NRC HEALTH 10-K

Item 8. Financial Statements and Supplementary Data   23 Table of Contents   Report of Independent Registered Public Accounting Firm     To the Shareholders and the Board of Directors National Research Corporation:   Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting   We have audited the accompanying consolidated balance sheets of National Research Corporation and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.   In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.   Basis for Opinions   The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.   Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.   Definition and Limitations of Internal Control Over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   24 Table of Contents   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.   Critical Audit Matter   The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Sufficiency of audit evidence over new and modified subscription-based service agreement terms   As discussed in Notes 1 and 3 to the consolidated financial statements, revenue consists of service arrangement contracts with customers that can include more than one separately identifiable performance obligation. The Company’s revenue for the year ended December 31, 2021 included $137.0 million for subscription-based service agreements, a portion of which was revenue from new and modified subscription-based service agreements, that was recognized ratably over the subscription period and which agreements are renewable at the option of the customer. Subscription-based service agreements represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period.   We identified the evaluation of the sufficiency of audit evidence over the key terms within new and modified subscription-based service agreements as a critical audit matter. Specifically, the nature and extent of procedures performed over the key terms within the new and modified subscription-based service agreements required subjective auditor judgment as recognition of revenue by the Company is dependent on the accuracy of the key terms within the related information technology (IT) application used to calculate revenue. The key terms within the new subscription-based service agreements included the description of service, transaction price, renewal price and contract term, and the key terms within the modified subscription-based service agreements were the transaction price and contract term.   The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the accuracy of key terms within the IT application, including the identification of key terms. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s subscription-based service revenue process, including controls related to the key terms within the new and modified subscription-based service agreements. We also tested certain internal controls over the accurate input of the underlying key terms of the subscription-based service agreement into the related IT application. For a sample of revenue transactions, we compared the key terms used in the revenue calculation to the underlying contract with the customer. We evaluated the sufficiency of audit evidence obtained over the key terms within new and modified subscription-based service agreements by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.     /s/ KPMG LLP   We have served as the Company’s auditor since 1997.   Lincoln, Nebraska March 4, 2022   25 Table of Contents     NATIONAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)       2021     2020   Assets                 Current assets:                 Cash and cash equivalents   $ 54,361     $ 34,690   Trade accounts receivable, less allowance for doubtful accounts of $ 94 and $ 120 , respectively     13,728       13,923   Prepaid expenses     3,884       2,645   Income taxes receivable     752       1,235   Other current assets     982       1,619   Total current assets     73,707       54,112                     Net property and equipment     12,391       11,726   Intangible assets, net     1,790       1,410   Goodwill     61,614       57,255   Operating lease right-of-use assets     975       1,308   Deferred contract costs, net     3,772       4,555   Deferred income taxes     14       --   Other     3,277       3,057                     Total assets   $ 157,540     $ 133,423                     Liabilities and Shareholders ’ Equity                 Current liabilities:                 Current portion of notes payable, net of unamortized debt issuance costs   $ 4,278     $ 4,061   Accounts payable     1,943       1,095   Accrued wages and bonuses     7,139       6,460   Accrued expenses     5,450       3,184   Dividends payable     3,044       --   Deferred revenue     17,213       15,585   Other current liabilities     1,321       1,296   Total current liabilities     40,388       31,681                     Notes payable, net of current portion and unamortized debt issuance costs     22,269       26,547   Deferred income taxes     7,002       7,265   Other long-term liabilities     2,544       3,615   Total liabilities     72,203       69,108                     Shareholders’ equity:                 Preferred stock, $ 0.01 par value, authorized 2,000,000 shares, none issued     --       --   Common stock, $ 0.001 par value; authorized 110,000,000 shares in 2021 and 60,000,000 shares in 2020, issued 30,898,600 in 2021 and 30,775,154 in 2020, outstanding 25,361,409 in 2021 and 25,390,968 in 2020     31       31   Additional paid-in capital     173,942       171,785   Retained earnings (accumulated deficit)     ( 36,112 )     ( 61,375 ) Accumulated other comprehensive loss, foreign currency translation adjustment     ( 2,375 )     ( 2,399 ) Treasury stock, at cost; 5,537,191 Common shares in 2021 and 5,384,186 Common shares in 2020     ( 50,149 )     ( 43,727 ) Total shareholders’ equity     85,337       64,315                     Total liabilities and shareholders’ equity   $ 157,540     $ 133,423     See accompanying notes to consolidated financial statements.   26 Table of Contents     NATIONAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share amounts)       2021     2020     2019                             Revenue   $ 147,954     $ 133,277     $ 127,982                             Insurance recoveries     --       533       --                             Operating expenses:                         Direct     52,350       49,187       46,435   Selling, general and administrative     38,960       34,441       32,973   Depreciation, amortization and impairment     6,374       7,505       5,539   Total operating expenses     97,684       91,133       84,947                             Operating income     50,270       42,677       43,035                             Other income (expense):                         Interest income     14       18       37   Interest expense     ( 1,667 )     ( 1,813 )     ( 2,091 ) Other, net     4       585       ( 462 )                           Total other income (expense)     ( 1,649 )     ( 1,210 )     ( 2,516 )                           Income before income taxes     48,621       41,467       40,519                             Provision for income taxes     11,155       4,207       8,113                             Net income   $ 37,466     $ 37,260     $ 32,406                             Earnings per share of common stock:                         Basic earnings per share   $ 1.47     $ 1.48     $ 1.30   Diluted earnings per share   $ 1.46     $ 1.45     $ 1.26                             Weighted average shares and share equivalents outstanding                         Basic     25,422       25,170       24,809   Diluted     25,640       25,696       25,653     See accompanying notes to consolidated financial statements.   27 Table of Contents     NATIONAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)       2021     2020     2019                             Net income   $ 37,466     $ 37,260     $ 32,406                             Other comprehensive income (loss):                         Cumulative translation adjustment   $ 24     $ ( 190 )   $ 707   Other comprehensive income (loss)   $ 24     $ ( 190 )   $ 707                             Comprehensive income   $ 37,490     $ 37,070     $ 33,113     See accompanying notes to consolidated financial statements.   28 Table of Contents     NATIONAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY (In thousands except share and per share amounts)       Common Stock     Additional Paid-in Capital     Retained Earnings (Accumulated Deficit)     Accumulated Other Comprehensive Income (Loss)     Treasury Stock     Total   Balances at December 31, 2018   $ 30     $ 157,312     $ ( 106,339 )   $ ( 2,916 )   $ ( 29,004 )   $ 19,083   Purchase of 87,203 shares of treasury stock     --       --       --       --       ( 4,722 )     ( 4,722 ) Issuance of 227,902 common shares for the exercise of stock options     --       3,618       --       --       --       3,618   Issuance of 6,005 restricted common shares     --       --       --       --       --       --   Non-cash stock compensation expense     --       1,224       --       --       --       1,224   Dividends declared of $ 0.78 per common share     --       --       ( 19,424 )     --       --       ( 19,424 ) Other comprehensive income, foreign currency translation adjustment     --       --       --       707       --       707   Net income     --       --       32,406       --       --       32,406   Balances at December 31, 2019   $ 30     $ 162,154     $ ( 93,357 )   $ ( 2,209 )   $ ( 33,726 )   $ 32,892   Purchase of 180,112 shares of treasury stock     --       --       --       --       ( 10,001 )     ( 10,001 ) Issuance of 630,373 common shares for the exercise of stock options     1       8,951       --       --       --       8,952   Forfeiture of 6,793 restricted common shares     --       --       --       --       --       --   Non-cash stock compensation expense     --       680       --       --       --       680   Dividends declared of $ 0.21 per common share     --       --       ( 5,278 )     --       --       ( 5,278 ) Other comprehensive loss, foreign currency translation adjustment     --       --       --       ( 190 )     --       ( 190 ) Net income     --       --       37,260       --       --       37,260   Balances at December 31, 2020   $ 31     $ 171,785     $ ( 61,375 )   $ ( 2,399 )   $ ( 43,727 )   $ 64,315   Purchase of 153,005 shares treasury stock     --       --       --       --       ( 6,422 )     ( 6,422 ) Issuance of 116,753 common shares for the exercise of stock options     --       1,534       --       --       --       1,534   Non-cash stock compensation expense     --       623       --       --       --       623   Dividends declared of $ 0.48 per common share     --       --       ( 12,203 )     --       --       ( 12,203 ) Other comprehensive income, foreign currency translation adjustment     --       --       --       24       --       24   Net income     --       --       37,466       --       --       37,466   Balances at December 31, 2021   $ 31     $ 173,942     $ ( 36,112 )   $ ( 2,375 )   $ ( 50,149 )   $ 85,337     See accompanying notes to consolidated financial statements.   29 Table of Contents     NATIONAL RESEARCH CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)       2021     2020     2019   Cash flows from operating activities:                         Net income   $ 37,466     $ 37,260     $ 32,406   Adjustments to reconcile net income to net cash provided by operating activities:                         Depreciation, amortization and impairment     6,374       7,505       5,539   Deferred income taxes     ( 277 )     ( 134 )     1,099   Reserve for uncertain tax positions     310       185       39   Gain on insurance recoveries for damaged property     --       ( 260 )     --   Loss on disposal of property and equipment     7       12       ( 6 ) Non-cash share-based compensation expense     623       680       1,224   Change in assets and liabilities:                         Trade accounts receivable     343       ( 2,271 )     311   Prepaid expenses and other current and long-term assets     ( 842 )     ( 827 )     ( 529 ) Operating lease assets and liability, net     ( 34 )     16       ( 8 ) Deferred contract costs, net     783       ( 351 )     ( 719 ) Accounts payable     4       ( 247 )     647   Accrued expenses, wages and bonuses     ( 285 )     1,370       806   Income taxes receivable and payable     484       ( 1,529 )     11   Deferred revenue     1,388       ( 773 )     97   Net cash provided by operating activities     46,344       40,636       40,917                             Cash flows from investing activities:                         Purchases of property and equipment     ( 5,514 )     ( 3,984 )     ( 4,656 ) Acquisition consideration     ( 3,000 )     --       --   Insurance proceeds for damaged property     --       260       --   Net cash used in investing activities     ( 8,514 )     ( 3,724 )     ( 4,656 )                           Cash flows from financing activities:                         Borrowings on line of credit     --       --       21,000   Payments on line of credit     --       --       ( 21,000 ) Payments on notes payable     ( 4,093 )     ( 3,568 )     ( 3,715 ) Payment of debt issuance costs     --       ( 36 )     --   Payments on finance lease obligations     ( 493 )     ( 332 )     ( 229 ) Proceeds from the exercise of stock options     446       1,734       --   Payment of payroll tax withholdings on share-based awards exercised     ( 721 )     ( 2,784 )     ( 1,103 ) Repurchase of shares for treasury     ( 4,142 )     --       --   Payment of dividends on common stock     ( 9,159 )     ( 10,517 )     ( 31,299 ) Net cash used in financing activities     ( 18,162 )     ( 15,503 )     ( 36,346 )                           Effect of exchange rate changes on cash     3       ( 236 )     611   Net increase (decrease) in cash and cash equivalents     19,671       21,173       526   Cash and cash equivalents at beginning of period     34,690       13,517       12,991   Cash and cash equivalents at end of period   $ 54,361     $ 34,690     $ 13,517                             Supplemental disclosure of cash paid for:                         Interest expense, net of capitalized amounts   $ 1,554     $ 1,735     $ 2,014   Income taxes   $ 10,644     $ 5,217     $ 6,946   Supplemental disclosure of non-cash investing and financing activities:                         Finance lease obligations originated for property and equipment   $ 40     $ 817     $ 192   Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans   $ 1,088     $ 7,217     $ 3,618   Deferred acquisition consideration   $ 1,950     $ --     $ --     See accompanying notes to consolidated financial statements.   30 Table of Contents   NATIONAL RESEARCH CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       ( 1 ) Summary of Significant Accounting Policies   Description of Business and Basis of Presentation   National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States and Canada. Our purpose is to enable human understanding. Our solutions enable health care organizations to understand what matters most to each person they serve. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.   Principles of Consolidation   The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada. All significant intercompany transactions and balances have been eliminated.   Use of Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.   Translation of Foreign Currencies   Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.   Revenue Recognition   We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or no notice without penalty. See Note 3 for further information about our contracts with customers. We account for revenue using the following steps:     ● Identify the contract, or contracts, with a customer;   ● Identify the performance obligations in the contract;   ● Determine the transaction price;   ● Allocate the transaction price to the identified performance obligations; and   ● Recognize revenue when, or as, we satisfy the performance obligations.   31 Table of Contents   Our revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time, or within close proximity of one another. We combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together. For contracts that contain more than one separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.   Our arrangements with customers consist principally of four different types of arrangements: 1 ) subscription-based service agreements; 2 ) one -time specified services performed at a single point in time; 3 ) fixed, non-subscription service agreements; and 4 ) unit-priced service agreements.   Subscription-based services - Services that are provided under subscription-based service agreements are usually for a twelve - month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the customer. These agreements are renewable at the option of the customer at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer as the customer receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed annually in advance but may also be billed on a quarterly and monthly basis.   One-time services – These agreements typically require us to perform a specific one -time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.   Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch-up adjustment which could impact the amount and timing of revenue for any period.   Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.   Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.      32 Table of Contents   Deferred Contract Costs   Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable customer contract. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors such as historical customer attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract.  An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services.  We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of one year or less. We deferred incremental costs of obtaining a contract of $ 1.9 million, $ 3.7 million and $ 3.6 million in the years ended December 31, 2021, 2020 and 2019, respectively. Deferred contract costs, net of accumulated amortization was $ 3.8 million and $ 4.6 million at December 31, 2021 and 2020, respectively. Total amortization by expense classification for the years ended December 31, 2021, 2020 and 2019 was as follows:       2021     2020     2019       (In thousands)   Direct expenses   $ 157     $ 272     $ 34   Selling, general and administrative expenses   $ 2,494     $ 2,970     $ 2,874   Total amortization   $ 2,651     $ 3,242     $ 2,908     Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $ 31,000 , $ 63,000 and $ 22,000 for the years December 31, 2021, 2020 and 2019, respectively.   Trade Accounts Receivable   The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.   The following table provides the activity in the allowance for doubtful accounts for the years ended December 31, 2021, 2020 and 2019 (in thousands):       Balance at Beginning of Year     Bad Debt Expense     Write-offs, net of Recoveries     Balance at End of Year                                     Year Ended December 31, 2019   $ 175     $ 75     $ 106     $ 144   Year Ended December 31, 2020   $ 144     $ 46     $ 70     $ 120   Year Ended December 31, 2021   $ 120     $ 38     $ 64     $ 94     33 Table of Contents   Property and Equipment   Property and equipment is stated at cost. Major expenditures to purchase property or to substantially increase useful lives of property are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income.   We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-related costs for employees who are directly associated with the internal-use software projects and external direct costs of materials and services. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and training costs are expensed as incurred. We capitalized approximately $ 2.8 million and $ 2.7 million of costs incurred for the development of internal-use software for the years ended December 31, 2021 and 2020, respectively.   When a software license is included in a cloud computing arrangement and we have the legal right, ability and feasibility to download the software, it is accounted for as software, included in property and equipment, and amortized. If a software license is not included or we do not have the ability or feasibility to download software included in a cloud computing arrangement, it is accounted for as a service contract, which is expensed to direct expenses or selling, general and administrative expenses during the service period. Effective January 1, 2020, we prospectively adopted ASU 2018 - 15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350 - 40 ). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The adoption did not significantly impact our results of operations and financial position.   We provide for depreciation and amortization of property and equipment using annual rates which are sufficient to amortize the cost of depreciable assets over their estimated useful lives. We use the straight-line method of depreciation and amortization over estimated useful lives of three to ten years for furniture and equipment, three to five years for computer equipment, one to five years for capitalized software, and seven to forty years for our office building and related improvements. Software licenses are amortized over the term of the license.   Impairment of Long-Lived Assets and Amortizing Intangible Assets   Long-lived assets, such as property and equipment and purchased intangible assets subject to depreciation or amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third -party independent appraisals, as considered necessary. No significant impairments were recorded during the years ended December 31, 2021, 2020, or 2019.   Among others, management believes the following circumstances are important indicators of potential impairment of such assets and as a result may trigger an impairment review:     ● Significant underperformance in comparison to historical or projected operating results;   ● Significant changes in the manner or use of acquired assets or our overall strategy;   ● Significant negative trends in our industry or the overall economy;   ● A significant decline in the market price for our common stock for a sustained period; and   ● Our market capitalization falling below the book value of our net assets.   Goodwill and Intangible Assets   Intangible assets include customer relationships, trade names, technology, and goodwill. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review intangible assets with indefinite lives for impairment annually as of October 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.   34 Table of Contents   When performing the impairment assessment, we will first assess qualitative factors to determine whether it is necessary to recalculate the fair value of the intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount, we calculate the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives exceeds their fair value, then the intangible assets are written-down to their fair values. We did not recognize any impairments related to indefinite-lived intangibles during 2021, 2020 or 2019.   Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. All of our goodwill is allocated to our reporting unit, which is the same as our operating segment. Goodwill is reviewed for impairment at least annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.   We review goodwill for impairment by first assessing qualitative factors to determine whether any impairment may exist. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with its carrying value (including goodwill). If the carrying value of the reporting unit exceeds the fair value, then goodwill is written down by this difference. We performed a qualitative analysis as of October 1, 2021 and determined the fair value of our reporting unit likely exceeded the carrying value. No impairments were recorded during the years ended December 31, 2021 or 2019. A substantial portion of the revenue earned by our Canadian subsidiary is concentrated with one customer. While the customer has exercised its option to extend its existing contract to September 2022, during December 2020 we chose not to enter into a new contract with this customer or otherwise extend the term of the contract beyond September 2022. We subsequently announced that we would close the Canada office at the end of the contract.  As a result, we tested for impairment of the Canada reporting unit’s goodwill at December 31, 2020. We recognized an impairment of $ 714,000 for the excess of the then Canada reporting unit’s carrying value over the fair value, using discounted cash flows.   In March 2021, we changed our operating segments from six to one to reflect a change in corporate reporting structure to the Company’s Chief Executive Officer and chief operating decision maker. In connection with this change, our previous reporting units were combined into one reporting unit. We performed an interim qualitative analysis immediately before and after the reorganization and concluded that the fair value of our reporting units likely exceeded the carrying values and no impairments were recorded. Following the reorganization, we considered the current and expected future economic and market conditions, including the impact of the COVID- 19 pandemic, on our reporting unit. We also assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing. We concluded that a triggering event has not occurred which would require an additional interim impairment test to be performed as it is not more likely than not that an impairment loss had been incurred at December 31, 2021.   Insurance Recoveries   We record insurance recoveries when the realization of the claim is probable. In 2020 we received $ 3.3 million in insurance recoveries, and $ 447,000 was paid directly to certain vendors from the insurer related to a cyber-attack in February 2020 ( the “February incident”). We recorded $ 533,000 , representing reimbursement for lost revenues, as insurance recoveries, and the remainder as a reduction to operating expenses. Due to insurance recoveries, the February incident did not have a significant impact on our consolidated financial statements. In 2020, we also recorded a gain in other income of $ 260,000 from insurance recoveries for property damage due to a flooding.   Income Taxes   We use the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. We use the deferral method of accounting for our investment tax credits related to state tax incentives. During the years ended December 31, 2021, 2020, and 2019, we recorded income tax benefits relating to these tax credits of $ 10,000 , $ 45,000 , and $ 24,000 , respectively. Interest and penalties related to income taxes are included in income taxes in the Consolidated Statements of Income.   We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.   35 Table of Contents   In 2021, we adopted ASU 2019 - 12, Simplifying the Accounting for Income Taxes (Topic 740 ). Among other clarifications and simplifications related to income tax accounting, this ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences.  The adoption of this standard had no material impact to our consolidated financial statements.   Share-Based Compensation   All of our existing stock option awards and non-vested stock awards have been determined to be equity-classified awards. The compensation expense on share-based payments is recognized based on the grant-date fair value of those awards. We recognize the excess tax benefits and tax deficiencies in the income statement when options are exercised. Amounts recognized in the financial statements with respect to these plans are as follows:       2021     2020     2019       (In thousands)   Amounts charged against income, before income tax benefit   $ 623     $ 680     $ 1,224   Amount of related income tax benefit     ( 919 )     ( 6,764 )     ( 2,081 ) Net (benefit) expense to net income   $ ( 296 )   $ ( 6,084 )   $ ( 857 )   We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.     Cash and Cash Equivalents   We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents were $ 6.3 million and $ 5.0 million as of December 31, 2021, and 2020, respectively, consisting primarily of money market accounts. At certain times, cash equivalent balances may exceed federally insured limits.   Leases   We determine whether a lease is included in an agreement at inception. We recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for our operating leases under which we are lessee. Operating lease ROU assets are included in operating lease right-of-use assets in our consolidated balance sheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long-term liabilities. Certain lease arrangements may include options to extend or terminate the lease. We include these provisions in the ROU asset and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do not contain any residual value guarantees.   ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the rate of interest implicit in each lease is not readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.   36 Table of Contents   Due to remote working arrangements, we reassessed our office needs and subleased our Seattle location under an agreement considered to be an operating lease beginning in May 2021. We have not been legally released from our primary obligations under the original lease and therefore we continue to account for the original lease separately. We recorded an ROU asset impairment charge in 2021 of $ 324,000 , which was the amount by which the carrying value of the Seattle office lease ROU asset exceeded the fair value. We estimated the fair value based on the discounted cash flows of estimated net rental income for the office space subleased. The ROU asset impairment charge is included in depreciation, amortization and impairment expenses. There were no ROU asset impairment charges in 2020 or 2019. Rent income from the sublessee are included in the statement of operations on a straight-line basis as an offset to rent expense associated with the original operating lease included in other expenses.   Fair Value Measurements   Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The inputs are then classified into the following hierarchy: ( 1 ) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities; ( 2 ) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; ( 3 ) Level 3 Inputs—unobservable inputs.   The following details our financial assets within the fair value hierarchy at December 31, 2021 and 2020:       Level 1     Level 2     Level 3     Total       (In thousands)   As of December 31, 2021                                 Money Market Funds   $ 6,306     $ --     $ --     $ 6,306   Total Cash Equivalents   $ 6,306     $ --     $ --     $ 6,306                                     As of December 31, 2020                                 Money Market Funds   $ 5,015     $ --     $ --     $ 5,015   Total Cash Equivalents   $ 5,015     $ --     $ --     $ 5,015     There were no transfers between levels during the years ended December 31, 2021 and 2020.   Our long-term debt described in Note 8 is recorded at historical cost. The fair value of long-term debt is classified in Level 2 of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit.   The following are the carrying amount and estimated fair values of long-term debt:       December 31, 2021     December 31, 2020       (In thousands)   Total carrying amount of long-term debt   $ 26,620     $ 30,713   Estimated fair value of long-term debt   $ 27,708     $ 32,943     The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes ROU assets, property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). We estimated the fair value of the Seattle office ROU using discounted cash flows of the sublease based on management’s most recent projections, which are considered level 3 inputs in the fair value hierarchy and recorded an ROU asset impairment charge of $ 324,000 during 2021. As of December 31, 2021 and 2020, there was no indication of impairment related to these assets, other than for the Canada reporting unit’s goodwill in December 2020 as discussed above. We estimated the fair value of the Canada reporting unit using discounted cash flows based on management’s most recent projections which are considered level 3 inputs in the fair value hierarchy.   37 Table of Contents   Commitments and Contingencies From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. We do not believe the final disposition of claims at December 31, 2021 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.   We became self-insured for group medical and dental insurance on January 1, 2019.    We carry excess loss coverage in the amount of $ 150,000 per covered person per year for group medical insurance. We do not self-insure for any other types of losses, and therefore do not carry any additional excess loss insurance. In addition, we had aggregate claims loss coverage with a minimum aggregate deductible of $ 3.2 million and $ 2.8 million, in 2021 and 2020, respectively. We record a reserve for our group medical and dental insurance for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims.  On a quarterly basis, we adjust our accrual based on a review of our claims experience and a third -party actuarial IBNR analysis.  As of December 31, 2021 and 2020, our accrual related to self-insurance was $ 406,000 and $ 418,000 , respectively.   Earnings Per Share   Basic net income per share was computed using the weighted-average number of common shares outstanding during the period.   Diluted net income per share was computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.   We had 127,185 , 65,127 and 16,221 options of Common Stock for the years ended December 31, 2021, 2020 and 2019, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.       2021     2020     2019       (In thousands, except per share data)   Numerator for net income per share - basic:                         Net income   $ 37,466     $ 37,260     $ 32,406   Allocation of distributed and undistributed income to unvested restricted stock shareholders     ( 18 )     ( 57 )     ( 109 ) Net income attributable to common shareholders   $ 37,448     $ 37,203     $ 32,297   Denominator for net income per share - basic:                         Weighted average common shares outstanding – basic     25,422       25,170       24,809   Net income per share – basic   $ 1.47     $ 1.48     $ 1.30   Numerator for net income per share - diluted:                         Net income attributable to common shareholders for basic computation   $ 37,448     $ 37,203     $ 32,297   Denominator for net income per share - diluted:                         Weighted average common s hares outstanding – basic     25,422       25,170       24,809   Weighted average effect of dilutive securities – stock options     218       526       844   Denominator for diluted earnings per share – adjusted weighted average shares     25,640       25,696       25,653   Net income per share – diluted   $ 1.46     $ 1.45     $ 1.26     38 Table of Contents   Recent Accounting Pronouncements Not Yet Adopted   In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020 - 04, "Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We expect to apply the optional expedient for contract modification to account for the change in the reference rate on impacted credit facilities prospectively by adjusting the effective interest rate.    In October 2021, FASB issued ASU No. 2021 - 08, “Business Combinations (Topic 805 ): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The amendment requires an acquirer in a business combination apply Topic 606 to recognize and measure contract assets in revenue contracts acquired in a business combination rather than fair value. The amendment is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the timing and the impact of adopting this new guidance on our consolidated financial statements.       ( 2 )   ACQUISITION   On January 4, 2021, we acquired substantially all assets and assumed certain liabilities of PatientWisdom, Inc., a company with a health engagement solution that will further our purpose of operationalizing human understanding through tangible and actionable insights. $ 3.0 million of the total $ 5.0 million all-cash consideration was paid at closing. We paid the remaining $ 2.0 million in January 2022. All payments were made with cash on hand. The acquisition was accounted for as a business combination, using the acquisition method of accounting, which requires, among other things, certain assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date. The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date.   Amount of Identified Assets Acquired and Liabilities Assumed       ($ in thousands)   Current Assets   $ 184   Property and equipment     10   Customer related     100   Technology     600   Goodwill     4,340   Total assets acquired   $ 5,234   Current liabilities     284   Net assets acquired   $ 4,950     The identifiable intangible assets are being amortized over their estimated useful lives of 5 years. The goodwill and identifiable intangible assets are deductible for tax purposes. Goodwill related to the acquisition was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition.   The financial results associated with the PatientWisdom assets we acquired and liabilities we assumed are included in our consolidated financial statements from the date of acquisition, although the amounts are insignificant for 2021. Pro-forma information has not been presented because the amounts for 2021 are insignificant. Acquisition-related costs of $ 119,000 are included in selling, general and administrative expenses for the year ended December 31, 2021.   39 Table of Contents     ( 3 ) Contracts with Customers   The following table disaggregates revenue for the years ended December 31, 2021, 2020 and 2019 based on timing of revenue recognition (In thousands):       2021     2020     2019   Subscription services recognized ratably over time   $ 137,008     $ 122,499     $ 114,216   Services recognized at a point in time     3,216       2,932       4,992   Fixed, non-subscription recognized over time     3,065       2,907       3,248   Unit price services recognized over time     4,665       4,939       5,526   Total revenue   $ 147,954     $ 133,277     $ 127,982     The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (In thousands):       December 31, 2021     December 31, 2020   Accounts receivables   $ 13,728     $ 13,923   Contract assets included in other current assets   $ 99     $ 311   Deferred revenue   $ ( 17,213 )   $ ( 15,585 )   Significant changes in contract assets and contract liabilities during the years ended December 31, 2021 and 2020 are as follows (in thousands):       2021     2020       Contract Asset     Deferred Revenue     Contract Asset     Deferred Revenue       Increase (Decrease)   Revenue recognized that was included in deferred revenue at beginning of year due to completion of services   $ -     $ ( 15,631 )   $ -     $ ( 16,083 ) Increases due to invoicing of client, net of amounts recognized as revenue     -       16,694       -       15,338   Decreases due to completion of services (or portion of services) and transferred to accounts receivable     ( 311 )     -       ( 103 )     -   Change due to cumulative catch-up adjustments arising from changes in expected contract consideration     -       326       -       ( 24 ) Increases due to revenue recognized in the period with additional performance obligations before invoicing     99       -       311       -     We have elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at December 31, 2021 approximated $ 2.9 million of which $ 1.3 million, $ 1.1 million, and $ 587,000 is expected to be recognized during 2022, 2023, and 2024, respectively.   40 Table of Contents     ( 4 ) Equity Investments   We make equity investments to promote business and strategic objectives. For investments that do not have a readily determinable fair value, we apply either cost or equity method of accounting depending on the nature of our investment and our ability to exercise significant influence. Investments are periodically analyzed to determine whether or not there are any indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment. Our investment of $ 1.3 million in convertible preferred stock of PracticingExcellence.com, Inc., a privately-held Delaware corporation (“PX”) is included in non-current assets. It is not practicable for us to estimate fair value at each reporting date due to the cost and complexity of the calculations for this non-public entity. Therefore, it is carried at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if any. We have a seat on PX's board of directors and our investment, which is not considered to be in-substance common stock, represents approximately 15.1 % of the issued and outstanding equity interests in PX.       ( 5 ) Property and Equipment   At December 31, 2021, and 2020, property and equipment consisted of the following:       2021     2020       (In thousands)   Furniture and equipment   $ 4,901     $ 4,808   Computer equipment     2,672       2,638   Computer software     27,828       27,087   Building     9,271       7,515   Leaseholds     502       232   Land     425       425   Property and equipment at cost     45,599       42,705   Less accumulated depreciation and amortization     33,208       30,979   Net property and equipment   $ 12,391     $ 11,726     Depreciation and amortization expense related to property and equipment, including assets under capital lease, for the years ended December 31, 2021, 2020, and 2019 was $ 5.7 million, $ 6.5 million, and $ 5.4 million, respectively. There were no significant impairments in property and equipment during 2021, 2020, and 2019. However, we did shorten the useful lives of certain assets to reflect our best estimate of when assets are expected to be disposed of or replaced.   41 Table of Contents     ( 6 ) Goodwill and Intangible Assets   Goodwill and intangible assets consisted of the following at December 31, 2021:       Gross     Accumulated Impairment     Net       (In thousands)   Goodwill   $ 62,328     $ ( 714 )   $ 61,614         Useful Life     Gross     Accumulated Amortization     Net       (In years)             (In thousands)           Non-amortizing intangible assets:                                 Indefinite trade name             1,191               1,191   Amortizing intangible assets:                                 Customer related     5 - 15       9,445       9,325       120   Technology     7       1,959       1,480       479   Trade names     5 - 10       1,572       1,572       --   Total amortizing intangible assets             12,976       12,377       599   Total intangible assets other than goodwill           $ 14,167     $ 12,377     $ 1,790     Goodwill and intangible assets consisted of the following at December 31, 2020:       Gross     Accumulated Impairment     Net       (In thousands)   Goodwill   $ 57,969     $ ( 714 )   $ 57,255         Useful Life     Gross     Accumulated Amortization     Net       (In years)             (In thousands)           Non-amortizing intangible assets:                                 Indefinite trade name             1,191               1,191   Amortizing intangible assets:                                 Customer related     5 - 15       9,344       9,256       88   Technology     7       1,360       1,229       131   Trade names     5 - 10       1,572       1,572       --   Total amortizing intangible assets             12,276       12,057       219   Total intangible assets other than goodwill           $ 13,467     $ 12,057     $ 1,410     The following represents a summary of changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 (in thousands):   Balance as of December 31, 2019   $ 57,935   Impairment     ( 714 ) Foreign currency translation     34   Balance as of December 31, 2020   $ 57,255   Goodwill acquired     4,340   Foreign currency translation     19   Balance at December 31, 2021   $ 61,614     As discussed in Note 1, we recorded an impairment of $ 714,000 to the Canada reporting unit’s goodwill in December 2020.   Aggregate amortization expense for customer related intangibles, trade names, and technology for the years ended December 31, 2021, 2020 and 2019 was $ 320,000 , $ 318,000 , and $ 374,000 , respectively. Estimated future amortization expense for 2022, 2023, 2024 and 2025 is $ 180,000 , $ 140,000 , $ 140,000 and $ 139,000 , respectively.   42 Table of Contents     ( 7 ) Income Taxes   For the years ended December 31, 2021, 2020, and 2019, income before income taxes consists of the following:       2021     2020     2019       (In thousands)   U.S. Operations   $ 48,145     $ 41,357     $ 40,045   Foreign Operations     476       110       474   Income before income taxes   $ 48,621     $ 41,467     $ 40,519     Income tax expense consisted of the following components:       2021     2020     2019       (In thousands)   Federal:                         Current   $ 9,092     $ 3,546     $ 5,574   Deferred     ( 224 )     ( 308 )     718   Total   $ 8,868     $ 3,238     $ 6,292                             Foreign :                         Current   $ 143     $ 225     $ 94   Deferred     ( 17 )     ( 6 )     33   Total   $ 126     $ 219     $ 127                             State :                         Current   $ 2,197     $ 578     $ 1,322   Deferred     ( 36 )     172       372   Total   $ 2,161     $ 750     $ 1,694                             Total   $ 11,155     $ 4,207     $ 8,113     As a result of the Tax Cut and Jobs Act (the “Tax Act”), we determined that we would no longer indefinitely reinvest the earnings of our Canadian subsidiary. Our Canadian subsidiary declared a deemed dividend to the Company for $ 9.6 million in 2020. Additionally, a withholding tax of 5% was paid for the dividend distribution.   We received notice in December 2019, that we met qualification requirements for the Nebraska Advantage LB312 Act (“NAA”) related to certain investment and full-time equivalent employee thresholds in the year ended 2017. NAA provides direct refunds of sales tax on qualified property, as well as investment credits and employment credits that can be claimed through credits of Nebraska income tax, employment tax, and sales tax on non-qualified property. We expect to receive direct refunds of Nebraska sales tax on qualified property incurred from 2014 to 2023. Investment credits started to accumulate in 2014 and can be earned through 2023. These credits can be claimed against Nebraska income taxes or through sales tax on non-qualified property through 2028. The employment credits are earned from 2017 through 2023, and they can be claimed against Nebraska payroll taxes through 2028. In 2019, we recorded cumulative adjustments for direct refunds and credits earned through the year ending December 31, 2019, which reduced operating expenses by approximately $ 1.9 million. For the year ended December 31, 2021 and 2020, adjustments for credits reduced operating expenses by approximately $ 473,000 and $ 435,000 , respectively. In addition, income tax credits of $ 10,000 , $ 45,000 and $ 24,000 were recorded as a reduction to income tax expense for the years ended December 31, 2021, 2020 and 2019, respectively.   43 Table of Contents   The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax (benefit) expense are summarized as follows:       2021     2020     2019       (In thousands)   Expected federal income taxes   $ 10,210     $ 8,708     $ 8,509   Foreign tax rate differential     26       6       26   State income taxes, net of federal benefit and state tax credits     1,531       607       1,344   Share-based compensation     ( 660 )     ( 5,713 )     ( 1,579 ) Compensation limit for covered employees     --       463       --   Federal tax credits     ( 272 )     ( 261 )     ( 419 ) Uncertain tax positions     254       157       34   Nondeductible expenses (income) related to recapitalization     --       --       ( 24 ) Goodwill Impairment     --       184       --   Withholding tax on repatriation of foreign earnings     8       18       107   GILTI     --       10       13   Other     58       28       102       $ 11,155     $ 4,207     $ 8,113     Deferred tax assets and liabilities at December 31, 2021 and 2020, were comprised of the following:       2021     2020       (In thousands)   Deferred tax assets:                 Allowance for doubtful accounts   $ 24     $ 29   Accrued expenses     687       696   Share-based compensation     740       735   Accrued bonuses     267       145   Employer payroll tax deferral     200       323   Uncertain tax positions     161       104   Other     66       11   Gross deferred tax assets     2,145       2,043   Less valuation allowance     --       --   Deferred tax assets     2,145       2,043   Deferred tax liabilities:                 Prepaid expenses     89       93   Deferred contract costs     945       1,111   Property and equipment     1,579       1,725   Intangible assets     6,338       6,109   Repatriation withholding     182       174   Other     --       96   Deferred tax liabilities     9,133       9,308   Net deferred tax liabilities   $ ( 6,988 )   $ ( 7,265 )   In March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. As a result of the CARES Act, we had deferred $ 1.3 million of employer social security tax payments as of December 31, 2020. In accordance with the CARES Act, we paid half of this liability in December 2021, and we expect to pay the remaining $ 656,000 in December 2022. We have had no other impacts to our consolidated financial statements or related disclosures from the CARES Act.   44 Table of Contents   In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences excluding the foreign tax credit carryforward. In 2020, we wrote off the deferred tax asset for prior year foreign tax credit carryforwards of $ 535,000 and the related valuation allowance. We made the assessment that due to our Canadian subsidiary’s decreased projected future income and the lower US tax rate compared to the Canadian tax rate, it was unlikely we would realize this asset.   We had an unrecognized tax benefit at December 31, 2021 and 2020, of $ 1.1 million and $ 768,000 , respectively, excluding interest of $ 19,000 and $ 15,000 at December 31, 2021 and 2020, respectively. Of these amounts, $ 918,000 and $ 668,000 at December 31, 2021 and 2020, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate. The change in the unrecognized tax benefits for 2021 and 2020 was as follows:       (In thousands)   Balance of unrecognized tax benefits at December 31, 2019   $ 592   Reductions due to lapse of applicable statute of limitations     ( 34 ) Reductions due to tax positions of prior years     4   Reductions due to settlement with taxing authorities     --   Additions based on tax positions related to the current year     206   Balance of unrecognized tax benefits at December 31, 2020   $ 768   Reductions due to lapse of applicable statute of limitations     ( 38 ) Additions due to tax positions of prior years     --   Reductions due to settlement with taxing authorities     --   Additions based on tax positions related to the current year     345   Balance of unrecognized tax benefits at December 31, 2021   $ 1,075     We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada federal and provincial jurisdictions. Tax years 2018 and forward remain subject to U.S. federal examination. Tax years 2015 and forward remain subject to state examination. Tax years 2017 and forward remain subject to Canadian federal and provincial examination.       ( 8 ) Notes Payable   Our long-term debt consists of the following:         2021     2020       (In thousands)   Term Loans   $ 26,620     $ 30,713   Less: current portion     ( 4,278 )     ( 4,061 ) Less: unamortized debt issuance costs     ( 73 )     ( 105 ) Notes payable, net of current portion   $ 22,269     $ 26,547     Our credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on May 28, 2020 and includes (i) a $ 30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $ 33,002,069 term loan (the “Term Loan”) and (iii) a $ 15,000,000 delayed draw-down term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”). The Delayed Draw Term Loan may be used to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit can be used to fund ongoing working capital needs and for other general corporate purposes. The May 2020 amendment increased the Line of Credit from $15,000,000 to $30,000,000.   The Term Loan is payable in monthly installments of $ 462,988 through May 2025, with a balloon payment due at maturity in May 2025. The Term Loan bears interest at a fixed rate per annum of 5 %. Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30 -day London Interbank Offered Rate plus 225 basis points ( 2.35 % at December 31, 2021). Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2023. As of December 31, 2021, and December 31, 2020, the Line of Credit did not have a balance. We did not borrow on the Line of Credit during 2021. We have not borrowed on the Delayed Draw Term Loan since origination.   45 Table of Contents   We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20 % per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.   The Credit Agreement is collateralized by substantially all of our assets, subject to permitted liens and other agreed exceptions, and contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $ 5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio of 3.00x or less for all testing periods throughout the term(s) of the Credit Facilities. As of December 31, 2021, we were in compliance with our financial covenants.    Scheduled maturities of notes payable at December 31, 2021 are as follows:   2022   $ 4,306   2023     4,529   2024     4,762   2025     13,023         ( 9 ) Share-Based Compensation   We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur.   Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of our Common Stock. The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ. On the date of each annual meeting of shareholders, options to purchase shares of Common Stock equal to an aggregate grant date fair value of $ 100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service. At December 31, 2021, there were 780,330 shares of Common Stock available for issuance pursuant to future grants under the 2004 Director Plan. We have accounted for grants of 2,219,670 shares of Common Stock under the 2004 Director Plan using the date of grant as the measurement date for financial accounting purposes.   Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of Common Stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant. At December 31, 2021, there were 806,537 shares of Common Stock available for issuance pursuant to future grants under the 2006 Equity Incentive Plan. We have accounted for grants of 993,463 shares of Common Stock and restricted stock under the 2006 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.   46 Table of Contents   During 2021, 2020 and 2019, we granted options to purchase 101,091 , 70,471 , and 100,615 shares of Common Stock, respectively. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:       2021     2020     2019   Expected dividend yield at date of grant     2.15 %     1.84 %     2.60 % Expected stock price volatility     34.85 %     33.62 %     34.01 % Risk-free interest rate     0.91 %     1.35 %     2.38 % Expected life of options (in years)     7.01       7.39       7.46     The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.   The following table summarizes stock option activity under 2006 Equity Incentive Plan and the 2004 Director Plan for the year ended December  31, 2021:       Number of Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Terms (Years)     Aggregate Intrinsic Value (In thousands)   Common Stock                                 Outstanding at December 31, 2020     600,571     $ 25.31                   Granted     101,091     $ 44.96                   Exercised     ( 116,753 )   $ 13.14             $ 3,535   Expired     ( 22,837 )     9.74                   Forfeited     ( 84,432 )   $ 38.38                   Outstanding at December 31, 2021     477,640     $ 30.88       5.97     $ 6,337   Exercisable at December 31, 2021     249,488     $ 23.99       4.82     $ 4,805     The following table summarizes information related to stock options for the years ended December 31, 2021, 2020 and 2019:       2021     2020     2019   Weighted average grant date fair value of stock options granted   $ 12.55     $ 18.67     $ 11.99   Intrinsic value of stock options exercised (in thousands)   $ 3,535     $ 25,912     $ 8,280   Intrinsic value of stock options vested (in thousands)   $ 4,805     $ 1,965     $ 1,891     As of December 31, 2021, the total unrecognized compensation cost related to non-vested stock option awards was approximately $ 1.1 million which was expected to be recognized over a weighted average period of 2.37 years.   There was $ 446,000 and $ 1.7 million in cash received from stock options exercised for the years ended December 31, 2021 and 2020, respectively and no cash received from options exercised in 2019. We recognized $ 607,000 , $ 680,000 , and $ 934,000 of non-cash compensation for the years ended December 31, 2021, 2020, and 2019, respectively, related to options, which is included in direct and selling, general and administrative expenses. The actual tax benefit realized for the tax deduction from stock options exercised was $ 862,000 , $ 6.3 million, and $ 1.9 million for the years ended December 31, 2021, 2020, and 2019, respectively.   47 Table of Contents   During 2021 and 2019 we granted 12,698 and 6,005 non-vested shares of Common Stock, respectively, under the 2006 Equity Incentive Plan. No shares of non-vested Common Stock were granted during the year ended December 31, 2020. As of December 31, 2021, we had 12,698 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan. These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. We recognized $ 17,000 , $ 23,000 , and $ 290,000 of non-cash compensation for the years ended December 31, 2021, 2020, and 2019, respectively, related to this non-vested stock, which is included in direct and selling, general and administrative expenses. The actual tax benefit realized for the tax deduction from vesting of restricted stock was $ 235,000 for the year ended December 31, 2020. No restricted stock vested during the year end December 31, 2021 and 2019.   The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plans for the year ended December  31, 2021:       Common Stock Outstanding     Common Stock Weighted Average Grant Date Fair Value Per Share   Outstanding at December 31, 2020     6,005     $ 38.30   Granted     12,698     $ 42.92   Vested     --     $ --   Forfeited     ( 6,005 )   $ 38.30   Outstanding at December 31, 2021     12,698     $ 42.92     As of December 31, 2021, the total unrecognized compensation cost related to non-vested stock awards was approximately $ 436,000 and is expected to be recognized over a weighted average period of 4.00 years.       ( 10 ) Leases   We lease printing, computer, other equipment and office space in the United States and Canada. The leases remaining terms as of December 31, 2021 range from less than one year to 4.93 years.   Certain equipment and office lease agreements include provisions for periodic adjustments to rates and charges. The rates and charges are adjusted based on actual usage or actual costs for internet, common area maintenance, taxes or insurance, as determined by the lessor and are considered variable lease costs.   The components of lease expense for the years ended December 31, 2021, 2020 and 2019 included (in thousands):       2021     2020     2019   Operating leases   $ 669     $ 600     $ 781   Finance leases:                         Asset amortization     489       355       252   Interest on lease liabilities     34       37       39   Variable lease cost     99       62       86   Short-term lease cost     59       42       42   Sublease income     ( 81 )     --       --   Total net lease cost   $ 1,269     $ 1,096     $ 1,200     In 2020, we adjusted the useful life of the operating right of use assts associated with our Atlanta, Georgia and Markham, Ontario office leases based on the expectation that we will vacate the office space before the end of the lease term.   48 Table of Contents   Supplemental balance sheet information related to leases (in thousands):        December 31, 2021     December 31, 2020   Operating leases:                 Operating ROU assets   $ 975     $ 1,308                     Current operating lease liabilities     493       461   Noncurrent operating lease liabilities     820       896   Total operating lease liabilities   $ 1,313     $ 1,357         December 31, 2021     December 31, 2020   Finance leases:                 Furniture and equipment   $ 1,042     $ 1,014   Computer Equipment     659       662   Computer Software     207       207   Property and equipment under finance lease, gross     1,908       1,883   Less accumulated amortization     ( 1,074 )     ( 605 ) Property and equipment under finance lease, net   $ 834     $ 1,278                     Current obligations of finance leases   $ 470     $ 493   Noncurrent obligations of finance leases     348       778   Total finance lease liabilities   $ 818     $ 1,271                     Weighted average remaining lease term (in years):                 Operating leases     2.80       3.68   Finance leases     1.93       2.69                     Weighted average discount rate:                 Operating leases     3.85 %     4.40 % Finance leases     3.42 %     3.38 %   Supplemental cash flow and other information related to leases were as follows (in thousands):       2021     2020     2019   Cash paid for amounts included in the measurement of lease liabilities:                         Operating cash flows from operating leases   $ 680     $ 596     $ 789   Operating cash flows from finance leases     34       36       38   Financing cash flows from finance leases     493       332       229                             ROU assets obtained in exchange for operating lease liabilities     560       276       16   ROU assets obtained in exchange for finance lease liabilities     40       817       192     Undiscounted payments under non-cancelable finance and operating leases at December 31, 2021 were as follows (in thousands):       Finance Leases     Operating Leases   2022   $ 488     $ 531   2023     315       513   2024     23       227   2025     10       118   2026     10       --   Thereafter     --       --   Total minimum lease payments     846       1,389   Less: Amount representing interest     ( 28 )     ( 76 ) Present value of minimum lease payments     818       1,313   Current portion     ( 470 )     ( 493 ) Lease obligations, net of current portion   $ 348     $ 820     49 Table of Contents   Undiscounted cash receipts due under the sublease agreement at December 31, 2021 are as follows (in thousands):       Operating Lease   2022   $ 118   2023     122   2024     127   2025     65   Total minimum lease receipts   $ 432         ( 11 ) Related Party   A director who began serving on our board in May 2021, served as chief executive officer of Allina Health during 2021, a not -for-profit healthcare system. In connection with its routine business operations, Allina Health purchases certain of our products and services. Total revenue we earned from Allina Health in year ended December 31, 2021 approximated $ 1.7 million.   A director, who served on our board through October 2021, also served as an officer and director of Ameritas Life Insurance Corp. (“Ameritas”) until January 2020 and continued to serve on the board of directors of Ameritas until October 2021. In connection with our regular assessment of our insurance-based associate benefits, which is conducted by an independent insurance broker, and the costs associated therewith, we purchase dental and vision insurance for certain of our associates from Ameritas. The total value of these purchases was $ 278,000 , $ 248,000 , and $ 242,000 in 2021, 2020, and 2019 respectively.   A director, who served on our board through May 2020, also served as a board member of IMA Financial Group. In connection with our regular assessment of our liability coverage, during 2020 we began purchasing directors and officers and employment practices liability insurance through IMA Financial Group. Total payments for these services totaled $ 1.1 million in 2020.   During 2017, we acquired a cost method investment in convertible preferred stock of Practicing Excellence.com, Inc., a privately-held Delaware Corporation (“PX”), which is included in other non-current assets and is carried at cost, adjusted for changes resulting from observable price changes in orderly transactions of the same investment in PX, if any.  We also have an agreement with PX which commenced in 2016 under which we act as a reseller of PX services and PX receives a portion of the revenues. The total revenue earned from the PX reseller agreement in the years ended December 31, 2021, 2020, and 2019 was $ 35,000 , $ 294,000 , and $ 578,000 , respectively. We no longer earn revenue under this agreement after June 30, 2021 due to termination of the reseller agreement.       ( 12 ) Associate Benefits   We sponsor a qualified 401 (k) plan covering substantially all associates with no eligibility service requirement. Under the 401 (k) plan, we match 25.0 % of the first 6.0 % of compensation contributed by each associate. Employer contributions, which are discretionary, vest to participants at a rate of 20 % per year. We contributed $ 531,000 , $ 521,000 , and $ 447,000 in 2021, 2020, and 2019, respectively, as a matching percentage of associate 401 (k) contributions.       ( 13 ) Segment Information   In March 2021, we changed our operating segments from six to one to reflect a change in corporate reporting structure to the Company’s Chief Executive Officer and chief operating decision maker.   50 Table of Contents   The table below presents entity-wide information regarding our revenue and assets by geographic area (in thousands):       2021     2020     2019   Revenue:                         United States   $ 144,987     $ 130,305     $ 124,369   Canada     2,967       2,972       3,613   Total   $ 147,954     $ 133,277     $ 127,982   Long-lived assets:                         United States   $ 83,722     $ 77,448     $ 78,906   Canada     111       1,863       2,622   Total   $ 83,833     $ 79,311     $ 81,528   Total assets:                         United States   $ 153,879     $ 128,319     $ 95,668   Canada     3,661       5,104       15,017   Total   $ 157,540     $ 133,423     $ 110,685     51 Table of Contents     Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   Not applicable.