What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-03-03 · 327 added, 436 removed, 651 unchanged (54% of the section changed)

4 unchanged sentences

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of National Research Corporation and subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of National Research Corporation and subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

6 unchanged sentences

As discussed in Notes 1 and 3 to the consolidated financial statements, revenue consists of service arrangement contracts with customers that can include more than one separately identifiable performance obligation.

The Company’s revenue for the year ended December 31, 2022 included $142.0 million for subscription-based service agreements, a portion of which was revenue from new and modified subscription-based service agreements, that was recognized ratably over the subscription period and which agreements are renewable at the option of the customer.

The Company’s revenue for the year ended December 31, 2023 included $140.2 million for subscription-based service agreements, a portion of which was revenue from new and modified subscription-based service agreements, that was recognized ratably over the subscription period and which agreements are renewable at the option of the customer.

Subscription-based service agreements represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period.

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We applied auditor judgment to determine the nature and extent of procedures to be performed over the accuracy of key terms within the IT application, including the identification of key terms.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s subscription-based service revenue process, including controls related to the key terms within the new and modified subscription-based service agreements.

We also tested certain internal controls over the accurate input of the underlying key terms of the subscription-based service agreement into the related IT application.

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We evaluated the sufficiency of audit evidence obtained over the key terms within new and modified subscription-based service agreements by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.

We have served as the Company’s auditor since 1997 .

Lincoln, Nebraska

March 3, 2023

We have served as the Company’s auditor since 1997.

Omaha, Nebraska

February 27, 2024

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

3 unchanged sentences

Cash and cash equivalents

$ 25,026  

$ 54,361  

$ 6,653 $ 25,026

Trade accounts receivable, less allowance for doubtful accounts of $ 75 and $ 65 , respectively

14,461  

13,728  

12,378 14,461

Prepaid expenses

2 unchanged sentences

Total current assets

43,716  

73,707  

24,360 43,716

Net property and equipment

17,248  

12,391  

28,205 17,248

Intangible assets, net

61,614  

61,614 61,614

Operating lease right-of-use assets

1 unchanged sentence

Deferred income taxes

$ 130,461  

$ 157,540  

Liabilities and Shareholders ’

$ 122,437 $ 130,461

Liabilities and Shareholders ’ Equity

Current liabilities:

Current portion of notes payable, net of unamortized debt issuance costs

$ 4,491  

$ 4,278  

$ 7,214 $ 4,491

Accounts payable

3 unchanged sentences

Deferred revenue

15,198  

17,213  

14,834 15,198

Income Taxes Payable

Other current liabilities

Total current liabilities

33,417  

40,388  

36,203 33,417

Notes payable, net of current portion and unamortized debt issuance costs

17,690  

22,269  

29,470 17,690

Deferred income taxes

1 unchanged sentence

Total liabilities

58,428  

72,203  

Shareholders’

73,482 58,428

Shareholders’ equity:

Preferred stock, $ 0.01 par value, authorized 2,000,000 shares, none issued

2 unchanged sentences

Additional paid-in capital

175,453  

173,942  

178,213 175,453

Retained earnings (accumulated deficit)

( 30,530 ) ( 25,184 )

Accumulated other comprehensive loss, foreign currency translation adjustment

1 unchanged sentence

6,783,032 Common shares in 2023 and 6,294,008 Common shares in 2022

Total shareholders’

72,033  

85,337  

Total liabilities and shareholders’

$ 130,461  

$ 157,540  

( 98,759 ) ( 78,267 )

Total shareholders’ equity

48,955 72,033

Total liabilities and shareholders’ equity

$ 122,437 $ 130,461

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In thousands, except share amounts)

$ 151,568  

$ 147,954  

$ 133,277  

Insurance recoveries

$ 148,580 $ 151,568 $ 147,954

Operating expenses:

57,049  

52,350  

49,187  

56,015 57,049 52,350

Selling, general and administrative

42,699  

38,960  

34,441  

46,621 42,699 38,960

Depreciation, amortization and impairment

5,899 5,277 6,374

Total operating expenses

105,025  

97,684  

91,133  

108,535 105,025 97,684

Operating income

46,543  

50,270  

42,677  

40,045 46,543 50,270

Other income (expense):

1 unchanged sentence

Interest expense

( 862 ) ( 1,209 ) ( 1,667 )

Reclassification of cumulative foreign currency translation adjustment into earnings

— ( 2,569 ) —

( 41 ) ( 118 ) 4

Total other income (expense)

( 83 ) ( 3,728 ) ( 1,649 )

Income before income taxes

42,815  

48,621  

41,467  

39,962 42,815 48,621

Provision for income taxes

11,015  

11,155  

$ 31,800  

$ 37,466  

$ 37,260  

8,991 11,015 11,155

$ 30,971 $ 31,800 $ 37,466

Earnings per share of common stock:

Basic earnings per share

$ 1.28  

$ 1.47  

$ 1.48  

$ 1.26 $ 1.28 $ 1.47

Diluted earnings per share

$ 1.27  

$ 1.46  

$ 1.45  

$ 1.25 $ 1.27 $ 1.46

Weighted average shares and share equivalents outstanding

24,922  

25,422  

25,170  

25,052  

25,640  

25,696  

24,540 24,922 25,422

24,673 25,052 25,640

See accompanying notes to consolidated financial statements.

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(In thousands)

$ 30,971 $ 31,800 $ 37,466

Other comprehensive income (loss):

Cumulative foreign currency translation adjustment

$ — $ ( 194 ) $ 24

Reclassification of cumulative foreign currency translation into earnings

Other comprehensive income (loss)

$ — $ 2,375 $ 24

Comprehensive income

$ 30,971 $ 34,175 $ 37,490

See accompanying notes to consolidated financial statements.

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY

(In thousands except share and per share amounts)

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Balances at December 31, 2020

$ 162,154  

$ 32,892  

Purchase of 180,112 shares of treasury stock

$ 31 $ 171,785 $ ( 61,375 ) $ ( 2,399 ) $ ( 43,727 ) $ 64,315

Purchase of 153,005 shares treasury stock

— — — — ( 6,422 ) ( 6,422 )

Issuance of 116,753 common shares for the exercise of stock options

Forfeiture of 6,793 restricted common shares

— 1,534 — — — 1,534

Non-cash stock compensation expense

— 623 — — — 623

Dividends declared of $ 0.48 per common share

Other comprehensive loss, foreign currency translation adjustment

37,260  

— — ( 12,203 ) — — ( 12,203 )

Other comprehensive income, foreign currency translation adjustment

— — — 24 — 24

— — 37,466 — — 37,466

Balances at December 31, 2021

$ 171,785  

$ 64,315  

$ 31 $ 173,942 $ ( 36,112 ) $ ( 2,375 ) $ ( 50,149 ) $ 85,337

Purchase of 756,817 shares treasury stock

— — — — ( 28,118 ) ( 28,118 )

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

— 311 — — — 311

Non-cash stock compensation expense

— 1,200 — — — 1,200

Dividends declared of $ 0.84 per common share

— — ( 20,872 ) — — ( 20,872 )

Other comprehensive income, foreign currency translation adjustment

37,466  

— — — ( 194 ) — ( 194 )

Reclassification of cumulative foreign currency translation adjustment into earnings

— — — 2,569 — 2,569

— — 31,800 — — 31,800

Balances at December 31, 2022

$ 173,942  

$ 85,337  

$ 31 $ 175,453 $ ( 25,184 ) $ — $ ( 78,267 ) $ 72,033

Purchase of 489,024 shares treasury stock

— — — — ( 20,492 ) ( 20,492 )

Issuance of 87,378 common shares for the exercise of stock options

— 1,825 — — — 1,825

Non-cash stock compensation expense

— 935 — — — 935

Dividends declared of $ 1.48 per common share

Other comprehensive income, foreign currency translation adjustment

Reclassification of cumulative foreign currency translation adjustment into earnings

31,800  

— — ( 36,317 ) — — ( 36,317 )

— — 30,971 — — 30,971

Balances at December 31, 2023

$ 175,453  

$ 72,033  

$ 31 $ 178,213 $ ( 30,530 ) $ — $ ( 98,759 ) $ 48,955

See accompanying notes to consolidated financial statements.

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Cash flows from operating activities:

$ 31,800  

$ 37,466  

$ 37,260  

$ 30,971 $ 31,800 $ 37,466

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

Depreciation, amortization and impairment

5,899 5,277 6,374

Reclassification of cumulative translation adjustment into earnings

Deferred income taxes

( 1,121 ) ( 1,729 ) ( 277 )

Reserve for uncertain tax positions

Gain on insurance recoveries for damaged property

Loss on disposal of property and equipment

Non-cash share-based compensation expense

935 1,200 623

Change in assets and liabilities:

Trade accounts receivable

2,084 ( 733 ) 343

Prepaid expenses and other current and long-term assets

( 1,767 ) 1,634 ( 842 )

Operating lease assets and liability, net

( 127 ) ( 39 ) ( 34 )

Deferred contract costs, net

988 1,331 783

Accounts payable

184 ( 589 ) 4

Accrued expenses, wages and bonuses

( 768 ) ( 2,947 ) ( 285 )

Income taxes receivable and payable

Deferred revenue

( 364 ) ( 2,014 ) 1,388

Net cash provided by operating activities

36,265  

46,344  

40,636  

38,113 36,265 46,344

Cash flows from investing activities:

Purchases of property and equipment

( 15,779 ) ( 9,835 ) ( 5,514 )

Acquisition consideration

Insurance proceeds for damaged property

— — ( 3,000 )

Proceeds from the sale of property and equipment

Net cash used in investing activities

( 15,778 ) ( 9,835 ) ( 8,514 )

Cash flows from financing activities:

Payments on notes payable

( 4,528 ) ( 4,305 ) ( 4,093 )

Payment of debt issuance costs

( 8 ) ( 92 ) —

Borrowings on notes payable

Borrowings on line of credit

Payments on line of credit

( 15,000 ) — —

Payments on finance lease obligations

( 290 ) ( 469 ) ( 493 )

Proceeds from the exercise of stock options

Payment of payroll tax withholdings on share-based awards exercised

— ( 190 ) ( 721 )

Payment of deferred acquisition consideration

— ( 1,950 ) —

Repurchase of shares for treasury

( 19,099 ) ( 27,616 ) ( 4,142 )

Payment of dividends on common stock

( 36,366 ) ( 20,961 ) ( 9,159 )

Net cash used in financing activities

( 40,707 ) ( 55,583 ) ( 18,162 )

Effect of exchange rate changes on cash

( 182 )  

( 1 ) ( 182 ) 3

Net increase (decrease) in cash and cash equivalents

19,671  

21,173  

( 18,373 ) ( 29,335 ) 19,671

Cash and cash equivalents at beginning of period

54,361  

34,690  

13,517  

25,026 54,361 34,690

Cash and cash equivalents at end of period

$ 25,026  

$ 54,361  

$ 34,690  

$ 6,653 $ 25,026 $ 54,361

Supplemental disclosure of cash paid for:

Interest expense, net of capitalized amounts

$ 1,342  

$ 1,554  

$ 1,735  

$ 12,233  

$ 10,644  

$ 5,217  

$ 803 $ 1,227 $ 1,684

$ 8,932 $ 12,233 $ 10,644

Supplemental disclosure of non-cash investing and financing activities:

Finance lease obligations originated for property and equipment

Purchase of property and equipment in accounts payable and accrued expenses  

$ 1,109  

Purchase of property and equipment in accounts payable and accrued expenses

$ 2,066 $ 1,109 $ 979

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

$ 1,088  

$ 7,217  

$ 1,241 $ 311 $ 1,088

Repurchase of shares for treasury in accounts payable and accrued expenses

$ 152 $ — $ —

Deferred acquisition consideration

$ 1,950  

$ — $ — $ 1,950

See accompanying notes to consolidated financial statements.

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Description of Business and Basis of Presentation

National Research Corporation, doing business as NRC Health (“NRC Health,”

the “Company,”

“we,”

“our,”

“us”

or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States.

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.

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.

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States.

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.

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.

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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’

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

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

As a result, we reclassified the cumulative foreign currency translation adjustment balance into earnings and recognized a net cumulative foreign currency translation loss of $ 2.6 million, which is included in Other income (expense), net in our Consolidated Statements of Income.

Any future currency changes, will be recognized in Other income (expense), net in our Consolidated Statements of Income.

Any future currency changes after 2022 are recognized in Other income (expense), net in our Consolidated Statements of Income.

Revenue Recognition

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

One-time services –

These agreements typically require us to perform a specific one -time service in a particular month.

One-time services – These agreements typically require us to perform a specific one -time service in a particular month.

We are entitled to a fixed payment upon completion of the service.

Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.

Fixed, non-subscription services –

These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time.

Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time.

Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs.

1 unchanged sentence

Changes in estimates are accounted for using a cumulative catch-up adjustment which could impact the amount and timing of revenue for any period.

Unit-price services –

These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service.

Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service.

Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.

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A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract.

Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.  

Deferred Contract Costs

6 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 $ 454,000 , $ 1.9 million and $ 3.7 million in the years ended December 31, 2022, 2021 and 2020, respectively.

We deferred incremental costs of obtaining a contract of $ 395,000 , $ 454,000 and $ 1.9 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Deferred contract costs, net of accumulated amortization was $ 1.5 million and $ 2.4 million at December 31, 2023 and 2022, respectively.

In 2021 we changed our sales compensation structure, reducing the incremental costs associated with obtaining a contract, decreasing the amount of incremental costs to defer and the balance of deferred contract costs.

Total amortization by expense classification for the years ended December 31, 2023, 2021 and 2021 was as follows:

1 unchanged sentence

Direct expenses

$ 181 $ 146 $ 157

Selling, general and administrative expenses

$ 1,625  

$ 2,494  

$ 2,970  

$ 1,161 $ 1,625 $ 2,494

Total amortization

$ 1,771  

$ 2,651  

$ 3,242  

$ 1,342 $ 1,771 $ 2,651

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $ 41,000 , $ 14,000 and $ 31,000 for the years December 31, 2023, 2022 and 2021, respectively.

5 unchanged sentences

Year Ended December 31, 2021

$ 120 $ 38 $ 76 $ 12 $ 94

Year Ended December 31, 2022

$ 94 $ 19 $ 50 $ 2 $ 65

Year Ended December 31, 2023

$ 65 $ 99 $ 99 $ 10 $ 75

Property and Equipment

39 unchanged sentences

We performed a qualitative analysis as of October 1, 2023 and determined the fair value of our reporting unit likely exceeded the carrying value.

At December 31, 2023, we assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing.

We concluded that a triggering event has not occurred which would require an additional interim impairment test to be performed as it is not more likely than not that an impairment loss had been incurred at December 31, 2023.

No impairments were recorded during the years ended December 31, 2023, 2022, or 2021.

A substantial portion of the revenue earned by our Canadian subsidiary was concentrated with one customer. While the customer exercised its option to extend its existing contract to September 2022, during December 2020 we chose not to enter into a new contract with this customer or otherwise extend the term of the contract beyond September 2022.

We closed the Canada office at the end of the contract in September 2022. 

As a result, we tested for impairment of the then Canada reporting unit’s goodwill at December 31, 2020.

We recognized an impairment of $ 714,000 for the excess of the then Canada reporting unit’s carrying value over the fair value, using discounted cash flows.

In March 2021, we changed our operating segments from six to one to reflect a change in the way we operated and managed our business, including changes to our corporate reporting structure to the Company’s Chief Executive Officer and chief operating decision maker.

In connection with this change, our previous reporting units were combined into one reporting unit.

We performed an interim qualitative analysis immediately before and after the reorganization and concluded that the fair value of our reporting units likely exceeded the carrying values and no impairments were recorded.

Following the reorganization, we considered the current and expected future economic and market conditions, including the impact of the COVID- 19 pandemic, on our reporting unit.

We also assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing.

Insurance Recoveries

We record insurance recoveries when the realization of the claim is probable.

In 2020 we received $ 3.3 million in insurance recoveries, and $ 447,000 was paid directly to certain vendors from the insurer related to a cyber-attack in February 2020 ( the “February incident”).

We recorded $ 533,000 , representing reimbursement for lost revenues, as insurance recoveries, and the remainder as a reduction to operating expenses.

Due to insurance recoveries, the February incident did not have a significant impact on our consolidated financial statements.

In 2020, we also recorded a gain in other income of $ 260,000 from insurance recoveries for property damage due to a flooding.

We use the asset and liability method of accounting for income taxes.

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In 2021, we adopted ASU 2019 - 12, Simplifying the Accounting for Income Taxes (Topic 740 ).

Among other clarifications and simplifications related to income tax accounting, this ASU simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. 

The adoption of this standard had no material impact to our consolidated financial statements.

6 unchanged sentences

Amounts charged against income, before income tax benefit

$ 1,200  

$ 935 $ 1,200 $ 623

Amount of related income tax benefit

( 617 ) ( 436 ) ( 919 )

Net (benefit) expense to net income

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

stock in these consolidated financial statements.

$ 318 $ 764 $ ( 296 )

We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.

Cash and Cash Equivalents

3 unchanged sentences

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.

We recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for our operating leases under which we are lessee.

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

Finance lease assets are included in property and equipment.

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The inputs are then classified into the following hierarchy:

( 1 ) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities;

( 2 ) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data;

( 3 ) Level 3 Inputs—unobservable inputs.

( 1 ) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities;

( 3 ) Level 3 Inputs—unobservable inputs.

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

2 unchanged sentences

Money Market Funds

$ 24,927  

$ 6,471 $ — $ — $ 6,471

Total Cash Equivalents

$ 24,927  

$ 6,471 $ — $ — $ 6,471

As of December 31, 2022

Money Market Funds

$ 6,306  

$ 24,927 $ — $ — $ 24,927

Total Cash Equivalents

$ 6,306  

$ 24,927 $ — $ — $ 24,927

There were no transfers between levels during the years ended December 31, 2023 and 2022.

Our long-term debt described in Note 8 is recorded at historical cost.

The fair value of long-term debt is classified in Level 2 of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit.

The fair value of fixed rate long-term debt is classified in Level 2 of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit.

The fair value of our variable rate long-term debt is believed to approximate the carrying value because we believe the current rate reasonably estimates the current market rate for our debt.

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

1 unchanged sentence

Total carrying amount of long-term debt

$ 22,315  

$ 26,620  

$ 36,787 $ 22,315

Estimated fair value of long-term debt

$ 21,668  

$ 27,708  

$ 36,403 $ 21,668

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value.

All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes ROU assets, property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment).

We estimated the fair value of the Seattle office ROU asset using discounted cash flows of the sublease based on management’s most recent projections, which are considered level 3 inputs in the fair value hierarchy and recorded an ROU asset impairment charge of $ 324,000 during 2021.

As of December 31, 2023 and 2022, there was no indication of impairment related to these assets.

As discussed above, we recognized an impairment of $ 714,000 for the then Canada reporting unit’s goodwill at December 31, 2020.

We estimated the fair value of the Canada reporting unit using discounted cash flows based on management’s most recent projections which are considered level 3 inputs in the fair value hierarchy.

Commitments and Contingencies

3 unchanged sentences

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

We are self-insured for group medical and dental insurance. 

 We carry excess loss coverage in the amount of $ 150,000 per covered person per year for group medical insurance.

We are self-insured for group medical and dental insurance.

We carry excess loss coverage in the amount of $ 150,000 per covered person per year for group medical insurance.

We do not self-insure for any other types of losses, and therefore do not carry any additional excess loss insurance.

In addition, we had aggregate claims loss coverage with a minimum aggregate deductible of $ 5.4 million, $ 4.7 million and $ 3.2 million, in 2023, 2022 and 2021, respectively.

We record a reserve for our group medical and dental insurance for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims. 

On a quarterly basis, we adjust our accrual based on a review of our claims experience and a third -party actuarial IBNR analysis. 

We record a reserve for our group medical and dental insurance for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims.

On a quarterly basis, we adjust our accrual based on a review of our claims experience and a third -party actuarial IBNR analysis.

As of December 31, 2023 and 2022, our accrual related to self-insurance was $ 449,000 and $ 424,000 , respectively.

7 unchanged sentences

Numerator for net income per share – basic:

$ 31,800  

$ 37,466  

$ 37,260  

$ 30,971 $ 31,800 $ 37,466

Allocation of distributed and undistributed income to unvested restricted stock shareholders

( 8 ) ( 16 ) ( 18 )

Net income attributable to common shareholders

$ 31,784  

$ 37,448  

$ 37,203  

$ 30,963 $ 31,784 $ 37,448

Denominator for net income per share – basic:

Weighted average common shares outstanding –

24,922  

25,422  

25,170  

Net income per share –

$ 1.28  

$ 1.47  

$ 1.48  

Weighted average common shares outstanding – basic

24,540 24,922 25,422

Net income per share – basic

$ 1.26 $ 1.28 $ 1.47

Numerator for net income per share – diluted:

Net income attributable to common shareholders for basic computation

$ 31,784  

$ 37,448  

$ 37,203  

$ 30,963 $ 31,784 $ 37,448

Denominator for net income per share – diluted:

Weighted average common s hares outstanding –

24,922  

25,422  

25,170  

Weighted average effect of dilutive securities –

stock options

Denominator for diluted earnings per share –

adjusted weighted average shares

25,052  

25,640  

25,696  

Net income per share –

$ 1.27  

$ 1.46  

$ 1.45  

Weighted average common s hares outstanding – basic

24,540 24,922 25,422

Weighted average effect of dilutive securities – stock options

Denominator for diluted earnings per share – adjusted weighted average shares

24,673 25,052 25,640

Net income per share – diluted

$ 1.25 $ 1.27 $ 1.46

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.

10 unchanged sentences

Total assets acquired

$ 5,234  

Current liabilities

Net assets acquired

$ 4,950  

The identifiable intangible assets are being amortized over their estimated useful lives of 5 years.

1 unchanged sentence

Goodwill related to the acquisition was primarily attributable to anticipated synergies and other intangibles that do not qualify for separate recognition.

The financial results associated with the PatientWisdom assets we acquired and liabilities we assumed are included in our consolidated financial statements from the date of acquisition, although the amounts are insignificant for 2022 and 2021.

Pro-forma information has not been presented because the amounts for 2021 are insignificant.

3 unchanged sentences

Subscription services recognized ratably over time

$ 141,981  

$ 137,008  

$ 122,499  

$ 140,172 $ 141,981 $ 137,008

Services recognized at a point in time

4,071 4,231 3,216

Fixed, non-subscription recognized over time

3,503 3,134 3,065

Unit price services recognized over time

834 2,222 4,665

Total revenue

$ 151,568  

$ 147,954  

$ 133,277  

$ 148,580 $ 151,568 $ 147,954

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

Accounts receivables

$ 14,461  

$ 13,728  

$ 12,378 $ 14,461

Contract assets included in other current assets

Deferred revenue

$ 15,198  

$ 17,213  

$ 14,834 $ 15,198

Significant changes in contract assets and contract liabilities during the years ended December 31, 2023 and 2022 are as follows (in thousands):

1 unchanged sentence

Revenue recognized that was included in deferred revenue at beginning of year due to completion of services

$ - $ ( 15,100 ) $ - $ ( 17,170 )

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

15,081  

16,694  

- 14,837 - 15,081

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

( 102 ) - ( 99 ) -

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

- ( 101 ) - 74

Increases due to revenue recognized in the period with additional performance obligations before invoicing

We have elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at December 31, 2022 approximated $ 1.6 million of which $ 972,000 , $ 621,000 , and $ 15,000 is expected to be recognized during 2023, 2024, and 2025, respectively.

Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at December 31, 2023 approximated $ 14.5 million of which $ 5.9 million, $ 4.7 million, 4.0 million and $ 12,000 is expected to be recognized during 2024 , 2025 , 2026 and 2027 , respectively.

Equity Investments

2 unchanged sentences

Investments are periodically analyzed to determine whether or not there are any indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment.

Our investment of $ 1.3 million in convertible preferred stock of PracticingExcellence.com, Inc., a privately-held Delaware corporation (“PX”) is included in non-current assets.

It is not practicable for us to estimate fair value at each reporting date due to the cost and complexity of the calculations for this non-public entity.

Therefore, it is carried at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if any.

We have a seat on PX's board of directors and our investment, which is not considered to be in-substance common stock, represents approximately 13.8 % of the issued and outstanding equity interests in PX.

We have a seat on PX’s board of directors and our investment, which is not considered to be in-substance common stock, represents approximately 16 % of the issued and outstanding equity interests in PX.

Property and Equipment

2 unchanged sentences

Furniture and equipment

$ 4,753  

$ 4,901  

$ 3,886 $ 4,753

Computer equipment

Computer software

29,876  

27,828  

12,561  

34,143 29,876

22,434 12,561

Property and equipment at cost

50,756  

45,599  

63,874 50,756

Less accumulated depreciation and amortization

33,508  

33,208  

35,669 33,508

Net property and equipment

$ 17,248  

$ 12,391  

$ 28,205 $ 17,248

Work in progress included in computer equipment, computer software and building at December 31, 2023 was $ 322,000 , $ 129,000 and $ 14.6 million, respectively.

Work in progress included in computer equipment, computer software and building at December 31, 2022 was $ 77,000 , $ 545,000 and $ 7.0 million, respectively.

Depreciation and amortization expense related to property and equipment, including assets under capital lease, for the years ended December 31, 2023, 2022, and 2021 was $ 5.8 million, $ 5.1 million and $ 5.7 million, respectively.

We capitalize interest expense on major construction and development projects while in progress.

Interest capitalized for 2022 was $ 216,000 .

We did not capitalize interest in 2021 or 2020.

Interest capitalized for 2023 and 2022 was $ 566,000 and $ 216,000 , respectively.

We did not capitalize interest in 2021.

There were no significant impairments in property and equipment during 2023, 2022, and 2021.

1 unchanged sentence

Goodwill and Intangible Assets

 Goodwill and intangible assets consisted of the following at December 31, 2022:

Goodwill and intangible assets consisted of the following at December 31, 2023:

(In thousands)

$ 62,328  

$ 61,614  

$ 62,328 $ ( 714 ) $ 61,614

(In thousands)

3 unchanged sentences

Customer related

5 - 15  

5 - 15 9,192 9,152 40

3 - 7 1,959 1,719 240

10 1,572 1,572 —

Total amortizing intangible assets

12,723  

12,303  

12,723 12,443 280

Total intangible assets other than goodwill

$ 13,914  

$ 12,303  

$ 1,611  

$ 13,914 $ 12,443 $ 1,471

Goodwill and intangible assets consisted of the following at December 31, 2022:

(In thousands)

$ 62,328  

$ 61,614  

$ 62,328 $ ( 714 ) $ 61,614

(In thousands)

3 unchanged sentences

Customer related

5 - 15  

5 - 15 9,192 9,132 60

3 - 7 1,959 1,599 360

10 1,572 1,572 —

Total amortizing intangible assets

12,976  

12,377  

12,723 12,303 420

Total intangible assets other than goodwill

$ 14,167  

$ 12,377  

$ 1,790  

The following represents a summary of changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 (in thousands):

Balance as of December 31, 2020

$ 57,255  

Goodwill acquired

Foreign currency translation

Balance as of December 31, 2021

$ 61,614  

There were no changes in goodwill during 2022 from the net carrying amount of $ 61,614 at December 31, 2021.

As discussed in Note 1, we recorded an impairment of $ 714,000 to the Canada reporting unit’s goodwill in December 2020.

$ 13,914 $ 12,303 $ 1,611

There were no changes in goodwill during the years ending December 2023, 2022 and 2021.

Aggregate amortization expense for customer related intangibles, trade names, and technology for the years ended December 31, 2023, 2022 and 2021 was $ 140,000 , $ 180,000 , and $ 320,000 , respectively.

3 unchanged sentences

(In thousands)

$ 43,156  

$ 48,145  

$ 41,357  

$ 40,031 $ 43,156 $ 48,145

Foreign Operations

( 69 ) ( 341 ) 476

Income before income taxes

$ 42,815  

$ 48,621  

$ 41,467  

$ 39,962 $ 42,815 $ 48,621

Income tax expense consisted of the following components:

(In thousands)

$ 9,988  

$ 9,092  

$ 3,546  

$ 8,561  

$ 8,868  

$ 3,238  

$ 2,846  

$ 2,197  

$ 2,544  

$ 2,161  

$ 11,015  

$ 11,155  

$ 4,207  

As a result of the Tax Cuts and Jobs Act (the “Tax Act”), we determined that we would no longer indefinitely reinvest the earnings of our Canadian subsidiary.

Our Canadian subsidiary declared a deemed dividend to the Company for $ 1.4 million and $ 9.6 million in 2022 and 2020, respectively.

$ 8,220 $ 9,988 $ 9,092

( 891 ) ( 1,427 ) ( 224 )

$ 7,329 $ 8,561 $ 8,868

$ ( 32 ) $ ( 90 ) $ 143

$ ( 18 ) $ ( 90 ) $ 126

$ 1,924 $ 2,846 $ 2,197

( 244 ) ( 302 ) ( 36 )

$ 1,680 $ 2,544 $ 2,161

$ 8,991 $ 11,015 $ 11,155

As a result of the Tax Cuts and Jobs Act (the “Tax Act”), we determined that we would no longer indefinitely reinvest the earnings of our Canadian subsidiary.

Our Canadian subsidiary declared a deemed dividend to the Company of $ 1.4 million in 2022.

Additionally, a withholding tax of 5 % was paid for the dividend distribution.

Due to the closure of the Canadian office, we also processed a return of capital from the Canadian subsidiary to the Company of $ 1.2 million.

We qualify for tax incentives through the Nebraska Advantage LB312 Act (“NAA”).

Due to the closure of the Canadian office, we also processed a return of capital from the Canadian subsidiary to the Company of $ 1.2 million in 2022.

We qualify for tax incentives through the Nebraska Advantage LB312 Act (“NAA”).

The NAA provides direct refunds of sales tax on qualified property, as well as investment credits and employment credits that can be claimed through credits of Nebraska income tax, employment tax, and sales tax on non-qualified property.

For the year ended December 31, 2022, 2021 and 2020, adjustments for credits reduced operating expenses by approximately $ 510,000 , $ 473,000 and $ 435,000 , respectively.

For the year ended December 31, 2023, 2022 and 2021, the amortization of credits reduced operating expenses by approximately $ 200,000 , $ 510,000 and $ 473,000 , respectively.

In addition, income tax credits of $ 2,000 , $ 36,000 and $ 10,000 were recorded as a reduction to income tax expense for the years ended December 31, 2023, 2022 and 2021, respectively.

Credits were lower in the 2023 year due to not meeting certain full time equivalent thresholds in Nebraska, causing certain credits to be recaptured and no additional credits to be earned.

The NAA credit earning years are now complete.

We have applied for the ImagiNE Act, the new economic development incentive program that replaces the NAA.

When we meet certain investment criteria we will have the ability to earn similar credits as with the NAA.

The differences between income taxes expected at the U.S.

2 unchanged sentences

Expected federal income taxes

$ 8,991  

$ 10,210  

$ 8,708  

$ 8,392 $ 8,991 $ 10,210

Foreign tax rate differential

( 24 )  

( 4 ) ( 24 ) 26

State income taxes, net of federal benefit and state tax credits

1,323 2,100 1,531

Share-based compensation

Compensation limit for covered employees

( 334 ) ( 120 ) ( 660 )

Federal tax credits

( 569 ) ( 408 ) ( 272 )

Uncertain tax positions

Reclassification of cumulative translation adjustment into earnings

Goodwill Impairment

Withholding tax on repatriation of foreign earnings

$ 11,015  

$ 11,155  

$ 4,207  

Non-deductible expenses

$ 8,991 $ 11,015 $ 11,155

Deferred tax assets and liabilities at December 31, 2023 and 2022, were comprised of the following:

5 unchanged sentences

Accrued bonuses

Employer payroll tax deferral

Uncertain tax positions

8 unchanged sentences

Intangible assets

Repatriation withholding

Deferred tax liabilities

Net deferred tax liabilities

$ ( 4,139 ) $ ( 5,260 )

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.

2 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.

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

We accrued excise taxes that increased the cost of treasury stock we acquired by $ 152,000 in 2023 due to the IRA.

The excise tax will be paid in early 2024.

We have no other financial impacts from the IRA.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

1 unchanged sentence

We consider projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences excluding the foreign tax credit carryforward.

In 2020, we wrote off the deferred tax asset for prior year foreign tax credit carryforwards of $ 535,000 and the related valuation allowance.

We made the assessment that due to our Canadian subsidiary’s decreased projected future income and the lower US tax rate compared to the Canadian tax rate, it was unlikely we would realize this asset.

The Tax Act amended Section 174 rules for the federal tax treatment of research or experimental (“R&E”) expenditures paid or incurred during the taxable year.

The new Section 174 rules require taxpayers to capitalize and amortize specified R&E expenditures over a period of five years (attributable to domestic research) or 15 years (attributable to foreign research), beginning with the midpoint of the taxable year in which the expenses are paid or incurred.

 Software development costs are expressly included in the definition of specified R&E expenditures after 2021.

 Due to this change in legislation the Company has deferred costs of $ 3.5 million for tax purposes, resulting in a deferred tax asset of $ 856,000 at December 31, 2022.

The Company also recorded a deferred tax asset of $ 52,000 related to software development costs included in the overall fixed asset deferred tax liability.

Software development costs are expressly included in the definition of specified R&E expenditures after 2021.

Due to this change in legislation we capitalized costs of $ 7.8 million and $ 7.1 million for tax purposes in 2023 and 2022, respectively, resulting in deferred tax assets of $ 2.9 million and $ 856,000 at December 31, 2023 and 2022, respectively.

We had an unrecognized tax benefit at December 31, 2023 and 2022, of $ 1.9 million and $ 1.6 million, respectively, excluding interest of $ 43,000 and $ 25,000 at December 31, 2023 and 2022, respectively.

Of these amounts, $ 1.3 million and $ 918,000 at December 31, 2022 and 2021, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate.

Of these amounts, $ 1.6 million and $ 1.3 million at December 31, 2023 and 2022, respectively, represents the net unrecognized tax benefits that, if recognized, would favorably impact the effective income tax rate.

The change in the unrecognized tax benefits for 2023 and 2022 was as follows:

6 unchanged sentences

Balance of unrecognized tax benefits at December 31, 2022

$ 1,075  

Reductions due to lapse of applicable statute of limitations

3 unchanged sentences

Balance of unrecognized tax benefits at December 31, 2023

$ 1,557  

We file income tax returns in the U.S.

7 unchanged sentences

(In thousands)

$ 22,315  

$ 26,620  

$ 17,787 $ 22,315

Delayed Draw Term Loan

current portion

( 7,214 ) ( 4,491 )

unamortized debt issuance costs

( 103 ) ( 134 )

Notes payable, net of current portion

$ 17,690  

$ 22,269  

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”).

$ 29,470 $ 17,690

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 then existing outstanding balance at September 30, 2022 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 Secured Overnight Financing Rate (“SOFR”) plus 235 basis points ( 6.10 % at December 31, 2022).

Interest on the Line of Credit accrues and is payable monthly.

The Term Loan is payable in monthly installments of $ 462,988 through May 2027 and bears interest at a fixed rate per annum of 5 %.

Borrowings under the Delayed Draw Term Loan and Line of Credit, if any, bear interest at a floating rate equal to the 30 -day Secured Overnight Financing Rate (“SOFR”) plus 235 basis points ( 7.68 % at December 31, 2023).

Interest on the Line of Credit and Delayed Draw Term Loan 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 December 31, 2022, the Line of Credit did not have a balance.

There were no borrowings on the Line of Credit during 2022.

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 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 Line of Credit did not have a balance at December 31, 2023 and we had the availability to borrow $ 30,000,000 .

The weighted average borrowings on the Line of Credit for year ended December 31, 2023 was $ 1.7 million.

There were no borrowings on the Line of Credit in the years ended December 31, 2022 or 2021.

The weighted average interest rate on borrowings on the Line of Credit during the year ended December 31, 2023 was 7.67 %.

The initial borrowing on the Delayed Draw Term Loan was in December 2023.

Principal payments are due in monthly installments of $ 226,190 through April 2027 and a balloon payment for the remaining balance of $ 10.2 million is due in May 2027.

We had the availability to borrow an additional $ 56.0 million on the Delayed Draw Term Loan at December 31, 2023.

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

The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our common stock and acquisitions, subject in each case to certain exceptions.

Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $ 5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand.

In June 2023, the Credit Agreement was amended to exclude our costs associated with our building renovation from or after January 1, 2023, from the fixed charge coverage ratio calculation.

Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $ 5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand, and (iv) up to $ 25 million of costs associated with our building renovation from or after January 1, 2023.

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.

1 unchanged sentence

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

Scheduled maturities of notes payable at December 31, 2022 are as follows:

$ 4,529  

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’ present and future assets (including, without limitation, fee-owned real property, and limited, in the case of the equity interests of foreign subsidiaries, to 65 % of the outstanding equity interests of such subsidiaries).

Scheduled maturities of notes payable at December 31, 2023 are as follows (in thousands):

Share-Based Compensation

We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards.

All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur.

Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of our Common Stock.

All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards.

We account for forfeitures as they occur.

The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ.

On the date of each annual meeting of shareholders, options to purchase shares of common stock equal to an aggregate grant date fair value of $ 100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting.

Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service.

At December 31, 2023, there were 670,932 shares of common stock available for issuance pursuant to future grants under the 2004 Director Plan.

We have accounted for grants of 2,329,068 shares of common stock under the 2004 Director Plan using the date of grant as the measurement date for financial accounting purposes.

Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of Common Stock.

Stock options granted may be either incentive stock options or nonqualified stock options.

7 unchanged sentences

Expected dividend yield at date of grant

2.13 % 3.39 % 2.15 %

Expected stock price volatility

35.12 % 35.52 % 34.85 %

Risk-free interest rate

3.61 % 2.33 % 0.91 %

Expected life of options (in years)

6.85 6.29 7.01

The risk-free interest rate assumptions were based on the U.S.

3 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 2006 Equity Incentive Plan and the 2004 Director Plan for the year ended December 

The following table summarizes stock option activity under 2006 Equity Incentive Plan and the 2004 Director Plan for the year ended December 31, 2023:

Outstanding at December 31, 2022

477,640  

$ 30.88  

127,227  

$ 36.67  

23,581  

$ 13.17  

581,286 $ 32.86

96,359 $ 40.55

87,378 $ 20.89

21,099 $ 40.52

Outstanding at December 31, 2023

581,286  

$ 32.86  

$ 4,739  

569,168 $ 35.72 5.75 $ 3,971

Exercisable at December 31, 2023

323,140  

$ 26.97  

$ 4,369  

346,032 $ 30.73 4.55 $ 3,894

The following table summarizes information related to stock options for the years ended December 31, 2023, 2022 and 2021:

Weighted average grant date fair value of stock options granted

$ 9.43  

$ 12.55  

$ 18.67  

$ 9.16 $ 9.43 $ 12.55

Intrinsic value of stock options exercised (in thousands)

$ 3,535  

$ 25,912  

$ 2,037 $ 648 $ 3,535

Intrinsic value of stock options vested (in thousands)

$ 4,369  

$ 4,805  

$ 1,965  

$ 3,894 $ 4,369 $ 4,805

As of December 31, 2023, the total unrecognized compensation cost related to non-vested stock option awards was approximately $ 1.2 million which was expected to be recognized over a weighted average period of 2.76 years.

There was $ 446,000 and $ 1.7 million in cash received from stock options exercised for the years ended December 31, 2021 and 2020, respectively.

There was $ 584,000 and $ 446,000 in cash received from stock options exercised for the years ended December 31, 2023 and 2021, respectively.

No cash was received for stock options exercised for the year ended December 31, 2022.

We recognized $ 997,000 , $ 1.1 million, and $ 607,000 of non-cash compensation for the years ended December 31, 2023, 2022, and 2021, respectively, related to options, which is included in direct and selling, general and administrative expenses.

The actual tax benefit realized for the tax deduction from stock options exercised was $ 160,000 , $ 862,000 , and $ 6.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The actual tax benefit realized for the tax deduction from stock options exercised was $ 498,000 , $ 160,000 , and $ 862,000 for the years ended December 31, 2023, 2022, and 2021, respectively.

During 2021 we granted 12,698 non-vested shares of common stock under the 2006 Equity Incentive Plan.

No shares of non-vested Common Stock were granted during the years ended December 31, 2022 or 2020.

No shares of non-vested common stock were granted during the years ended December 31, 2023 or 2022 and 6,640 shares were forfeited during the year ended December 31, 2023.

As of December 31, 2023, we had 6,058 non-vested shares of common stock outstanding under the 2006 Equity Incentive Plan.

1 unchanged sentence

The fair value of the awards is calculated as the fair market value of the shares on the date of grant.

We recognized $ 109,000 , $ 17,000 , and $ 23,000 of non-cash compensation for the years ended December 31, 2022, 2021, and 2020, respectively, related to this non-vested stock, which is included in direct and selling, general and administrative expenses.

The actual tax benefit realized for the tax deduction from vesting of restricted stock was $ 235,000 for the year ended December 31, 2020.

We recognized a $ 62,000 benefit, $ 109,000 expense, and $ 17,000 expense of non-cash compensation for the years ended December 31, 2023, 2022, and 2021, respectively, related to this non-vested stock, which is included in direct and selling, general and administrative expenses.

No restricted stock vested during the years end December 31, 2023, 2022 and 2021.

The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plans for the year ended December 

The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plans for the year ended December 31, 2023:

Average Grant

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Outstanding at December 31, 2022

12,698  

$ 42.92  

12,698 $ 42.92

6,640 $ 42.92

Outstanding at December 31, 2023

12,698  

$ 42.92  

6,058 $ 42.92

As of December 31, 2023, the total unrecognized compensation cost related to non-vested stock awards was approximately $ 104,000 and is expected to be recognized over a weighted average period of 2.00 years.

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Operating leases

$ 503 $ 527 $ 669

Finance leases:

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Sublease income

( 125 ) ( 123 ) ( 81 )

Total net lease cost

$ 1,067  

$ 1,269  

$ 1,096  

In 2020, we adjusted the useful life of the operating right of use assets associated with our Atlanta, Georgia and Markham, Ontario office leases based on the expectation that we will vacate the office space before the end of the lease term.

$ 820 $ 1,067 $ 1,269

Supplemental balance sheet information related to leases (in thousands):

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Operating ROU assets

$ 2,060 $ 556

Current operating lease liabilities

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Total operating lease liabilities

$ 1,313  

$ 2,231 $ 855

Finance leases:

Furniture and equipment

$ 1,042  

$ 179 $ 1,042

Computer Equipment

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Operating leases

5.05 % 3.97 %

Finance leases

5.78 % 3.54 %

Supplemental cash flow and other information related to leases were as follows (in thousands):

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Operating cash flows from operating leases

$ 684 $ 563 $ 680

Operating cash flows from finance leases

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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 year ended December 31, 2022. 

The total value of these purchases was $ 196,000 in the year ended December 31, 2022.

A director who began serving on our board in May 2021, also served until her retirement at the end of 2021  as chief executive officer of Allina Health, a not -for-profit healthcare system.

A director who began serving on our board in May 2021, also served until her retirement at the end of 2021 as chief executive officer of Allina Health, a not -for-profit healthcare system.

In connection with its routine business operations, Allina Health purchases certain of our products and services.

Total revenue we earned from Allina Health in the year ended December 31, 2021 approximated $ 1.7 million.

A director, who served on our board through October 2021, also served as an officer and director of Ameritas Life Insurance Corp.

(“Ameritas”) until January 2020 and continued to serve on the board of directors of Ameritas until October 2021.

In connection with our regular assessment of our insurance-based associate benefits, which is conducted by an independent insurance broker, and the costs associated therewith, we purchase dental and vision insurance for certain of our associates from Ameritas.

The total value of these purchases was $ 278,000 and $ 248,000 in 2021 and 2020 respectively.

A director, who served on our board through May 2020, also served as a board member of IMA Financial Group.

In connection with our regular assessment of our liability coverage, during 2020 we began purchasing directors and officers and employment practices liability insurance through IMA Financial Group.

Total payments for these services totaled $ 1.1 million in 2020.

During 2017, we acquired a cost method investment in convertible preferred stock of Practicing Excellence.com, Inc., a privately-held Delaware Corporation (“PX”), which is included in other non-current assets and is carried at cost, adjusted for changes resulting from observable price changes in orderly transactions of the same investment in PX, if any. 

We also have an agreement with PX which commenced in 2016 under which we act as a reseller of PX services and PX receives a portion of the revenues.

The total revenue earned from the PX reseller agreement in the years ended December 31, 2021 and 2020 was $ 35,000 , and $ 294,000 , respectively.

We no longer earn revenue under this agreement after June 30, 2021 due to termination of the reseller agreement.

Associate Benefits

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Under the 401 (k) plan, we match 25 % of the first 6 % of compensation contributed by each associate.

Employer contributions, which are discretionary, vest to participants at a rate of 20 % per year.

The Employer contributions, which are discretionary, vest to participants at a rate of 20 % per year.

We contributed $ 561,000 , $ 588,000 , and $ 531,000 , in 2023, 2022, and 2021, respectively, as a matching percentage of associate 401 (k) contributions.

Segment Information

Our Canada office was closed in 2022.

In March 2021, we changed our operating segments from six to one to reflect a change in the way we operated and managed our business, including changes to our corporate reporting structure to our Chief Executive Officer and chief operating decision maker.

We closed the Canada office in 2022.

As a result, no Canadian revenue is expected to be generated after 2022.

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United States

$ 150,775  

$ 144,987  

$ 130,305  

$ 151,568  

$ 147,954  

$ 133,277  

$ 148,580 $ 150,775 $ 144,987

$ 148,580 $ 151,568 $ 147,954

Long-lived assets:

United States

$ 86,718  

$ 83,722  

$ 77,448  

$ 86,745  

$ 83,833  

$ 79,311  

$ 98,077 $ 86,718 $ 83,722

$ 98,077 $ 86,745 $ 83,833

Total assets:

United States

$ 130,151  

$ 153,879  

$ 128,319  

$ 130,461  

$ 157,540  

$ 133,423  

$ 122,232 $ 130,151 $ 153,879

205 310 3,661

$ 122,437 $ 130,461 $ 157,540

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data