What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 286 added, 128 removed, 607 unchanged (41% of the section changed)

3 unchanged sentences

(In thousands, except share amounts and par value)

September 30,

Current assets:

50 unchanged sentences

Common stock, $ 0.001 par value;

authorized 110,000,000 shares, issued 30,898,600 in 2022 and 2021, outstanding 24,767,118 in 2022 and 25,361,409 in 2021

authorized 110,000,000 shares, issued 30,922,181 in 2022 and 30,898,600 in 2021, outstanding 24,691,246 in 2022 and 25,361,409 in 2021

Additional paid-in capital

16 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

$ 37,691  

$ 37,767  

$ 113,424  

$ 109,656  

Operating expenses:

14,524  

13,707  

43,062  

38,184  

Selling, general and administrative

10,762  

32,159  

29,060  

Depreciation, amortization and impairment

Total operating expenses

26,582  

24,629  

79,123  

72,260  

Operating income

11,109  

13,138  

34,301  

37,396  

Other income (expense):

3 unchanged sentences

Income before income taxes

10,847  

12,624  

33,343  

36,130  

Provision for income taxes

$ 8,298  

$ 9,657  

$ 25,159  

$ 27,833  

Earnings Per Share of Common Stock:

Basic Earnings Per Share

$ 0.34  

$ 0.38  

$ 1.01  

$ 1.09  

Diluted Earnings Per Share

$ 0.33  

$ 0.38  

$ 1.00  

$ 1.08  

Weighted average shares and share equivalents outstanding:

24,716  

25,427  

25,014  

25,423  

24,847  

25,650  

25,147  

25,655  

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

$ 8,298  

$ 9,657  

$ 25,159  

$ 27,833  

Other comprehensive income (loss):

2 unchanged sentences

Comprehensive Income

$ 8,113  

$ 9,549  

$ 24,926  

$ 27,855  

See accompanying notes to condensed consolidated financial statements.

21 unchanged sentences

$ 68,624  

Purchase of 99,453 shares treasury stock

Issuance of 23,581 common shares for the exercise of stock options

Non-cash stock compensation expense

Dividends declared of $ 0.24 per common share

Other comprehensive income (loss), foreign currency translation adjustment

Balances at September 30, 2022

$ 175,162  

$ 67,766  

See accompanying notes to condensed consolidated financial statements.

20 unchanged sentences

$ 76,365  

Issuance of 10,000 common shares for the exercise of stock options

Non-cash stock compensation expense

Dividends declared of $ 0.12 per common share

Other comprehensive income, foreign currency translation adjustment

Balances at September 30, 2021

$ 173,112  

$ 83,128  

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands, unaudited)

Six months ended

Nine months ended

September 30,

Cash flows from operating activities:

33 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

( 48 )  

Change in cash and cash equivalents

10 unchanged sentences

$ 1,186  

$ 8,947  

$ 6,601  

Supplemental disclosure of non-cash investing and financing activities:

14 unchanged sentences

Our purpose is to enable human understanding.

Our solutions enable health care organizations to understand what matters most to each person they serve.

We believe that understanding the story is the key to unlocking the highest-quality and truly personalized care.

Our end-to-end solutions enable health care organizations to understand what matters most to each person they serve –

before, during, after, and outside of clinical encounters –

to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships.

Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.

66 unchanged sentences

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 $ 108,000 and $ 605,000 in the three -month periods ended June 30, 2022 and 2021, respectively.

We deferred incremental costs of obtaining a contract of $ 342,000 and $ 1.5 million in the six -month periods ended June 30, 2022 and 2021, respectively.

Deferred contract costs, net of accumulated amortization was $ 3.2 million and $ 3.8 million at June 30, 2022 and December 31, 2021, respectively.

Total amortization by expense classification for the three and six -month periods ended June 30, 2022 and 2021 was as follows:

We deferred incremental costs of obtaining a contract of $ 68,000 and $ 233,000 in the three -month periods ended September 30, 2022 and 2021, respectively.

We deferred incremental costs of obtaining a contract of $ 410,000 and $ 1.8 million in the nine -month periods ended September 30, 2022 and 2021, respectively.

Deferred contract costs, net of accumulated amortization was $ 2.8 million and $ 3.8 million at September 30, 2022 and December 31, 2021, respectively.

Total amortization by expense classification for the three and nine -month periods ended September 30, 2022 and 2021 was as follows:

September 30,

(In thousands)

3 unchanged sentences

$ 1,384  

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $ 400 and $ 15,000 for the three months ended June 30, 2022 and 2021, respectively and $ 1,000 and $ 22,000 in the six -month periods ended June 30, 2022 and 2021, respectively.

$ 2,073  

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $ 13,000 and $ 2,000 for the three months ended September 30, 2022 and 2021, respectively and $ 14,000 and $ 24,000 in the nine -month periods ended September 30, 2022 and 2021, respectively.

Trade Accounts Receivable

3 unchanged sentences

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 six -month periods ended June 30, 2022 and 2021 (In thousands):

Six months ended June 30, 2022

Six months ended June 30, 2021

The following table provides the activity in the allowance for doubtful accounts for the nine -month periods ended September 30, 2022 and 2021 (In thousands):

Nine months ended September 30, 2022

Nine months ended September 30, 2021

We determine whether a lease is included in an agreement at inception.

15 unchanged sentences

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 the six months ended June 30, 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 recorded an ROU asset impairment charge in the nine months ended September 30, 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 the six months ended June 30, 2022.

There were no ROU asset impairment charges in the nine months ended September 30, 2022.

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.

6 unchanged sentences

( 3 ) Level 3 Inputs—unobservable inputs.

The following details our financial assets within the fair value hierarchy at June 30, 2022 and December 31, 2021:

The following details our financial assets within the fair value hierarchy at September 30, 2022 and December 31, 2021:

(In thousands)

As of June 30, 2022

As of September 30, 2022

Money Market Funds

11 unchanged sentences

$ 6,306  

There were no transfers between levels during the six months ended June 30, 2022.

There were no transfers between levels during the nine months ended September 30, 2022.

Our long-term debt described in Note 5 is recorded at historical cost.

1 unchanged sentence

The following are the carrying amount and estimated fair values of long-term debt:

September 30,

(In thousands)

8 unchanged sentences

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 June 30, 2022 and December 31, 2021, there was no indication of impairment related to these assets.

As of September 30, 2022 and December 31, 2021, there was no indication of impairment related to these assets.

Annually, we consider whether the recorded goodwill and indefinite lived intangibles have been impaired.

4 unchanged sentences

Legal fees, net of estimated insurance recoveries, are expensed as incurred.

We do not believe the final disposition of claims at June 30, 2022 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Recent Accounting Pronouncements Not Yet Adopted  

In March 2020, 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.

During 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.

We do not believe the final disposition of claims at September 30, 2022 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

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 unchanged sentences

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 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 the three - and six -month periods ended June 30, 2022 and 2021.

CONTRACTS WITH CUSTOMERS

The following table disaggregates revenue for the three - and six -month periods ended June 30, 2022 and 2021 based on timing of revenue recognition (in thousands):

The following table disaggregates revenue for the three - and nine -month periods ended September 30, 2022 and 2021 based on timing of revenue recognition (in thousands):

Three months ended

Six months ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Nine months ended

September 30,

Subscription services recognized ratably over time

12 unchanged sentences

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands):

September 30,

Accounts receivables

3 unchanged sentences

Deferred Revenue

Significant changes in contract assets and contract liabilities during the six -month periods ended June 30, 2022 and 2021 are as follows (in thousands):

Significant changes in contract assets and contract liabilities during the nine -month periods ended September 30, 2022 and 2021 are as follows (in thousands):

Increase (Decrease)

3 unchanged sentences

16,087  

Increases due to acquisition

Decreases due to completion of services (or portion of services) and transferred to accounts receivable

3 unchanged sentences

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 June 30, 2022 approximated $ 2.7 million, of which $ 1.1 million, $ 1.0 million, $ 621,000 and $ 15,000 are expected to be recognized during 2022, 2023, 2024 and 2025, respectively.

The effective tax rate for the three -month periods ended June 30, 2022 and 2021 was 24.8 %.

The effective tax rate for the six -month period ended June 30, 2022 increased to 25.1 % compared to 22.7 % for the same period in 2021 mainly due to decreased tax benefits from the exercise and vesting of share-based compensation awards of $ 455,000 in the six -month period ended June 30, 2022.

In addition, we have higher state income taxes due to filing in more states. 

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 September 30, 2022 approximated $ 1.8 million, of which $ 218,000 , $ 972,000 , $ 621,000 and $ 15,000 are expected to be recognized during 2022, 2023, 2024 and 2025, respectively.

The effective tax rate was 23.5 % for the three -month periods ended September 30, 2022 and 2021.

The effective tax rate for the nine -month period ended September 30, 2022 increased to 24.5 % compared to 23.0 % for the same period in 2021 mainly due to decreased tax benefits from the exercise and vesting of share-based compensation awards of $ 316,000 and a 0.6 % increase in our state tax rate which fluctuates based on the various apportionment factors and rates for the states we operate in.

In March 27, 2020, the U.S.

4 unchanged sentences

We have had no other impacts to our consolidated financial statements or related disclosures from the CARES Act.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into U.S.

The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions.

The Company is evaluating the provisions included under the IRA and does not expect the provisions to have a material impact to the Company’s consolidated financial statements.

NOTES PAYABLE

Our long-term debt consists of the following:

September 30,

(In thousands)

6 unchanged sentences

$ 22,269  

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) 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-dawn term facility (the “Delayed Draw Term Loan”

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on September 30, 2022 and includes (i) a $ 30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $ 23,412,383 term loan (the “Term Loan”) and (iii) a $ 75,000,000 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 Term Loan is payable in monthly installments of $ 462,988 through May 2025, with a balloon payment due at maturity in May 2025.

We may use the Delayed Draw Term Loan to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit to fund ongoing working capital needs and for other general corporate purposes.

The amended Term Loan revised the remaining payments for the existing balance outstanding balance of $ 23.4 million to monthly installments of $ 462,988 through May 2027.

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 ( 3.37 % at June 30, 2022).

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 Secured Overnight Financing Rate (“SOFR”) plus 235 basis points ( 4.53 % at September 30, 2022).

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 2025.

As of June 30, 2022, and December 31, 2021, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during the six months ended June 30, 2022.

As of September 30, 2022, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during the nine -month periods ended September 30, 2022 or 2021.

There have been no borrowings on the Delayed Draw Term Loan since origination.

4 unchanged sentences

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 June 30, 2022, we were in compliance with our financial covenants.

All obligations under the Credit Facilities are to be guaranteed by each of our direct and indirect wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries.

As of September 30, 2022, we were in compliance with our financial covenants.

On September 30, 2022, we adopted ASU No.

2020 - 04, "Reference Rate Reform (Topic 848 ):

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 adoption did not have an impact on our consolidated financial statements since there were no borrowings outstanding under the Line of Credit or the Delayed Draw Term Loan, which referenced LIBOR prior to the September 2022 amendment.

SHARE-BASED COMPENSATION

10 unchanged sentences

Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant.

During the six -month periods ended June 30, 2022 and 2021, we granted options to purchase 127,227 and 101,091 shares of Common Stock, respectively.

During the nine -month periods ended September 30, 2022 and 2021, we granted options to purchase 127,227 and 101,091 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.

10 unchanged sentences

We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity under the 2006 Equity Incentive Plans and the 2004 Director Plan for the six -month periods ended June 30, 2022:

The following table summarizes stock option activity under the 2006 Equity Incentive Plans and the 2004 Director Plan for the nine -month periods ended September 30, 2022:

Outstanding at December 31, 2021

4 unchanged sentences

$ 36.67  

Outstanding at June 30, 2022

23,581  

$ 13.17  

Outstanding at September 30, 2022

581,286  

Exercisable at June 30, 2022

$ 32.86  

$ 5,664  

Exercisable at September 30, 2022

323,140  

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock option awards was approximately $ 1.7 million which was expected to be recognized over a weighted average period of 2.68 years.

There was $ 162,000 cash received from stock options exercised for the six months ended June 30, 2021.

$ 26.97  

$ 4,964  

As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock option awards was approximately $ 1.5 million which was expected to be recognized over a weighted average period of 2.62 years.

There was $ 304,000 cash received from stock options exercised for the nine months ended September 30, 2021.

There was no cash received from stock options exercised for the same period in 2022.

We recognized $ 307,000 and $ 176,000 of non-cash compensation for three months ended June 30, 2022 and 2021, respectively, and $ 564,000 and $ 186,000 of non-cash compensation for the six -month periods ended June 30, 2022 and 2021, respectively, related to options, which is included in direct fixed and selling, general and administrative expenses.

We granted 12,698 non-vested shares of Common Stock under the 2006 Equity Incentive Plan during the six months ended June 30, 2021.

No shares were granted during the six months ended June 30, 2022.

As of June 30, 2022, we had 12,698 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan.

We recognized $ 264,000 and $ 99,000 of non-cash compensation for three months ended September 30, 2022 and 2021, respectively, and $ 828,000 and $ 285,000 of non-cash compensation for the nine -month periods ended September 30, 2022 and 2021, respectively, related to options, which is included in direct fixed and selling, general and administrative expenses.

We granted 12,698 non-vested shares of Common Stock under the 2006 Equity Incentive Plan during the nine months ended September 30, 2021.

No shares were granted during the nine months ended September 30, 2022.

As of September 30, 2022, 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 $ 27,000 of non-cash compensation for each of the three months ended June 30, 2022 and 2021, respectively, and $ 54,000 and ($ 37,000 ) of non-cash compensation for the six -month periods ended June 30, 2022 and 2021, respectively, related to this non-vested stock, which is included in direct fixed and selling, general and administrative expenses.

The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the three months ended June 30, 2022:

We recognized $ 27,000 of non-cash compensation for each of the three -month periods ended September 30, 2022 and 2021, respectively, and $ 82,000 and ($ 10,000 ) of non-cash compensation for the nine -month periods ended September 30, 2022 and 2021, respectively, related to this non-vested stock, which is included in direct fixed and selling, general and administrative expenses.

The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the three months ended September 30, 2022:

Common Shares

3 unchanged sentences

$ 42.92  

Outstanding at June 30, 2022

Outstanding at September 30, 2022

12,698  

$ 42.92  

As of June 30, 2022, the total unrecognized compensation cost related to non-vested stock awards was approximately $ 382,000 and is expected to be recognized over a weighted average period of 3.5 years.

As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock awards was approximately $ 354,000 and is expected to be recognized over a weighted average period of 3.25 years.

GOODWILL AND OTHER INTANGIBLE ASSETS

The following represents a summary of changes in the carrying amount of goodwill for the three months ended June 30, 2022:

The following represents the carrying amount of goodwill at September 30, 2022 and December 31, 2021:

(In thousands)

Balance at June 30, 2022 and December 31, 2021

Balance at September 30, 2022 and December 31, 2021

$ 62,328  

$ 61,614  

Intangible assets consisted of the following:

September 30,

(In thousands)

1 unchanged sentence

Indefinite trade name

$ 1,191  

Amortizing intangible assets:

1 unchanged sentence

Total amortizing intangible assets

12,957  

12,976  

Accumulated amortization

Other intangible assets, net

$ 1,650  

$ 1,790  

PROPERTY AND EQUIPMENT

September 30,

(In thousands)

Property and equipment

$ 52,182  

$ 45,599  

Accumulated depreciation

Property and equipment, net

$ 15,761  

$ 12,391  

EARNINGS PER SHARE

3 unchanged sentences

The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

We had 305,985 and 103,704 options of Common Stock for the three -month periods ended June 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

We had 287,655 and 108,343 options of Common Stock for the six -month periods ended June 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

We had 343,414 and 145,736 options of Common Stock for the three -month periods ended September 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

We had 306,446 and 122,171 options of Common Stock for the nine -month periods ended September 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(In thousands, except per share data)

Numerator for net income per share –

$ 8,298  

$ 9,657  

$ 25,159  

$ 27,833  

Allocation of distributed and undistributed income to unvested restricted stock shareholders

Net income attributable to common shareholders

25,147  

27,819  

Denominator for net income per share –

Weighted average common shares outstanding –

24,716  

25,427  

25,014  

25,423  

Net income per share –

$ 0.34  

$ 0.38  

$ 1.01  

$ 1.09  

Numerator for net income per share –

Net income attributable to common shareholders for basic computation

25,147  

27,819  

Denominator for net income per share –

Weighted average common shares outstanding –

24,716  

25,427  

25,014  

25,423  

Weighted average effect of dilutive securities –

2 unchanged sentences

adjusted weighted average shares

24,847  

25,650  

25,147  

25,655  

Net income per share - diluted

$ 0.33  

$ 0.38  

$ 1.00  

$ 1.08  

( 10 )  

RELATED PARTY

Hays, our Chief Executive Officer and director, is an owner of approximately 13% of the equity interests of Nebraska Global Investment Company LLC (“Nebraska Global”). 

We purchased certain services from Don’t Panic Labs, LLC, which was a subsidiary of Nebraska Global for a portion of the three -and six -month periods ended June 30, 2022. 

The total value of these purchases were $ 196,000 in the three - and six -month periods ended June 30, 2022.

We purchased certain services from Don’t Panic Labs, LLC, which was a subsidiary of Nebraska Global for a portion of the six -month period ended June 30, 2022. 

The total value of these purchases was $ 196,000 in the six -month period ended June 30, 2022.

Geographic Information

The tables below present entity-wide information regarding our revenue and assets by geographic area (in thousands):

Three months ended September 30,

Nine months ended September 30,

United States

$ 37,691  

$ 37,106  

$ 112,631  

$ 107,324  

$ 37,691  

$ 37,767  

$ 113,424  

$ 109,656  

September 30, 2022

December 31, 2021

Long-lived assets:

United States

$ 85,849  

$ 83,722  

$ 85,878  

$ 83,833  

Total assets:

United States

$ 132,003  

$ 153,879  

$ 134,983  

$ 157,540  

Management ’

1 unchanged sentence

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

Our purpose is to establish human understanding by enabling our clients to understand what matters most to each person they serve.

Our purpose is to enable human understanding.

We believe that understanding the story is the key to unlocking the highest-quality and truly personalized care.

We are a leading provider of analytics and insights that facilitate measurement and improvement of patient engagement and customer loyalty for healthcare organizations.

Our heritage, proprietary methods, and holistic approach enable our partners to better understand the people they care for and design experiences that inspire loyalty and trust, while also facilitating regulatory compliance and the shift to population-based health management.

Our end-to-end solutions enable our clients to understand what matters most to each person they serve –

before, during, after, and outside of clinical encounters –

to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships.

Our ability to measure what matters most and systematically capture, analyze and deliver insights based on self-reported information from patients, families and consumers is critical in today’s healthcare market.

7 unchanged sentences

At NRC, the vast majority of our associates are working remotely, and to date we have been capable of providing our services without significant disruption.

We have made our facilities available for associates to return to work effective July 1, 2021 at their discretion.

Historically, we have relied on national travel as part of our sales efforts, but as a result of the pandemic we had placed a temporary hold on all company related travel.

We modified our travel policy and travel did resume in the third quarter of 2021.

We made our facilities available for associates to return to work effective July 1, 2021 at their discretion.

The duration and severity of the COVID-19 pandemic and associated impacts on our business, including the impact on our revenue, expenses, and cash flows, cannot be predicted at this time.

Like many other companies, we experienced higher attrition rates in 2021.

We may incur higher costs to attract, train and retain these associates.

Like many other companies, we have experienced higher attrition and higher costs to attract, train and retain these associates.

Attrition in our sales and service areas can also impact our ability to retain and attract new business.

4 unchanged sentences

The discussion that follows the information should be read in conjunction with our consolidated financial statements.

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

(In thousands, except percentages)

Three Months Ended June 30,

Three Months Ended September 30,

2022 over 2021

7 unchanged sentences

Operating margin

Revenue in the 2022 period increased compared to the 2021 period, primarily due to new customer sales, as well as increases in sales to the existing client base.

This was partially offset by decreased Canadian revenue due to the scheduled closure of the Canadian office later this year.

Revenue in the 2022 period decreased compared to the 2021 period primarily due to the elimination of Canadian revenue of $660,000 due to the scheduled closure of the Canadian office in the 2022 period.

Revenue in the US increased by $584,000 consisting of growth in recurring revenue in our existing client base of $2.9 million and non-recurring revenues of $103,000.

This was partially offset by a decrease in US recurring revenue from new customer sales of $2.4 million. 

We do not expect Canadian revenues in the future due to the closure of the Canadian office.

Direct expenses .

Variable expenses decreased in the 2022 period compared to the 2021 period due to lower survey contracted services.

Variable expenses as a percentage of revenue were 12.9% and 14.1% in the 2022 and 2021 periods, respectively.

Fixed expenses increased primarily as a result of increased salary and benefit costs to attract and retain associates, contracted services to support our clients and invest in workforce automation and increased travel costs due to COVID travel restrictions being lifted.

Variable expenses decreased $8,000 in the 2022 period compared to the 2021 period primarily from lower survey and other subscription services of $324,000 due to lower volumes partially offset by increased conference expenses of $296,000 due to higher room rental and audio-visual costs.

Variable expenses as a percentage of revenue were 15.3% in the 2022 and 2021 periods.

Fixed expenses increased $825,000 primarily as a result of increased salary and benefit costs to attract and retain associates of $674,000 and contracted services to support our clients and invest in workforce automation of $277,000.

Selling, general and administrative expenses .

Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to innovation investments to support further development of our Human Understanding Solutions, new marketing initiatives as well as increased travel costs due to COVID travel restrictions being lifted, partially offset by decreases in public company and other legal and accounting costs. 

Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to new marketing initiatives of $1.0 million to expand brand recognition and support sales development.

Depreciation, amortization and impairment .

Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to additional depreciation expense from shortening the estimated useful lives of certain building assets in 2021.

Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to certain software development and intangible assets being fully amortized after the 2021 period.

Operating income and margin .

Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new benefit addition, as well as additional investments in our Human Understanding Solutions, workforce automation tools and new marketing initiatives, partially offset by an increase in revenue.

Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new benefit addition, as well as additional investments in our workforce automation tools and new marketing initiatives.

Total other income (expense ).

Total other income (expense) increased primarily due to revaluation on intercompany transactions due to changes in the Canadian to U.S.

dollar foreign exchange rate partially offset by lower interest expense due to the declining balance on our term loan.

Total other income (expense) decreased in the 2022 period compared to the 2021 period primarily due to lower interest expense from the declining balance on our term loan of $125,000 and a reduction in intercompany revaluation adjustments from changes in the Canadian to U.S.

dollar foreign exchange rate of $84,000 due to closure of the Canadian office.

Provision for income taxes and effective tax rate .

Provision for income taxes decreased in the 2022 period compared to the 2021 period primarily due to decreased taxable income as the effective tax rate remained consistent between periods.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

(In thousands, except percentages)

Six Months Ended June 30,

Nine Months Ended September 30,

2022 over 2021

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Cash provided by operating activities

Revenue in the 2022 period increased compared to the 2021 period, primarily due to new customer sales, as well as increases in sales to the existing client base.

Conference revenue also increased due to an increase in conferences held as well as the shift to allow live or virtual attendance.

This was partially offset by decreased Canadian revenue due to the scheduled closure of the Canadian office later this year.

Revenue in the 2022 period increased compared to the 2021 period due to an increase in US revenue of $5.3 million partially offset by decreased Canadian revenue of $1.5 million due to the scheduled closure of the Canadian office in the 2022 period.

US revenue increased due to growth in recurring revenue in our existing client base of $11.5 million partially offset by decreases in US recurring revenue from new customer sales of $5.9 million and non-recurring revenues of $246,000. 

We do not expect Canadian revenues in the future due to the closure of the Canadian office.

Direct expenses .

Variable expenses increased in the 2022 period compared to the 2021 period due to growth in conference expenses due to additional conferences being held in the 2022 period compared to the 2021 period and the shift to allow live or virtual attendance at conferences partially offset by lower survey contracted services.

Variable expenses as a percentage of revenue were 13.9% in both the 2022 and 2021 periods.

Variable expenses increased $525,000 in the 2022 period compared to the 2021 period due to growth in conference expenses of $1.4 million due to additional conferences being held in the 2022 period compared to the 2021 period and the shift to allow live or virtual attendance at conferences partially offset by lower survey and other subscription services of $906,000.

Variable expenses as a percentage of revenue were 14.4% in the 2022 and 2021 periods.

Fixed expenses increased $4.4 million primarily as a result of increased salary and benefit costs to attract and retain associates of $3.4 million, contracted services to support our clients and invest in workforce automation of $656,000 and increased travel costs of $326,000 due to COVID travel restrictions being lifted.

Selling, general and administrative expenses .

Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to innovation investments to support further development of our Human Understanding Solutions, new coaching services provided as an associate benefit, new marketing initiatives, increased travel costs due to COVID travel restrictions being lifted as well as increased state franchise taxes and building renovation costs, partially offset by decreases in public company and other legal and accounting costs.

Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to innovation investments to support further development of our Human Understanding Solutions of $1.3 million, new marketing initiatives of $1.4 million, increased travel costs of $500,000 due to COVID travel restrictions being lifted, new associate coaching benefit expense of $372,000, as well as increased business insurance costs of $303,000, partially offset by decreases in public company and other legal and accounting costs of $969,000.

Depreciation, amortization and impairment .

Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to additional depreciation and impairment expense from shortening the estimated useful lives of certain building assets and incurring an ROU asset impairment from subleasing a remote office location in 2021.

Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to additional depreciation expense in 2021 from shortening the estimated useful lives of certain building assets of $403,000, incurring an ROU asset impairment of $324,000 from subleasing a remote office location in 2021 and a decrease of $392,000 due to certain software development and intangible assets being fully amortized after the 2021 period.

Operating income and margin .

Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new benefit addition, as well as additional investments in our Human Understanding Solutions, workforce automation tools, marketing initiatives and building renovation costs, partially offset by an increase in revenue.

Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new associate benefit, as well as additional investments in our Human Understanding Solutions, workforce automation tools and marketing initiatives.

Total other income (expense ).

Total other income (expense) decreased in the 2022 period compared to the 2021 period primarily due to lower interest expense due to the declining balance on our term loan partially offset by revaluation on intercompany transactions due to changes in the Canadian to U.S.

dollar foreign exchange rate.

Total other income (expense) decreased in the 2022 period compared to the 2021 period primarily due to lower interest expense from the declining balance on our term loan of $345,000.

Provision for income taxes and effective tax rate .

Provision for income taxes and effective tax rate grew in the 2022 period compared to the 2021 period primarily due to decreased tax benefits from share-based compensation awards and higher state income taxes.

Provision for income taxes decreased in the 2022 period compared to the 2021 period primarily due to decreased taxable income.

The effective tax rate increased in the 2022 period compared to the 2021 period mainly due to decreased tax benefits from the exercise and vesting of share-based compensation awards of $316,000 and a 0.6% increase in our state tax rate which fluctuates based on the various apportionment factors and rates for the states we operate in.

Recurring Contact Value .

Recurring contract value declined in the 2022 period compared to the 2021 period in part due to our strategy to focus on growing our digital core solutions, resulting in the elimination of certain legacy offerings.

Our core digital solutions had 3.2% positive recurring contract value growth at June 30, 2022 compared to June 30, 2021.

Our core digital solutions had 2.2% positive recurring contract value growth at September 30, 2022 compared to September 30, 2021.

In addition, sales declined due to the difficulties of selling to our clients during the COVID-19 pandemic as well as increased turnover within our sales force.

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Cash provided by operating activities .

Cash provided by operating activities decreased mainly due changes in deferred revenue primarily due to timing of initial billings on new and renewal contracts, a decrease in accrued expenses, wages and bonuses mainly due to timing and growth of the year-end bonus and decreased net income net of non-cash items.

Cash provided by operating activities decreased mainly due changes in deferred revenue primarily due to timing of initial billings on new and renewal contracts, changes in income taxes receivable and payable due to the timing of income tax payments and decreased net income net of non-cash items.

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

Liquidity and Capital Resources

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We believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.

As of June 30, 2022, our principal sources of liquidity included $33.0 million of cash and cash equivalents, up to $30 million of unused borrowings under our line of credit and up to $15 million on our delayed draw term note.

As of September 30, 2022, our principal sources of liquidity included $28.4 million of cash and cash equivalents, up to $30 million of unused borrowings under our line of credit and up to $75 million on our delayed draw term note.

Of this cash, $2.7 million was held in Canada.

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Our cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation and related taxes, reserve for uncertain tax positions, loss on disposal of property and equipment and the effect of working capital changes.

Cash provided by operating activities decreased mainly due changes in deferred revenue primarily due to timing of initial billings on new and renewal contracts, a decrease in accrued expenses, wages and bonuses mainly due timing and growth of the year-end bonus, changes in income taxes receivable and payable and decreased net income net of non-cash items.

These were partially offset by changes in trade accounts receivable, deferred contract costs and accounts payable which increased cash flow from operating activities.

We had a working capital surplus of $12.2 million and $33.3 million on June 30, 2022 and December 31, 2021, respectively.

The change was primarily due to decreases in cash and cash equivalents and increases in dividends payable, partially offset by decreases in accrued expenses.

Cash provided by operating activities decreased mainly due changes in deferred revenue, changes in income taxes receivable and payable and decreased net income net of non-cash items.

These were partially offset by changes in trade accounts receivable which fluctuate with the timing of billing and collections and deferred contract costs due to a reduction in deferral of these costs which increased cash flow from operating activities.

We had a working capital surplus of $8.0 million and $33.3 million on September 30, 2022 and December 31, 2021, respectively.

The change was primarily due to decreases in cash and cash equivalents and increases in dividends payable, partially offset by increases in trade accounts receivable and decreases in accrued wages and bonuses and accrued expenses.

Cash and cash equivalents decreased mainly due to repurchase of shares of our Common Stock for treasury.

Dividends payable increased due to timing of declarations and payments of dividends.

Trade accounts receivable increased due to timing of billing and collections.

Accrued wages and bonuses decreased due to timing and growth of the year-end bonus.

Accrued expenses decreased mainly due to payment of the deferred acquisition consideration.

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Cash used in financing activities consisted of payments for borrowings under the term note and finance lease obligations.

We also used cash to pay the deferred acquisition consideration, repurchase shares of our Common Stock for treasury, and to pay dividends on Common Stock.

We also used cash to pay the deferred acquisition consideration, repurchase shares of our Common Stock for treasury, to pay dividends on Common Stock and to pay employee payroll tax withholdings on share-based awards exercised.

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

Cash dividends of $9.1 million were paid in the six months ended June 30, 2022.

Dividends of $5.9 million were declared in the three months ended June 30, 2022 and paid in July 2022.The dividends were paid from cash on hand.

Cash dividends of $15.0 million were paid in the nine months ended September 30, 2022.

Dividends of $5.9 million were declared in the three months ended September 30, 2022 and paid in October 2022.

The dividends were paid from cash on hand.

Our board of directors considers whether to declare a dividend and the amount of any dividends declared on a quarterly basis.

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Capital Expenditures

We paid cash of $3.9 million for capital expenditures in the six months ended June 30, 2022.

We paid cash of $7.9 million for capital expenditures in the nine months ended September 30, 2022.

These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters of $2.5 million and $3.5 million, respectively.

We estimate future costs related to our headquarters building renovations to be $3.1 million and $16.4 million in 2022 and 2023, respectively, which we expect to fund through operating cash flows.

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) 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”

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on September 30, 2022 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $23,412,383 term loan (the “Term Loan”) and (iii) a $75,000,000 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 Term Loan has an outstanding balance of $24.5 million and is payable in monthly installments of $462,988 through May 2025, with a balloon payment due at maturity in May 2025.

The Term Loan has an outstanding balance of $23.4 million and is payable in monthly installments of $462,988 through May 2027.

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 (3.37% at June 30, 2022).

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 Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (4.53% at September 30, 2022).

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 2025.

As of June 30, 2022, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during the six-month periods ended June 30, 2022 or 2021.

As of September 30, 2022, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during the nine-month periods ended September 30, 2022 or 2021.

There have been no borrowings on the Delayed Draw Term Loan since origination.

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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.

All obligations under the Credit Facilities are guaranteed by our subsidiary.

As of June 30, 2022, we were in compliance with our financial covenants.

All obligations under the Credit Facilities are to be guaranteed by each of our wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries.

As of September 30, 2022, we were in compliance with our financial covenants.

The Credit Facilities are secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of our and our guarantors’

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We have lease arrangements for certain computer, office, printing and inserting equipment as well as office and data center space.

As of June 30, 2022, we had fixed lease payments of $566,000 and $468,000 for operating and finance leases, respectively payable within 12 months.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $1.3 million as of June 30, 2022.

As of September 30, 2022, we had fixed lease payments of $581,000 and $420,000 for operating and finance leases, respectively payable within 12 months.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $1.4 million as of September 30, 2022.

See Note 4, "Income Taxes", to the Consolidated Financial Statements contained in this report for income tax related information.

As of June 30, 2022, the balance of the deemed repatriation tax payable imposed by the U.S.

As of September 30, 2022, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act of 2017 (the Act”) was $164,000, which we expect to pay by the end of 2022.

We generally do not make unconditional, non-cancelable purchase commitments.

We enter into purchase orders in the normal course of business, but these purchase obligations do not exceed one year.

Stock Repurchase Programs

In February 2006 and subsequently amended in May 2013, our Board of Directors authorized the repurchase of up to 2,250,000 shares of Common Stock in the open market or in privately negotiated transactions under a stock repurchase program (the “2006 Program”).

In May 2022 we repurchased all of the then remaining shares authorized for repurchase under the 2006 Program. 

On May 19, 2022 our Board of Directors approved a new stock repurchase authorization of 2,500,000 shares of Common Stock (the “2022 Program”).

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The 2022 Program has no set expiration date.

During the three months ended June 30, 2022, we repurchased the remaining 1,981 shares under the 2006 Program and 425,348 shares of our Common Stock under the 2022 Program for an aggregate of $15.5 million.

As of June 30, 2022, the remaining number of shares of Common Stock that could be purchased under the 2022 Program was 2,074,652 shares.

During the three months ended September 30, 2022, we repurchased 87,135 shares of our Common Stock under the 2022 Program for an aggregate of $3.1 million.

As of September 30, 2022, the remaining number of shares of Common Stock that could be purchased under the 2022 Program was 1,987,517 shares.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements