarter of 2018, and growth in our proprietary compliance products. The acquisition of Providigm in January 2019 also added $1.5 million of revenue to the first quarter of 2019.

~~Revenues for HealthStream Provider Solutions increased approximately $981,000, or 10%, to~~ $10.9 million for the three months ended March 31, ~~2019~~2019. Revenue growth of $0.8 million was primarily attributable to new VerityStream subscriptions and professional services for client implementations, along with $0.4 million of revenues from ~~$9.9~~the Covenant Technology Group, LLC (referred to above as “CredentialMyDoc”) acquisition, which occurred in December 2019.

Cost of Revenues (excluding Depreciation and Amortization). Cost of revenues decreased $6.5 million, or 24%, to $20.4 million for the three months ended March 31, ~~2018. This increase was primarily as a result of organic growth among product lines in this segment.~~

~~Cost of Revenues (excluding depreciation and amortization).~~ ~~Cost of revenues increased approximately $4.6 million, or 21%, to~~2020 from $26.9 million for the three months ended March 31, ~~2019 from $22.2 million for the three months ended March 31, 2018.~~2019. Cost of revenues as a percentage of revenues was 33% and 41% for ~~both~~ the three months ended March 31, 2020 and 2019, ~~and 2018.~~respectively.

Cost of revenues for ~~HealthStream~~ Workforce Solutions ~~increased approximately $4.3~~decreased $6.8 million to ~~$23.3~~$16.5 million for the three months ended March 31, ~~2019~~2020 and approximated ~~43%~~33% and ~~42%~~43% of revenues for ~~HealthStream~~ Workforce Solutions for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase~~decrease is primarily associated with ~~increased royalties paid by us resulting~~a $3.4 million favorable contractual adjustment that resulted in a decrease to royalty expense upon the resolution of a mutual disagreement relating to various elements of a past partnership. In addition, cost of revenues for Workforce Solutions benefited from ~~growth~~lower royalty expense associated with the decline in ~~courseware subscription~~the legacy resuscitation revenues. Cost of revenues for ~~HealthStream~~ Provider Solutions increased ~~approximately $331,000~~$0.3 million to ~~$3.6~~$3.9 million for the three months ended March 31, ~~2019~~2020 and approximated 33% of ~~HealthStream~~ Provider Solutions revenues for both the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The increase is primarily associated with increases in implementation and customer support personnel ~~costs~~ over the prior year period.

Product Development. Product development expenses increased ~~approximately $926,000,~~$0.6 million, or ~~15%~~8%, to $7.5 million for the three months ended March 31, 2020 from $6.9 million for the three months ended March 31, ~~2019 from $6.0 million for the three months ended March 31, 2018.~~2019. Product development expenses as a percentage of revenues were 12% and 11% for ~~both~~ the three months ended March 31, 2020 and 2019, ~~and 2018.~~respectively.

Product development expenses for ~~HealthStream~~ Workforce Solutions increased ~~approximately $968,000~~$60,000 to ~~$5.8~~$5.9 million for the three months ended March 31, ~~2019~~2020 and approximated 12% and 11% of revenues for ~~HealthStream~~ Workforce Solutions for ~~both~~ the three months ended March 31, 2020 and 2019, ~~and 2018. The increase in amount is primarily due to additions to personnel over the prior year period.~~respectively. Product development expenses for ~~HealthStream~~ Provider Solutions ~~decreased approximately $42,000~~increased $0.5 million to ~~$1.1~~$1.6 million for the three months ended March 31, ~~2019~~2020 and approximated ~~10%~~14% and ~~12%~~10% of revenues for ~~HealthStream~~ Provider Solutions for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase in product development expenses is primarily due to personnel additions over the prior year period as well as an increase in contract labor associated with software development.

Sales and Marketing. Sales and marketing expenses, including personnel costs, ~~increased approximately $457,000,~~decreased $0.3 million, or 5%3%, to $9.2 million for the three months ended March 31, 2020 from $9.5 million for the three months ended March 31, ~~2019 from $9.1~~2019. Sales and marketing expenses were 15% of revenues for both the three months ended March 31, 2020 and 2019.

Sales and marketing expenses for Workforce Solutions decreased $0.5 million to $7.4 million for the three months ended March 31, ~~2018. Sales~~2020 and ~~marketing expenses were~~approximated 15% and ~~17%~~14% of revenues for ~~the three months ended March 31, 2019 and 2018, respectively.~~

Sales and marketing expenses for HealthStream Workforce Solutions increased approximately $533,000 to $7.8 million for the three months ended March 31, 2019 and approximated 14% and 16% of revenues for HealthStream Workforce Solutions for the three months ended March 31, 2020 and 2019, respectively. The decrease in amount is primarily due to lower sales commissions, consistent with the decreases in revenues, as well as lower marketing expenses. Sales and ~~2018, respectively.~~marketing expenses for Provider Solutions increased $0.2 million to $1.6 million for the three months ended March 31, 2020 and approximated 13% of revenues for Provider Solutions for both the three months ended March 31, 2020 and 2019. The increase in amount is primarily due to higher sales commissions, consistent with the ~~increases~~increase in revenues, as well as higher marketing expenses. Sales and marketing expenses for HealthStream Provider Solutions decreased approximately $23,000 to $1.4 million for the three months ended March 31, 2019 and approximated 13% and 15% of revenues for HealthStream Provider Solutions for the three months ended March 31, 2019 and 2018, respectively.revenues. The unallocated corporate portion of sales and marketing expenses decreased ~~approximately $53,000~~$16,000 to ~~$260,000~~$0.2 million for the three months ended March 31, ~~2019~~2020 compared to the prior year ~~period primarily due to decreases in personnel costs.~~period.

Other General and Administrative Expenses. Other general and administrative expenses ~~increased approximately $2.3~~decreased $0.1 million, or ~~29%~~1%, to $9.9 million for the three months ended March 31, 2020 from $10.0 million for the three months ended March 31, ~~2019 from $7.7 million for the three months ended March 31, 2018.~~2019. Other general and administrative expenses as a percentage of revenues were ~~15%~~16% and ~~14%~~15% of revenues for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Other general and administrative expenses for ~~HealthStream~~ Workforce Solutions increased ~~approximately $1.1~~$0.6 million to ~~$3.3~~$3.9 million for the three months ended March 31, ~~2019~~2020 and approximated 8% and 6% ~~and 5%~~ of ~~HealthStream~~ Workforce Solutions revenues for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The increase is primarily due to higher ~~facilities expense related to our new corporate headquarters incurred during the three months ended March 31, 2019~~software costs as well as ~~higher personnel and software costs.~~an increase in bad debt expense. Other general and administrative expenses for ~~HealthStream~~ Provider Solutions decreased ~~approximately $420,000~~$0.1 million to ~~$935,000~~$0.8 million for the three months ended March 31, ~~2019~~2020 and approximated 7% and 9% ~~and 14%~~ of ~~HealthStream~~ Provider Solutions revenues for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The decrease is due to a reduction in ~~contract labor costs.~~bad debt expense. The unallocated corporate portion of other general and administrative expenses ~~increased approximately $1.6~~decreased $0.6 million to ~~$5.8~~$5.2 million for the three months ended March 31, ~~2019~~2020 compared to the prior year period primarily due to ~~increases to personnel,~~reductions in contract labor and software ~~expenses, professional services, and other administrative~~ costs.

Depreciation and Amortization. Depreciation and amortization was ~~approximately $6.5~~$7.4 million and ~~$6.1~~$6.5 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. This increase is primarily a result of amortization ~~of acquired intangible assets~~ associated with ~~Providigm.~~capitalized software and depreciation of property and equipment associated with the relocation of our corporate offices in 2019.

Other Income, Net. Other income, net was ~~approximately $822,000~~$1.7 million for the three months ended March 31, ~~2019~~2020 compared to ~~$313,000~~$0.8 million for the three months ended March 31, ~~2018.~~2019. The increase resulted from ~~higher interest income from cash and investments~~a $1.2 million gain associated with the change in ~~marketable securities.~~fair value of the non-marketable equity investment in NurseGrid prior to the acquisition of NurseGrid on March 9, 2020.

Income Tax Provision. The Company recorded a provision for income taxes from continuing operations of ~~approximately~~$1.9 million for the three months ended March 31, 2020 compared to $1.4 million for the three months ended March 31, ~~2019 compared to $414,000~~2019. The Company’s effective tax rate was 21% for the three months ended March 31, ~~2018. The Company’s effective tax rate was~~2020 compared to 23% for the three months ended March 31, ~~2019 compared to 10% for~~2019. During the three months ended March 31, ~~2018. During~~2020, the Company recorded a $1.2 million change in fair value of non-marketable equity investments as a result of the NurseGrid acquisition, which is not a taxable transaction, resulting in a tax

benefit of $0.3 million. The Company recorded an increase to the provision for income taxes associated with tax deficiencies resulting from stock based awards of $26,000 during the three months ended March 31, ~~2019~~2020 and ~~2018, the Company recorded~~recognized excess tax ~~benefits~~deductions of $83,000 resulting from stock based awards ~~of approximately $83,000 and $636,000, respectively, as a component of~~during the ~~provision for income taxes, which reduced the effective tax rate.~~three months ended March 31, 2019.

Income from Continuing Operations. Income from continuing operations was $7.1 million for the three months ended March 31, 2020, up 48% from $4.8 million infor the ~~first quarter of~~three months ended March 31, 2019, up 32% from $3.6 million in the first quarter of 2018. Income from continuing operations in the first quarter of 2019 was positively impacted by the increase in revenues noted above. The accounting adjustment referenced above in Note 1 to the condensed consolidated financial statements also had a positive impact of $744,000 on income from continuing operations in the first quarter of 2019.and EPS from continuing operations was ~~$0.15~~$0.22 per share (diluted) and ~~$0.11~~$0.15 per share (diluted) for the three months ended March 31, 2020 and 2019, ~~and 2018, respectively.~~respectively, both of which were positively impacted in the amount of $2.6 million, or $0.08 per share, from the favorable adjustment to cost of revenues referenced above.

Income from Discontinued Operations. Income from discontinued operations was zero for the three months ended March 31, 2020 compared to $1.2 million for the three months ended March 31, 2019 compared to $20.2 million for the three months ended March 31, 2018, which decrease was primarily driven by the gain of $20.3 million on the sale of the Patient Experience business recognized in the three months ended March 31, 2018. 2019. The $1.2 million gain, net of tax, recorded during the three months ended March 31, 2019 was the result of a release of escrow funds to us in connection with the ~~escrow funds.~~ PX disposition. Refer to Note 810 in the Notes to the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for further information.

Net Income. Net income was approximately $7.1 million and $6.0 million for the three months ended March 31, 2020 and 2019, ~~compared to $23.8 million for the three months ended March 31, 2018.~~respectively. EPS was ~~$0.18~~$0.22 per share (diluted) and ~~$0.74~~$0.18 per share (diluted) for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Adjusted EBITDA from continuing operations ~~increased 22%~~decreased 6% to $11.8 million for the three months ended March 31, 2020 from $12.5 million for the ~~first quarter of 2019 compared to $10.2 million for the first quarter of 2018.~~three months ended March 31, 2019.

Adjusted EBITDA (from continuing and discontinued operations) was $11.8 million for the three months ended March 31, 2020 compared to $14.1 million for the three months ended March 31, ~~2019 compared to $41.2 million for the three months ended March 31, 2018.~~2019. See “Reconciliation of Non-GAAP Financial Measures” below for our reconciliation of Adjusted EBITDA from continuing operations and adjusted EBITDA to the most directly comparable measures under US GAAP and disclosure regarding why we believe these non-GAAP financial measures provide useful information to investors.

On February 12, 2018, the Company divested its PX business to Press Ganey for $65.2 million in cash (after giving effect to the post-closing working capital adjustment). This sale of the PX business resulted in the divestiture of our patient experience solutions business segment. We recorded a gain on sale, net of tax, of ~~$20.2~~$20.5 million, of which $19.0 million was recorded during the year ended December 31, 2018 and ~~$1.2~~$1.5 million was recorded during the ~~three months~~year ended ~~March~~December 31, 2019. With the proceeds of this sale, our Board of Directors declared a $1.00 per common share special cash dividend, which was paid on April 3, 2018 to shareholders of record on March 6, 2018.

We have classified the ~~results~~gain on sale of our PX business segment as discontinued operations in our ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~income and cash flows~~Income for all periods presented. See Note 810 to our ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements included in this report for additional information.

Our legacy agreements with Laerdal (the “Legacy Agreements”) for the HeartCode and Resuscitation Quality Improvement (“RQI”) products expired pursuant to their terms on December 31, 2018. Revenues associated with sales of HeartCode and RQI products pursuant to the Legacy Agreements have been significant in recent years, although margins on such products have been lower than HealthStream’s average margin. ~~In 2018, revenue~~Revenue generated by HeartCode and RQI products pursuant to the Legacy Agreements was ~~approximately $55 million. In~~$58.9 million and $54.6 million in 2019 ~~we expect the revenue from these products generated pursuant to the Legacy Agreements to approximate $59 to $60 million.~~and 2018, respectively. During the three months ended March 31, ~~2019,~~2020, as noted above we recorded revenue of ~~$17.3~~$11.2 million related to HeartCode and RQI products under the Legacy Agreements compared to ~~$12.3~~$17.3 million for the three months ended March 31, ~~2018. We~~2019. For the remainder of 2020, we expect ~~2019~~quarterly revenue from ~~HeartCode and RQI~~these products generated pursuant to the Legacy Agreements to continue to decline sequentially ~~on a quarterly basis.~~each quarter as follows: approximately $10.5 million in the second quarter, approximately $8.5 million in the third quarter, and approximately $6.0 million in the fourth quarter. We also continue to expect revenue from HeartCode and RQI products sold pursuant to the Legacy Agreements to be approximately zero in the first quarter of 2021.

On December 6, 2018, we announced a new agreement with RQI Partners, a joint venture between Laerdal and the American Heart Association. This agreement with RQI Partners iswas not an extension or renewal of the expired Legacy Agreements with Laerdal and should not be construed as such. Under our agreement with RQI Partners, HealthStream will neither market nor sell HeartCode or RQI. Our RQI Partners agreement provides for continuity of service for customers that desire to purchase HeartCode or RQI from RQI Partners after December 31, 2018 and receive it via the HealthStream Learning Center. RQI Partners will remit a fee to us when new sales of HeartCode and RQI are delivered via the HealthStream Learning Center. This fee will not be sufficient to supplant the revenue runout associated with the Legacy ~~Agreements.~~Agreements, and no material revenues have been recognized under this agreement through March 31, 2020.

We remain 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 we intend to bring to market a broadened scope of simulation-based offerings, including resuscitation programs. On January 17, 2019, as part of a seven-year collaboration agreement with the American Red Cross, which spans to 2026, we announced the launch of the American Red Cross Resuscitation Suite. We ~~have now begun~~are actively engaged in efforts to market, sell, and deliver ~~the American Red Cross Resuscitation Suite. Our first eight customers are under contract for~~our new resuscitation offering, which includes the American Red Cross Resuscitation Suite and validation of skills through a technology enabled Innosonian manikin. A growing number of customers have been implemented on our new resuscitation offering and we ~~expect to begin implementing certain of those contracts during~~believe that the ~~second quarter. No revenue will be recognized from these new contracts until implementation~~solution is ~~complete.~~gaining acceptance in the market. We believe our efforts to market, sell, and deliver the American Red Cross Resuscitation Suite, along with efforts to bring additional simulation-related offerings to market, have the potential to give rise to additional and higher margin opportunities than those that existed under the Legacy Agreements. 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 in a manner that supplants the impact of the Legacy Agreements, our revenue and results of operations may be adversely affected.

This report presents adjusted EBITDA from continuing operations and adjusted EBITDA, both of which are non-GAAP financial measures used by management in analyzing our financial results and ongoing operational performance.

In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, share-based compensation, depreciation and amortization, ~~and~~ changes in fair value of ~~cost method~~non-marketable equity investments, 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 costs of revenues in the first quarter of 2020 as described above. (“adjusted EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain non-cash and non-operating items. 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 ~~results of operations of the PX business that we no longer own and the~~ gain on sale in connection with the sale of ~~such~~the PX business in February 2018 and thus reflects the Company’s ongoing business operations and assists in comparing the Company’s results of operations between periods. We also believe that adjusted EBITDA and adjusted EBITDA from continuing operations are useful to many investors to assess the Company’s ongoing results from current operations. 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 and may be different from non-GAAP financial measures used by other companies and have limitations as analytical tools.

A reconciliation of adjusted EBITDA and adjusted EBITDA from continuing operations to the most directly comparable GAAP measures is set forth below (in thousands).

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
GAAP income from continuing operations	$	4,780		$	3,629		$	7,092		$	4,780
Interest income		(790	)		(340	)		(594	)		(790	)
Interest expense		21			34			25			21
Income tax provision		1,411			414			1,858			1,411
Stock based compensation expense		516			419			550			516
Depreciation and amortization		6,539			6,073			7,449			6,539
Change in fair value of cost method investments		—			—
Change in fair value of non-marketable equity investments								(1,152	)		—
Non-cash royalty expense								(3,440	)		—
Adjusted EBITDA from continuing operations	$	12,477		$	10,229		$	11,788		$	12,477

GAAP net income	$	5,974		$	23,846		$	7,092		$	5,974
Interest income		(790	)		(340	)		(594	)		(790	)
Interest expense		21			34			25			21
Income tax provision		1,837			11,124			1,858			1,837
Stock based compensation expense		516			328			550			516
Depreciation and amortization		6,539			6,254			7,449			6,539
Change in fair value of cost method investments		—			—
Change in fair value of non-marketable equity investments								(1,152	)		—
Non-cash royalty expense								(3,440	)		—
Adjusted EBITDA	$	14,097		$	41,246		$	11,788		$	14,097

Net cash provided by operating activities ~~from continuing operations increased~~decreased by ~~$6.5~~$10.0 million to $6.1 million during the three months ended March 31, 2020 from $16.1 million during the three months ended March 31, ~~2019 from $9.6 million during the three months ended March 31, 2018. The~~2019. Such decrease was primarily driven by an increase ~~compared to the prior year period primarily resulted from changes~~ in accounts receivable balances and ~~unbilled receivables,~~payments of accrued ~~royalties, and deferred revenue. The number~~royalties. Our DSO was 44 days for the first quarter of ~~days sales outstanding (“DSO”) was~~2020 compared to 52 days for the first quarter of 2019 ~~compared~~and 39 days for the fourth quarter of 2019. We believe that developments related to ~~60 days for~~the COVID-19 pandemic have contributed to an increase in DSO in the first quarter of ~~2018. The improvement in DSO primarily relates to improved collections in the Provider Solutions segment as~~2020 compared to the ~~prior year period.~~fourth quarter of 2019, and this trend may continue if negative economic conditions arising from the pandemic persist or continue to deteriorate. The Company calculates DSO by dividing the average accounts receivable balance for the quarter by average daily revenues for the quarter. The Company’s primary sources of cash were receipts generated from the sales of our products and services. The primary uses of cash to fund operations included personnel expenses, sales commissions, royalty payments, payments for contract labor and other direct expenses associated with delivery of our products and services, and general corporate expenses.

Net cash used in investing activities ~~from continuing operations~~ was approximately $19.9 million for the three months ended March 31, 2020 compared to $39.4 million for the three months ended March 31, ~~2019 compared to net cash provided by investing activities from continuing operations of $60.8 million for~~2019. During the three months ended March 31, ~~2018.~~2020, the Company spent $21.4 million to acquire NurseGrid, invested in marketable securities of $14.1 million, made payments for capitalized software development of $4.1 million, and purchased property and equipment of $1.0 million. These uses of cash were partially offset by $20.7 million in maturities of marketable securities. During the three months ended March 31, 2019, the Company ~~acquired Providigm for~~spent $18.0 million to acquire Providigm, invested in marketable securities of $30.1 million, purchased property and equipment of $11.3 million, made payments for capitalized software development of $4.9 million, and invested $3.3 million in cost method investments. These uses of cash were partially offset by $28.3 million in maturities of marketable securities. During the three months ended March 31, 2018, the Company divested its PX business segment, receiving proceeds from the sale of $58.2 million (not including the $6.55 million portion of the purchase price being held in escrow for a period of time following the closing as a source of recovery for indemnification claims) and had maturities of marketable securities of $19.6 million. These sources of cash were partially offset by purchases of $1.9 million of property and equipment, $2.5 million for capitalized software development, and $12.6 million for investments in marketable securities.

Net cash used in financing activities ~~from continuing operations~~ was approximately ~~$417,000 for the three months ended March 31, 2019 compared to net cash provided by financing activities from continuing operations of $2.0~~$10.3 million for the three months ended March 31, ~~2018.~~ ~~The uses of cash~~2020 compared to $0.4 million for ~~both~~ the three months ended March 31, ~~2019 and 2018~~2019. The uses of cash for the three months ended March 31, 2020 primarily included $9.9 million for common stock repurchases, $0.4 million for the payment of employee payroll taxes in relation to the vesting of restricted share units, ~~(“RSU”)~~and $30,000 of $359,000 and $297,000, respectively. In this regard, the Company net-share settled the employee RSUs by withholding shares with value equivalent to the employee’s minimum statutory obligation for the applicable income and other employment taxes.cash dividend payments. The uses of cash for ~~both~~ the three months ended March 31, 2019 included $0.4 million for the payment of employee payroll taxes in relation to the vesting of restricted share units, $52,000 of cash dividends payments, and ~~2018 also included~~ $37,000 of earn-out payments ~~of earn-outs~~ related to prior acquisitions. The source of cash from financing activities for ~~both~~ the three months ended March 31, 2019 ~~and 2018~~ was from the exercise of stock options of ~~$31,000 for~~ $31,000.

~~the three months ended March 31, 2019~~ ~~and $2.4 million for the three months ended March 31, 2018. The use of cash for~~ ~~the three months ended March 31, 2019~~ ~~also included $52,000 of cash dividend payments.~~

Our balance sheet reflects positive working capital of ~~$112.8~~$98.2 million at March 31, ~~2019~~2020 compared to ~~$134.6~~$119.4 million at December 31, ~~2018.~~2019. The decrease in working capital is primarily a result of the reduction in cash to fund the acquisition of ~~Providigm~~NurseGrid and ~~capital expenditures related to our new corporate office.~~share repurchases. The Company’s primary source of liquidity as of March 31, ~~2019~~2020 was ~~$110.6~~$107.4 million of cash and cash equivalents and ~~$36.3~~$34.6 million of marketable securities. The Company also has a $50.0 million revolving credit facility, all of which was available for additional borrowing at March 31, ~~2019.~~2020. The revolving credit facility expires on November 24, ~~2020.~~2020, unless earlier renewed or amended.

On March 13, 2020, we announced a share repurchase program authorized by our Board of Directors under which we may purchase up to $30,000,000 of our common stock. Pursuant to this authorization, repurchases have been made, and may continue to be made from time to time, in the open 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 doing so under insider trading laws in accordance with specific prearranged terms related to timing, price, and volume (among others), without further direction from the Company. Under this program, during the first quarter of 2020, we repurchased 438,142 shares at an aggregate fair value of $9.9 million, reflecting an average price per share of $22.52 (excluding the cost of broker commissions). We may continue to make repurchases under this share repurchase program based on prevailing market conditions, liquidity, and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors. The share repurchase program will terminate on the earlier of March 12, 2021 or when the maximum dollar amount has been expended.

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, any additional repurchases under our share repurchase program, and capital expenditures for at least the next 12 months. If the impact of COVID-19 persists longer than expected or causes economic conditions to further deteriorate, we are prepared to curtail or discontinue new product development and/or repurchases under the share repurchase authorization as we deem in the best interest of shareholders and the Company.

In addition, the Company’s growth strategy includes acquiring businesses or making strategic investments in businesses that complement or enhance our business. It is anticipated that future acquisitions or strategic investments, if any, would be effected through cash consideration, stock consideration, or a combination of both. The issuance of our stock as consideration for an acquisition or to raise additional capital could have a dilutive effect on earnings per share and could adversely affect our stock price. Our revolving credit facility contains financial covenants and availability calculations designed to set a maximum leverage ratio of outstanding debt to adjusted EBITDA and an interest coverage ratio of adjusted EBITDA to interest expense. Therefore, the maximum borrowings against our revolving credit facility would be dependent on the covenant calculations at the time of borrowing. As of March 31, ~~2019~~2020, we were in compliance with all covenants. There can be no assurance that amounts available for borrowing under our revolving credit facility will be sufficient to consummate any possible acquisitions, and we cannot assure you that if we need additional financing that it will be available on terms favorable to us, or at all. Failure to generate sufficient cash flow from operations or raise additional capital when required in sufficient amounts and on terms acceptable to us could harm our business, financial condition, and results of operations. Moreover, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could impair our ability to access additional capital if needed.

The Company is exposed to market risk from changes in interest rates. We do not have any material foreign currency exchange rate risk or commodity price risk. As of March 31, ~~2019~~2020 and during the three months then ended, the Company had no outstanding debt. We may become subject to interest rate market risk associated with any future borrowings under our revolving credit facility. The interest rate under the revolving credit facility varies depending on the interest rate option selected by the Company plus a margin determined in accordance with a pricing grid. We are also exposed to market risk with respect to our cash and investment balances, which approximated ~~$146.9~~$142.0 million at March 31, ~~2019.~~2020. Assuming a hypothetical 10% decrease in interest rates for invested balances, interest income from cash and investments would decrease on an annualized basis by approximately ~~$317,000.~~$228,000.

The Company’s investment policy and strategy is focused on investing in highly rated securities, with the objective of minimizing the potential risk of principal loss. The Company’s policy limits the amount of credit exposure to any single issuer and sets limits on the average portfolio maturity.

The above market risk discussion and the estimated amounts presented are forward‑looking statements of market risk assuming the occurrence of certain adverse market conditions. Actual results in the future may differ materially from those projected as a result of actual developments in the market.

HealthStream’s chief executive officer and principal financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, the chief executive officer and principal financial officer have concluded that HealthStream’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and the information required to be disclosed in the reports the Company files or submits under the Exchange Act was accumulated and communicated to the Company’s management, including its chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There was no change in HealthStream’s internal control over financial reporting that occurred during the first quarter of ~~2019~~2020 that has materially affected, or that is reasonably likely to materially affect, HealthStream’s internal control over financial reporting.

The following supplements the Company’s risk factors previously disclosed in the 2019 Form 10-K by adding the following risk factor that takes into account developments with respect to COVID-19 since the filing of the 2019 Form 10-K. Except as set forth below, there have been no material changes with regard to the risk factors previously disclosed in the 2019 Form 10-K.

The coronavirus pandemic is significantly affecting our business, and may have material adverse impacts on our business, financial condition, results of operations, and/or cash flows.

The COVID-19 pandemic has resulted in authorities throughout the United States and the world implementing widespread measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter-in-place orders, the promotion of social distancing, and limitations on business activity. These measures and the pandemic have caused a significant economic downturn in the United States and globally, resulted in increased unemployment and underemployment levels, and adversely impacted consumer confidence and spending. This pandemic has also led to significant disruption and volatility in financial and capital markets.

Our business is focused on providing workforce and provider solutions to healthcare organizations. Many healthcare organizations have been, and will likely continue to be, substantially adversely impacted by the COVID-19 pandemic which has resulted in a substantial reduction in the number of elective surgeries, physician office visits, and other healthcare procedures due to restrictive measures, including quarantines and shelter-in-place orders, as well as general concerns related to the risk of contracting COVID-19 from interacting with the healthcare system. Moreover, some healthcare organizations, such as ambulatory surgery centers, have been forced to reduce or close their operations due to the impact of the pandemic. Additionally, adverse conditions related to the pandemic are causing, and could continue to cause, certain of our customers to be unable to pay for our products and services in a timely and fulsome manner, or unable to pay at all, which will likely have an adverse impact on our financial results. Moreover, our “days sales outstanding” have increased as the result of the COVID-19 pandemic, , and to the extent this trend continues, or our customers are unable to pay due to bankruptcy or the deterioration of their business as the result of COVID-19, our bad debt may increase and future revenue generating opportunities with those customers may be limited.

Conditions related to the pandemic may also adversely impact the ability or willingness of our customers to renew their contracts with us (or to renew contracts on comparable terms) and to expand the quantity and type of solutions they purchase from us. The COVID-19 pandemic has begun to, and will likely continue to, adversely impact our ability to enter into contracts with new potential customers. Customers may also be unwilling or unable to pay the same prices for our products and solutions than they have paid in the past, which could negatively impact our results and growth. Many of our customers are not currently allowing vendors, including ourselves, on their premises, which is reducing the ability of our sales team to make sales they otherwise would likely make but for the impact of COVID-19. Additionally, we do not recognize revenue until a software product is implemented and “live” for a customer to use. To the extent our customers delay or fail to implement products they have previously purchased, or to the extent we are unable to fulfill our own implementation backlogs due to COVID-19, which certain of our customers are doing, our financial results will likely suffer, as may our future prospects.

Our business also relies on a network of partners whose solutions we resell or whose solutions are sold and delivered over our platform. To the extent COVID-19 results in business disruption or adverse impacts to our partners, such disruptions and adverse impacts could adversely impact our business as well.

At the time of filing, due to COVID-19 our entire workforce is working remotely from home consistent with stay-at-home or shelter-in-place regulations. While we have not observed a disruption to productivity to date, operating on a prolonged basis as a remote workforce could result in decreases in productivity, increased security risks, impair our ability to manage our business, and harm our ability to attract, retain, and onboard employees.

There continue to be significant uncertainties associated with the COVID-19 pandemic, including with respect to the severity and duration of the pandemic, actions that may be taken by governmental authorities and private businesses to mitigate against the impact of the pandemic, and the ongoing impact of COVID-19 on economic activity and unemployment and underemployment levels. Moreover, COVID-19 developments continue to evolve quickly, and additional developments may occur which we are unable to predict.

Developments related to COVID-19 could have a material adverse effect on our business, financial condition, results of operations, and/or cash flows, particularly if negative conditions impacting healthcare organizations persist for a significant period of time or continue to deteriorate. In addition, the impact of COVID-19 may exacerbate other risks discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us.

On March 13, 2020, the Company announced a share repurchase program authorized by the Company’s Board of Directors under which the Company may purchase up to $30,000,000 of its common stock. Pursuant to this authorization, repurchases have been made and may continue to be made, in the open market through privately negotiated transactions or otherwise, including under a Rule 105b-1 plan, which permits shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws in accordance with specific prearranged terms related to timing, price, and volume (among others), without further direction from the Company. In addition, any future repurchases under the authorization will be subject to prevailing market conditions, liquidity and cash flow considerations, applicable securities laws requirements (including under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as applicable), and other factors. The share repurchase program will terminate on the earlier of March 12, 2021 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 March 31, 2020.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Tennessee	~~62‑1443555~~62-1443555
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 11th Avenue North, Suite 1000,
Nashville, Tennessee	37203
(Address of principal executive offices)	(Zip Code)


~~209 10th Avenue South, Suite 450,~~Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~Nashville, Tennessee 37203~~Common Stock (Par Value $0.00)
~~(Former address of principal executive offices)~~HSTM	Nasdaq


		Page Number

Part I.	Financial Information	1

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets (Unaudited) – March 31, ~~2019~~2020 and December 31, ~~2018~~2019	1

	Condensed Consolidated Statements of Income (Unaudited) – Three Months ended March 31, ~~2019~~2020 and ~~2018~~2019	2

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three Months ended March 31, ~~2019~~2020 and ~~2018~~2019	3

	Condensed Consolidated Statement of Shareholders' Equity (Unaudited) – Three Months ended March 31, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months ended March 31, ~~2019~~2020 and ~~2018~~2019	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1715

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

Item 4.	Controls and Procedures	24

Part II.	Other Information	2425

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 6.	Exhibits	2426

	SIGNATURE	2527

Cash paid at closing	$	7,920
Cash held in escrow		1,080
Total consideration paid	$	9,000

Accounts and unbilled receivable, net	$	216
Prepaid and other current assets		3
Operating lease right-of-use assets		30
Deferred tax assets		71
Goodwill		4,657
Intangible assets		4,340
Accounts payable and accrued liabilities		(7	)
Deferred revenue		(280	)
Operating lease liabilities		(30	)
Net assets acquired	$	9,000

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

	Preliminary Fair value		Useful life
Customer relationships	$	2,100	9 years
Developed technology		2,100	4 years
Non-compete		110	5 years
Trade name		30	3 years
Total intangible assets subject to amortization	$	4,340

Cash paid at closing	$	25,485
Cash acquired		(4,064	)
Net consideration paid		21,421
Fair value of existing equity interest in NurseGrid		3,594
Total purchase price	$	25,015

Cash paid at closing	$	13,852
Cash held in escrow		4,150
Total consideration paid	$	18,002

Accounts and unbilled receivable, net	$	972
Prepaid assets		847
Property and equipment		50
Operating lease right-of-use assets		1,233
Other assets		49
Deferred tax assets		110
Goodwill		9,108
Intangible assets		8,225
Accounts payable and accrued liabilities		(1,218	)
Deferred revenue		(141	)
Operating lease liabilities		(1,233	)
Net assets acquired	$	18,002

Assets	Classification
Operating lease right-of-use assets	Operating lease right of use assets, net	$	31,710
Total leased assets		$	31,710
Liabilities
Operating lease liabilities, current	Accounts payable and accrued expenses	$	1,309
Operating lease liabilities, noncurrent	Operating lease liability, noncurrent		32,390
Total operating lease liabilities		$	33,699

2019	$	1,789
2020		4,739
2021		4,505
2022		4,124
2023		3,979
Thereafter		28,655
Total undiscounted lease payments		47,791
Less imputed interest		14,092
Total lease liabilities	$	33,699

Period	(a) Total number of shares (or units) purchased		(b) Average price paid per share (or unit)⁽²⁾		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs		(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
Month #1 (January 1 - January 31)⁽¹⁾		—	$	—		—	$	—
Month #2 (February 1 - February 29)⁽¹⁾		—		—		—		—
Month #3 (March 1 - March 31)		438,142		22.52		438,142		20,132,659
Total		438,142	$	22.52		438,142	$	20,132,659
(1) The stock repurchase plan was not in place during this period.
(2) The weighted average price paid per share of common stock does not include the cost of broker commissions.


~~10.18~~10.18^		HealthStream, Inc. ~~2019~~2020 Executive and Corporate Management Cash Incentive Bonus Plan

~~10.19~~10.19^		HealthStream, Inc. ~~2019~~2020 Provider Solutions Cash Incentive Bonus Plan

31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1 INS		XBRL Instance Document – The instant document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.1 SCH		XBRL Taxonomy Extension Schema

101.1 CAL		XBRL Taxonomy Extension Calculation Linkbase

101.1 DEF		XBRL Taxonomy Extension Definition Linkbase

101.1 LAB		XBRL Taxonomy Extension Label Linkbase

101.1 PRE		XBRL Taxonomy Extension Presentation Linkbase

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, has been formatted in Inline XBRL

^		Management contract or compensatory plan or arrangement

	HEALTHSTREAM, INC.

April ~~29, 2019~~30, 2020	By:	/s/ Scott A. Roberts
		Scott A. Roberts
		~~Interim~~ Chief Financial Officer