What changed in this filing

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Item 1. Financial Statements

2023-05-05 compared with 2022-11-04 · 149 added, 348 removed, 545 unchanged (48% of the section changed)

3 unchanged sentences

(In thousands, except share amounts and par value)

September 30,

Current assets:

55 unchanged sentences

Retained earnings (accumulated deficit)

Accumulated other comprehensive loss, foreign currency translation adjustment

Treasury stock, at cost;

6,230,935 and 5,537,191 Common shares in 2022 and 2021, respectively

6,343,304 and 6,294,008 common stock in 2023 and 2022, respectively

Total shareholders’

4 unchanged sentences

$ 130,461  

See accompanying notes to condensed consolidated financial statements

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

2 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

$ 36,473  

$ 38,441  

$ 113,424  

$ 109,656  

Operating expenses:

1 unchanged sentence

14,779  

43,062  

38,184  

Selling, general and administrative

1 unchanged sentence

10,649  

29,060  

Depreciation, amortization and impairment

Depreciation and amortization

Total operating expenses

1 unchanged sentence

26,744  

79,123  

72,260  

Operating income

11,697  

13,138  

34,301  

37,396  

Other income (expense):

4 unchanged sentences

11,433  

12,624  

33,343  

36,130  

Provision for income taxes

1 unchanged sentence

$ 8,539  

$ 25,159  

$ 27,833  

Earnings Per Share of Common Stock:

2 unchanged sentences

$ 0.34  

$ 1.01  

$ 1.09  

Diluted Earnings Per Share

1 unchanged sentence

$ 0.34  

$ 1.00  

$ 1.08  

Weighted average shares and share equivalents outstanding:

3 unchanged sentences

25,390  

24,847  

25,650  

25,147  

25,655  

See accompanying notes to condensed consolidated financial statements

3 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

$ 6,964  

$ 8,539  

$ 25,159  

$ 27,833  

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustment

Other comprehensive income (loss)

Other comprehensive income

Comprehensive income

1 unchanged sentence

$ 8,590  

$ 24,926  

$ 27,855  

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands except share and per share amounts, unaudited)

Comprehensive

Income (Loss)

Balances at December 31, 2022

2 unchanged sentences

Purchase of 49,296 shares treasury stock

Issuance of 20,938 shares of common stock for the exercise of stock options

Non-cash stock compensation expense

Dividends declared of $ 0.24 per common share

Other comprehensive income, foreign currency translation adjustment

Dividends declared of $ 0.12 per share of common stock

Balances at March 31, 2023

1 unchanged sentence

$ 74,665  

Purchase of 427,329 shares treasury stock

Non-cash stock compensation expense

Dividends declared of $ 0.24 per common share

Other comprehensive income (loss), foreign currency translation adjustment

Balances at June 30, 2022

$ 174,561  

$ 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.

8 unchanged sentences

Purchase of 166,962 shares treasury stock

Issuance of 68,284 common shares for the exercise of stock options

Non-cash stock compensation expense

Dividends declared of $ 0.24 per share of common stock

Other comprehensive income, foreign currency translation adjustment

2 unchanged sentences

$ 81,486  

Non-cash stock compensation expense

Dividends declared of $ 0.24 per common share

Other comprehensive income, foreign currency translation adjustment

Balances at June 30, 2021

$ 172,844  

$ 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)

Nine months ended

September 30,

Three months ended

Cash flows from operating activities:

2 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and impairment

Depreciation and amortization

Deferred income taxes

1 unchanged sentence

Non-cash share-based compensation expense

Loss on disposal of property and equipment

Net changes in assets and liabilities:

8 unchanged sentences

Net cash provided by operating activities

28,161  

34,270  

Cash flows from investing activities:

Purchases of property and equipment

Acquisition consideration

Net cash used in investing activities

3 unchanged sentences

Proceeds from the exercise of share-based awards

Payment of employee payroll tax withholdings on share-based awards exercised

Repurchase of shares for treasury

4 unchanged sentences

Change in cash and cash equivalents

17,792  

Cash and cash equivalents at beginning of period

6 unchanged sentences

Interest expense, net of capitalized amounts

$ 1,028  

$ 1,186  

$ 8,947  

$ 6,601  

Supplemental disclosure of non-cash investing and financing activities:

Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans

Deferred acquisition consideration

Purchase of property and equipment in accounts payable and accrued expenses

$ 1,507  

Repurchase of shares for treasury in accounts payable and accrued expenses

See accompanying notes to condensed consolidated financial statements.

8 unchanged sentences

“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 purpose is to humanize healthcare and support organizations in their understanding of each person they serve not as point-in-time insights, but as an ongoing relationship.

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

9 unchanged sentences

Actual results could differ from those estimates.

The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada.

The condensed 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.

Our Canadian subsidiary uses Canadian dollars as its functional currency.

It translates its assets and liabilities into U.S.

We translate 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’

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.

We translate its revenue and expenses at the average exchange rate during the period.

We included foreign currency translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’

equity through December 2022.

During December 2022, we substantially liquidated our investment in Canada.

As a result, we reclassified the cumulative foreign currency translation adjustment balance into earnings in 2022.

Currency translation changes after 2022 are recognized in Other income (expense), net in our Condensed Consolidated Statements of Income.

Revenue Recognition

25 unchanged sentences

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.

Subscription services are typically billed either annually or quarterly in advance but may also be billed on a monthly basis.

One-time services –

17 unchanged sentences

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.

We defer commissions and incentives, including payroll taxes, and certain implementation costs 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.

3 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 $ 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,

We deferred incremental costs of obtaining a contract of $ 163,000 and $ 234,000 in the three -month periods ended March 31, 2023 and 2022, respectively.

Deferred contract costs, net of accumulated amortization was $ 2.2 million and 2.4 million at March 31, 2023 and December 31, 2022, respectively.

Total amortization by expense classification for the three -month periods ended March 31, 2023 and 2022 was as follows:

(In thousands)

2 unchanged sentences

Total amortization

$ 1,384  

$ 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.

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $ 8,000 and $ 1,000 for the three -month periods ended March 31, 2023 and 2022, 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 nine -month periods ended September 30, 2022 and 2021 (In thousands):

Nine months ended September 30, 2022

Nine months ended September 30, 2021

The following table provides the activity in the allowance for doubtful accounts for the three -month periods ended March 31, 2023 and 2022 (In thousands):

Three months ended March 31, 2023

Three months ended March 31, 2022

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.

Operating lease ROU assets are included in operating lease right-of-use assets in our condensed consolidated balance sheet.

Finance lease assets are included in property and equipment.

8 unchanged sentences

When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.

We elected the practical expedient to account for lease and non-lease components as a single lease component for all asset classifications.

We have also made a policy election to not record short-term leases with a duration of 12 months or less on the balance sheet.

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 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 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.

Rent income from the sublessee is 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

5 unchanged sentences

( 3 ) Level 3 Inputs—unobservable inputs.

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

The following details our financial assets within the fair value hierarchy at March 31, 2023 and December 31, 2022:

(In thousands)

As of September 30, 2022

As of March 31, 2023

Money Market Funds

11 unchanged sentences

$ 24,927  

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

There were no transfers between levels during the three months ended March 31, 2023.

Our long-term debt described in Note 4 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)

7 unchanged sentences

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

As of March 31, 2023 and December 31, 2022, 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 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.

$ 3.0 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 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 nine -month periods ended September 30, 2022 and 2021.

We do not believe the final disposition of claims at March 31, 2023 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

CONTRACTS WITH CUSTOMERS

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

Nine months ended

September 30,

The following table disaggregates revenue for the three -month periods ended March 31, 2023 and 2022 based on timing of revenue recognition (in thousands):

Subscription services recognized ratably over time

1 unchanged sentence

$ 35,449  

$ 105,822  

$ 101,867  

Services recognized at a point in time

4 unchanged sentences

$ 38,441  

$ 113,424  

$ 109,656  

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 nine -month periods ended September 30, 2022 and 2021 are as follows (in thousands):

$ 15,896  

$ 15,198  

Significant changes in contract assets and contract liabilities during the three -month periods ended March 31, 2023 and 2022 are as follows (in thousands):

Increase (Decrease)

1 unchanged sentence

Increases due to invoicing of client, net of amounts recognized as revenue

16,578  

16,087  

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

Increases due to acquisition

Change due to cumulative catch-up adjustments arising from changes in expected contract consideration

1 unchanged sentence

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 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.

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 in 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.

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.

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 March 31, 2023 approximated $ 549,000 , of which $ 465,000 , $ 69,000 and $ 15,000 are expected to be recognized during 2023, 2024 and 2025, respectively.

The effective tax rate was 22.7 % and 25.3 % for the three -month periods ended March 31, 2023 and 2022, respectively.

The effective tax rate decreased mainly due to increased tax benefits of $ 115,000 from the exercise of share-based compensation awards and lower state income taxes of approximately $ 265,000 which fluctuate based on various apportionment factors and rates for the states we operate in.

NOTES PAYABLE

Our long-term debt consists of the following:

September 30,

(In thousands)

6 unchanged sentences

$ 17,690  

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”

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 $ 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”).

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 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 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 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.

As of March 31, 2023, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during 2023.

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

5 unchanged sentences

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 ):

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 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.

As of March 31, 2023, we were in compliance with our financial covenants.

SHARE-BASED COMPENSATION

2 unchanged sentences

We refer to our restricted stock awards as “non-vested”

stock in these consolidated financial statements.

stock in these condensed consolidated financial statements.

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.

Beginning in 2018, 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.

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.

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 our common stock.

1 unchanged sentence

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

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.

During the three -month periods ended March 31, 2023 and 2022, we granted options to purchase 59,429 and 54,759 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.

We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common stock 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:

8 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 nine -month periods ended September 30, 2022:

The following table summarizes stock option activity under the 2006 Equity Incentive Plans and the 2004 Director Plan for the three -month periods ended March 31, 2023:

Outstanding at December 31, 2022

5 unchanged sentences

$ 14.35  

$ 13.17  

Outstanding at September 30, 2022

Outstanding at March 31, 2023

619,777  

1 unchanged sentence

$ 6,841  

Exercisable at September 30, 2022

Exercisable at March 31, 2023

340,004  

1 unchanged sentence

$ 5,490  

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 $ 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.

As of March 31, 2023, 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 3.61 years.

There was $ 301,000 of cash received from stock options exercised for the three -month period ended March 31, 2023.

There were no stock option exercises in the three -month period ended March 31, 2022.

We recognized $ 276,000 and $ 257,000 of non-cash compensation for three -month periods ended March 31, 2023 and 2022, respectively, related to options, which is included in selling, general and administrative expenses.

We granted 12,698 non-vested shares of common stock under the 2006 Equity Incentive Plan during the three -month periods ended March 31, 2022.

As of March 31, 2023, 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 -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

We recognized $ 27,000 of non-cash compensation for each of the three -month periods ended March 31, 2023 and 2022, respectively, related to this non-vested stock, which is included in 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 -month period ended March 31, 2023:

Grant Date Fair

2 unchanged sentences

$ 42.92  

Outstanding at September 30, 2022

Outstanding at March 31, 2023

12,698  

$ 42.92  

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.

As of March 31, 2023, the total unrecognized compensation cost related to non-vested stock awards was approximately $ 300,000 and is expected to be recognized over a weighted average period of 2.75 years.

GOODWILL AND OTHER INTANGIBLE ASSETS

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

The following represents the carrying amount of goodwill at March 31, 2023:

(In thousands)

Balance at September 30, 2022 and December 31, 2021

Balance at March 31, 2023

$ 62,328  

1 unchanged sentence

Intangible assets consisted of the following:

September 30,

(In thousands)

13 unchanged sentences

PROPERTY AND EQUIPMENT

September 30,

(In thousands)

3 unchanged sentences

Accumulated depreciation

34,866  

33,508  

Property and equipment, net

2 unchanged sentences

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.

Basic net income per share was computed using the weighted-average shares of common stock outstanding during the period.

Diluted net income per share was computed using the weighted-average shares of common stock and, if dilutive, the potential common stock outstanding during the period.

Potential shares of common stock consist of the incremental common stock 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 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 Nine Months Ended

(In thousands, except per share data)

We had 254,271 and 231,319 options of common stock for the three -month periods ended March 31, 2023 and 2022, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

For the Three

March 31, 2023

For the Three

March 31, 2022

(In thousands)

Numerator for net income per share –

1 unchanged sentence

$ 8,539  

$ 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  

Weighted average shares of common stock outstanding –

24,585  

3 unchanged sentences

$ 0.34  

$ 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  

Weighted average shares of common stock outstanding –

24,585  

6 unchanged sentences

25,390  

25,147  

25,655  

Net income per share - diluted

$ 0.33  

$ 0.38  

$ 1.00  

Net income per share –

$ 0.28  

$ 0.34  

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 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,

Three months ended March 31,

United States

3 unchanged sentences

$ 38,441  

$ 37,691  

$ 37,767  

$ 113,424  

$ 109,656  

September 30, 2022

March 31, 2023

December 31, 2022

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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 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 purpose is to humanize healthcare and support organizations in their understanding of each unique individual.

Our commitment to Human Understanding®

helps leading healthcare systems get to know each person they serve not as point-in-time insights, but as an ongoing relationship.

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 –

before, during, after, and beyond 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.

We believe that access to and analysis of our extensive consumer-driven information is becoming more valuable as healthcare providers increasingly need to more deeply understand and engage the people they serve to build customer loyalty.

Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, health risk assessments, employee engagement, reputation management, and brand loyalty.

We partner with clients across the continuum of healthcare services.

We believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.

The outbreak of COVID-19, and the associated responses, have impacted our business in a variety of ways.

Governments have implemented business and travel restrictions and recommended social distancing and other guidelines.

Many businesses, including many of our clients, have de-emphasized external business opportunities and restricted in-person meetings while shifting their attention toward addressing COVID-19 planning, business disruptions, higher costs, and revenue shortfalls.

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 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 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.

Based on the foregoing, we do not expect our recent revenue and earnings growth to be indicative of future expectations.

We do, however, expect to have adequate sources of liquidity to meet our current and expected needs for the foreseeable future. 

We believe access to and analysis of our extensive consumer-driven information is increasingly valuable as healthcare providers need to better understand and engage the people they serve to create long-term relationships and build loyalty.

Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, employee engagement, reputation management, and brand loyalty.

We partner with clients across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.

Results of Operations

The following tables set forth, for the periods indicated, selected financial information derived from our consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics.

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

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

(In thousands, except percentages)

Three Months Ended September 30,

2022 over 2021

Direct expenses

Selling, general, and administrative

Depreciation, amortization and impairment

Operating income

Total other income (expense)

Provision for income taxes

Effective Tax Rate

Operating margin

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 $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 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 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 workforce automation tools and new 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 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.

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

The following tables set forth, for the periods indicated, selected financial information derived from our condensed consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics.

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

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

(In thousands, except percentages)

Nine Months Ended September 30,

Three Months Ended March 31,

2023 over 2022

1 unchanged sentence

Selling, general, and administrative

Depreciation, amortization and impairment

Depreciation and amortization

Operating income

3 unchanged sentences

Operating margin

Recurring Contact Value

Recurring Contract Value

Cash provided by operating activities

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. 

Revenue in the 2023 period decreased compared to the 2022 period with reductions in US revenue of $1.4 million and Canadian revenue of $591,000 due to the closure of our Canadian office.

US recurring revenue in our existing client base decreased $913,000 which included $412,000 attributed to elimination of a non-core solution.

US recurring revenue from new customer sales and non-recurring revenues also decreased $406,000 and $60,000, respectively.

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

Direct expenses .

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.

Variable expenses decreased $548,000 in the 2023 period compared to the 2022 period primarily from lower conference expenses due to one less conference being held in 2023.

Variable expenses as a percentage of revenue were 14.2% and 14.9% in the 2023 and 2022 periods, respectively.

Fixed expenses increased $49,000 primarily due to an increase in contracted services to support our clients of $239,000 and increased travel costs of $102,000 partially offset by decreased salary and benefit costs of $307,000 from workforce attrition and automation.

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 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 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.

Selling, general and administrative expenses increased in the 2023 period compared to the 2022 period primarily due to growth in marketing initiative expenses of $1.3 million to expand brand recognition and support sales development, increased salary and benefit costs of $455,000 in sales and client support, and increased travel costs of $262,000 partially offset by a reduction in innovation investments of $503,000 and decreased building demolition costs of $420,000 related to the remodel of our headquarters.

Depreciation and amortization .

Depreciation and amortization expenses increased in the 2023 period compared to the 2022 period primarily due to shortening the estimated useful lives of certain building assets.

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 associate benefit, as well as additional investments in our Human Understanding Solutions, workforce automation tools and marketing initiatives.

Operating income and margin decreased in the 2023 period compared to the 2022 period primarily due to a decline in revenue and growth in 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 from the declining balance on our term loan of $345,000.

Total other income (expense) decreased in the 2023 period compared to the 2022 period primarily due to higher interest income of $246,000 from additional money market funds investments and lower interest expense from the declining balance on our term loan of $76,000 partially offset by intercompany revaluation adjustments from changes in the Canadian to U.S.

dollar foreign exchange rate of $51,000 during the three-month period ended March 31, 2022.

Provision for income taxes and effective tax rate .

Provision for income taxes decreased in the 2023 period compared to the 2022 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 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.

The effective tax rate decreased primarily due to increased tax benefits of $115,000 from the exercise of share-based compensation awards and lower state income taxes of approximately $265,000 which fluctuate based on various apportionment factors and rates for the states we operate in.

Recurring Contract Value .

Recurring contract value declined in 2023 compared to 2022 primarily from our strategy to focus on our core digital solutions and a decrease in new sales.

The recurring contract value of our core digital solutions increased 1.3% at March 31, 2023 compared to March 31, 2022.

Our recurring contract value metric represents the total revenue projected under all renewable contracts for their respective next annual renewal periods, assuming no upsells, downsells, price increases, or cancellations, measured as of the most recent quarter end.

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, 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 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.

As of March 31, 2023, our principal sources of liquidity included $23.7 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, $174,000 was held in Canada.

The delayed draw term note can only be used to fund permitted future business acquisitions or repurchasing our common stock.

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, 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.

Cash provided by operating activities decreased mainly due to decreased net income net of non-cash items.

Cash provided by operating activities also decreased due to working capital changes, mainly consisting of changes in prepaid expenses and other current assets primarily due to the timing of our annual business insurance payment and other annual service agreements, partially offset by changes in income taxes receivable and payable due to timing of payments and deferred revenue primarily due to timing of initial billings on new and renewal contracts.

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

We had a working capital surplus of $9.1 million and $10.3 million on March 31, 2023 and December 31, 2022, respectively.

The change was primarily due to decreases in cash and cash equivalents and increases in income taxes payable and deferred revenue, partially offset by increases in prepaid expenses.

Cash and cash equivalents decreased mainly due to timing of payments of annual service agreements and repurchase of shares of our common stock for treasury.

Income taxes payable increased due to the timing of payments.

Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements.

1 unchanged sentence

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, to pay dividends on Common Stock and to pay employee payroll tax withholdings on share-based awards exercised.

We also used cash to repurchase shares of our common stock for treasury and to pay dividends on common stock.

This was partially offset by cash provided from the proceeds from the exercise of share-based awards.

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

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.

Cash dividends of $3.0 million were paid in the three months ended March 31, 2023.

Dividends of $3.0 million were declared in the three months ended March 31, 2023 and paid in April 2023.

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.

Acquisition Consideration

$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.

Capital Expenditures

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 paid cash of $3.2 million for capital expenditures in the three months ended March 31, 2023.

These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters.

We estimate future costs related to our headquarters building renovations to be $14.5 million and $2.9 million in 2023 and 2024, 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”) 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”

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 $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”).

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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 Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (4.53% at September 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 (6.88% at March 31,2023).

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 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.

As of March 31, 2023, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during 2023.

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

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 contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default.

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.

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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 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.

As of March 31, 2023, 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 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 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.

Stock Repurchase Programs

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”).

As of March 31, 2023, we had fixed lease payments of $474,000 and $210,000 for operating and finance leases, respectively payable within 12 months.

The liability for gross unrecognized tax benefits related to uncertain tax positions was $1.7 million as of March 31, 2023.

See Note 3, "Income Taxes", to the Condensed Consolidated Financial Statements contained in this report for income tax related information.

As of March 31, 2023, the balance of the deemed repatriation tax payable imposed by the U.S.

Tax Cuts and Jobs Act of 2017 was $11,000, which we expect to pay in early 2024.

Withholding tax of $72,000 was paid in the three-month period ended March 31, 2023, due to the deemed dividend and return of capital processed in 2022.

Stock Repurchase Program

In May 2022, our Board of Directors authorized the repurchase of 2,500,000 shares of common stock (the “2022 Program”).

Under the 2022 Program we are authorized to repurchase from time-to-time shares of our outstanding common stock on the open market or in privately negotiated transactions.

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The 2022 Program has no set expiration date.

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.

During the three months ended March 31, 2023, we repurchased 49,296 shares of our common stock under the 2022 Program for an aggregate of $2.0 million.

As of March 31, 2023, the remaining number of shares of common stock that could be purchased under the 2022 Program was 1,875,148 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