The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, 2020. This unaudited information has been prepared on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with our audited consolidated financial statements and the notes thereto.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
|
Summary of Significant Accounting Policies
|
Description of Business and Basis of Presentation
National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States and Canada. Our purpose is to establish human understanding. Our solutions enable health care organizations to understand what matters most to each person they serve. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients. The solutions are offered at an enterprise level through the Voice of the Customer ("VoC") platform, The Governance Institute, and legacy Experience solutions.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Translation of Foreign Currencies
Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers and all related amendments (“ASC 606” or “new revenue standard”) using the modified retrospective method for all incomplete contracts as of the date of adoption. We applied the practical expedient to reflect the total of all contract modifications occurring before January 1, 2018 in the transaction price and performance obligations at transition rather than accounting for each modification separately. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. As discussed in more detail below and under “Deferred Contract Costs”, the largest impact of implementing the new revenue standard was the deferral and amortization of direct and incremental costs of obtaining contracts. In addition, there were other revisions to revenue recognition primarily related to performance obligation determinations and estimating variable consideration. We recorded a transition adjustment of approximately $2.7 million, net of $814,000 of tax, to the opening balance of retained earnings.
We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or no notice without penalty. See Note 3 for further information about our contracts with customers. We account for revenue using the following steps:
|
●
|
Identify the contract, or contracts, with a customer;
|
|
●
|
Identify the performance obligations in the contract;
|
|
●
|
Determine the transaction price;
|
|
●
|
Allocate the transaction price to the identified performance obligations; and
|
|
●
|
Recognize revenue when, or as, we satisfy the performance obligations.
|
34
Our revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time, or within close proximity of one another. We combine contracts with the same client into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together, consideration in one contract depends on another contract, or services in one or more contracts are a single performance obligation. For contracts that contain more than one separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable clients, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.
Our arrangements with customers consist principally of four different types of arrangements: 1) subscription-based service agreements; 2) one-time specified services performed at a single point in time; 3) fixed, non-subscription service agreements; and 4) unit-priced service agreements.
Subscription-based services - Services that are provided under subscription-based service agreements are usually for a twelve month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the client. These agreements are renewable at the option of the client at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the client as the client receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed annually in advance but may also be billed on a quarterly and monthly basis.
One-time services – These agreements typically require us to perform a specific one-time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the client.
Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch up adjustment which could impact the amount and timing of revenue for any period.
Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the client for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.
Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.
35
Deferred Contract Costs
Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable client contract. In 2020, we began providing information technology development work for certain clients specific to their implementation, which are capitalized as deferred contract costs. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors such as historical client attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract. An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services. We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of one year or less. Prior to 2018, all commissions and incentives were expensed as incurred. We recorded a transition adjustment on January 1, 2018 as an increase to retained earnings of $2.6 million, net of $776,000 of tax, to reflect $3.4 million of commissions and incentives related to contracts that began prior to 2018, net of accumulated amortization. We deferred incremental costs of obtaining a contract of $3.7 million, $3.6 million and $2.6 million in the years ended December 31, 2020, 2019 and 2018, respectively. Deferred contract costs, net of accumulated amortization was $4.6 million and $4.2 million at December 31, 2020 and 2019, respectively. Total amortization by expense classification for the years ended December 31, 2020, 2019 and 2018 was as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Direct expenses
|
|
$
|
272
|
|
|
$
|
34
|
|
|
$
|
83
|
|
Selling, general and administrative expenses
|
|
$
|
2,970
|
|
|
$
|
2,874
|
|
|
$
|
2,400
|
|
Total amortization
|
|
$
|
3,242
|
|
|
$
|
2,908
|
|
|
$
|
2,483
|
|
Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $63,000, $22,000 and $51,000 for the years December 31, 2020, 2019 and 2018, respectively.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount. Effective January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU requires the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The adoption of this standard did not have an impact on our consolidated financial statements. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The COVID-19 pandemic has resulted in an increase in accounts receivables as some clients have delayed payments or are slower paying due to such clients’ cash-flow issues.
The following table provides the activity in the allowance for doubtful accounts for the years ended December 31, 2020, 2019 and 2018 (in thousands):
|
|
Balance at
Beginning
of Year
|
|
|
Bad Debt
Expense
|
|
|
Write-offs,
net of
Recoveries
|
|
|
Balance
at End
of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
$
|
200
|
|
|
$
|
80
|
|
|
$
|
105
|
|
|
$
|
175
|
|
Year Ended December 31, 2019
|
|
$
|
175
|
|
|
$
|
75
|
|
|
$
|
106
|
|
|
$
|
144
|
|
Year Ended December 31, 2020
|
|
$
|
144
|
|
|
$
|
46
|
|
|
$
|
70
|
|
|
$
|
120
|
|
36
Property and Equipment
Property and equipment is stated at cost. Major expenditures to purchase property or to substantially increase useful lives of property are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income.
We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-related costs for employees who are directly associated with the internal-use software projects and external direct costs of materials and services. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and training costs are expensed as incurred. We capitalized approximately $2.7 million and $4.1 million of costs incurred for the development of internal-use software for the years ended December 31, 2020 and 2019, respectively.
When a software license is included in a cloud computing arrangement and we have the legal right, ability and feasibility to download the software, it is accounted for as software, included in property and equipment, and amortized. If a software license is not included or we do not have the ability or feasibility to download software included in a cloud computing arrangement, it is accounted for as a service contract, which is expensed to direct expenses or selling, general and administrative expenses during the service period. Effective January 1, 2020, we prospectively adopted ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The adoption did not significantly impact our results of operations and financial position.
We provide for depreciation and amortization of property and equipment using annual rates which are sufficient to amortize the cost of depreciable assets over their estimated useful lives. We use the straight-line method of depreciation and amortization over estimated useful lives of three to ten years for furniture and equipment, three to five years for computer equipment, one to five years for capitalized software, and seven to forty years for our office building and related improvements. Software licenses are amortized over the term of the license.
Impairment of Long-Lived Assets and Amortizing Intangible Assets
Long-lived assets, such as property and equipment and purchased intangible assets subject to depreciation or amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No significant impairments were recorded during the years ended December 31, 2020, 2019, or 2018.
Among others, management believes the following circumstances are important indicators of potential impairment of such assets and as a result may trigger an impairment review:
|
●
|
Significant underperformance in comparison to historical or projected operating results;
|
|
●
|
Significant changes in the manner or use of acquired assets or our overall strategy;
|
|
●
|
Significant negative trends in our industry or the overall economy;
|
|
●
|
A significant decline in the market price for our common stock for a sustained period; and
|
|
●
|
Our market capitalization falling below the book value of our net assets.
|
Goodwill and Intangible Assets
Intangible assets include customer relationships, trade names, technology, and goodwill. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. We review intangible assets with indefinite lives for impairment annually as of October 1 and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
When performing the impairment assessment, we will first assess qualitative factors to determine whether it is necessary to recalculate the fair value of the intangible assets with indefinite lives. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of the indefinite-lived intangibles is less than their carrying amount, we calculate the fair value using a market or income approach. If the carrying value of intangible assets with indefinite lives exceeds their fair value, then the intangible assets are written-down to their fair values. We did not recognize any impairments related to indefinite-lived intangibles during 2020, 2019 or 2018.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. All of our goodwill is allocated to our reporting units, which are the same as our operating segments. Goodwill is reviewed for impairment at least annually, as of October 1, and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
We review goodwill for impairment by first assessing qualitative factors to determine whether any impairment may exist. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative analysis will be performed, and the fair value of the reporting unit is compared with its carrying value (including goodwill). If the carrying value of the reporting unit exceeds the fair value, then goodwill is written down by this difference. We performed a qualitative analysis as of October 1, 2020 and determined the fair value of each reporting unit likely exceeded the carrying value. No impairments were recorded during the years ended December 31, 2019 or 2018. A substantial portion of the revenue earned by our Canadian subsidiary is concentrated with one customer. While the customer has exercised its option to extend its existing contract to September 2022, during December 2020 we chose not to enter into a new contract with this customer or otherwise extend the term of the contract beyond September 2022. We subsequently announced that we would close the Canada office at the end of the contract. As a result, we tested for impairment of the Canada reporting unit’s goodwill at December 31, 2020. We recognized an impairment of $714,000 for the excess of the Canada reporting unit’s carrying value over the fair value, using discounted cash flows. The remaining balance of goodwill of our Canada reporting unit at December 31, 2020 was $1.6 million. Changes in the actual amount or timing of cash flows or other assumptions used to discount cash flows to estimate fair value of the Canada reporting unit could result in additional impairment.
Insurance Recoveries
We record insurance recoveries when the realization of the claim is probable. In 2020 we received $3.3 million in insurance recoveries, and $447,000 was paid directly to certain vendors from the insurer related to a cyber-attack in February 2020 (the “February incident”). We recorded $533,000, representing reimbursement for lost revenues, as insurance recoveries, and the remainder as a reduction to operating expenses. Due to insurance recoveries, the February incident did not have a significant impact on our consolidated financial statements. In 2020, we also recorded a gain in other income of $260,000 from insurance recoveries for property damage due to a flooding.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under that method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. We use the deferral method of accounting for our investment tax credits related to state tax incentives. During the years ended December 31, 2020, 2019 and 2018, we recorded income tax benefits relating to these tax credits of $45,000, $24,000, and $0, respectively. Interest and penalties related to income taxes are included in income taxes in the Consolidated Statements of Income.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
38
Share-Based Compensation
All of our existing stock option awards and non-vested stock awards have been determined to be equity-classified awards. The compensation expense on share-based payments is recognized based on the grant-date fair value of those awards. We recognize the excess tax benefits and tax deficiencies in the income statement when options are exercised. Amounts recognized in the financial statements with respect to these plans are as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Amounts charged against income, before income tax benefit
|
|
$
|
680
|
|
|
$
|
1,224
|
|
|
$
|
1,514
|
|
Amount of related income tax benefit
|
|
|
(6,764
|
)
|
|
|
(2,081
|
)
|
|
|
(3,566
|
)
|
Net (benefit) expense to net income
|
|
$
|
(6,084
|
)
|
|
$
|
(857
|
)
|
|
$
|
(2,052
|
)
|
We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents were $5.0 million and $3.7 million as of December 31, 2020, and 2019, respectively, consisting primarily of money market accounts. At certain times, cash equivalent balances may exceed federally insured limits.
Leases
We adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“Topic 842” or the “New Leases Standard”) effective January 1, 2019 using a modified retrospective transition and did not adjust prior periods. We elected practical expedients related to existing leases at transition to not reassess whether contracts are or contain leases, to not reassess lease classification, initial direct costs, or lease terms. Additionally, 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.
Topic 842 requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating leases. We recorded $2.3 million of ROU assets and $2.3 million of lease liabilities related to operating leases at the date of transition. The ROU assets recorded were net of $43,000 of accrued liabilities and prepaid expenses representing previously deferred (prepaid) rent. There was no significant impact to the consolidated statements of income, comprehensive income, shareholders’ equity or cash flows. Accounting for finance leases is substantially unchanged.
We determine whether a lease is included in an agreement at inception. Operating lease ROU assets are included in operating lease right-of-use assets in our consolidated balance sheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long-term liabilities. Certain lease arrangements may include options to extend or terminate the lease. We include these provisions in the ROU asset and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do not contain any residual value guarantees.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the rate of interest implicit in each lease is not readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.
Fair Value Measurements
Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; (3) Level 3 Inputs—unobservable inputs.
The following details our financial assets within the fair value hierarchy at December 31, 2020 and 2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
5,015
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
5,015
|
|
Total Cash Equivalents
|
|
$
|
5,015
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
5,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
$
|
3,662
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
3,662
|
|
Total Cash Equivalents
|
|
$
|
3,662
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
3,662
|
|
There were no transfers between levels during the years ended December 31, 2020 and 2019.
Our long-term debt described in Note 8 is recorded at historical cost. The fair value of long-term debt is classified in Level 2 of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit.
The following are the carrying amount and estimated fair values of long-term debt:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
(In thousands)
|
|
Total carrying amount of long-term debt
|
|
$
|
30,713
|
|
|
$
|
34,281
|
|
Estimated fair value of long-term debt
|
|
$
|
32,943
|
|
|
$
|
35,205
|
|
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 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). As of December 31, 2020 and 2019, there was no indication of impairment related to these assets, other than for the Canada reporting unit’s goodwill as discussed above. We estimated the fair value of the Canada reporting unit using discounted cash flows based on management’s most recent projections which are considered level 3 inputs in the fair value hierarchy.
Commitments and Contingencies
From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. We do not believe the final disposition of claims at December 31, 2020 will have material adverse effect on our consolidated financial position, results of operations or liquidity.
A sales tax accrual of $775,000 was recorded in 2019 for sales taxes that should have been collected from clients in 2019 and certain previous years. We received a revenue ruling from the state of Washington noting that our services are not subject to retail sales tax, and therefore, reversed $268,000 of sales tax accrual for the state of Washington in the third quarter of 2020. We have completed voluntary disclosure agreements with certain states, remitted past due sales tax, are remitting sales tax timely, are collecting sales tax from clients and no accrual for past due sales tax remains as of December 31, 2020. State and local jurisdictions have differing rules and regulations governing sales, use, and other taxes and these rules and regulations can be complex and subject to varying interpretations that may change over time. As a result, we could face the possibility of tax assessment and audits, and our liability for these taxes and associated interest and penalties could exceed our original estimates.
We became self-insured for group medical and dental insurance on January 1, 2019. We carry excess loss coverage in the amount of $150,000 per covered person per year for group medical insurance. We do not self-insure for any other types of losses, and therefore do not carry any additional excess loss insurance. 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, 2020 and 2019, our accrual related to self-insurance was $418,000 and $270,000, respectively.
Earnings Per Share
Prior to the Recapitalization, net income per share of our former class A common stock and former class B common stock was computed using the two-class method. Basic net income per share was computed by allocating undistributed earnings to common shares and using the weighted-average number of common shares outstanding during the period.
Diluted net income per share was computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.
The liquidation rights and the rights upon the consummation of an extraordinary transaction were the same for the holders of our former class A common stock and former class B common stock. Other than share distributions and liquidation rights, the amount of any dividend or other distribution payable on each share of former class A common stock was equal to one-sixth (1/6th) of the amount of any such dividend or other distribution payable on each share of former class B common stock. As a result, the undistributed earnings for each period were allocated based on the participation rights of the former class A and former class B common stock under our then-effective Articles of Incorporation as if the earnings for the year had been distributed.
As described in Note 2, we completed a Recapitalization in April 2018, resulting in the elimination of the class B common stock and settlement of all then-existing outstanding class B share-based awards and reclassification of all class A common stock to Common Stock. The Recapitalization was effective on April 17, 2018. Therefore, income was allocated between the former class A and class B stock using the two-class method through April 16, 2018, and fully allocated to the Common Stock (formerly class A) following the Recapitalization.
We had 65,127, 16,221 and 93,346 options of Common Stock (former class A shares) for the years ended December 31, 2020, 2019 and 2018, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
(formerly
Class A)
|
|
|
Class B
Common
Stock
|
|
|
|
(In thousands, except per share data)
|
|
Numerator for net income per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,260
|
|
|
$
|
32,406
|
|
|
$
|
25,423
|
|
|
$
|
4,624
|
|
Allocation of distributed and undistributed income to unvested restricted stock shareholders
|
|
|
(57
|
)
|
|
|
(109
|
)
|
|
|
(82
|
)
|
|
|
(18
|
)
|
Net income attributable to common shareholders
|
|
$
|
37,203
|
|
|
$
|
32,297
|
|
|
$
|
25,341
|
|
|
$
|
4,606
|
|
Denominator for net income per share - basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
25,170
|
|
|
|
24,809
|
|
|
|
23,562
|
|
|
|
3,527
|
|
Net income per share - basic
|
|
$
|
1.48
|
|
|
$
|
1.30
|
|
|
$
|
1.08
|
|
|
$
|
1.31
|
|
Numerator for net income per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders for basic computation
|
|
$
|
37,203
|
|
|
$
|
32,297
|
|
|
$
|
25,341
|
|
|
$
|
4,606
|
|
Denominator for net income per share - diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
25,170
|
|
|
|
24,809
|
|
|
|
23,562
|
|
|
|
3,527
|
|
Weighted average effect of dilutive securities – stock options
|
|
|
526
|
|
|
|
844
|
|
|
|
886
|
|
|
|
101
|
|
Denominator for diluted earnings per share – adjusted weighted average shares
|
|
|
25,696
|
|
|
|
25,653
|
|
|
|
24,448
|
|
|
|
3,628
|
|
Net income per share - diluted
|
|
$
|
1.45
|
|
|
$
|
1.26
|
|
|
$
|
1.04
|
|
|
$
|
1.27
|
|
41
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued 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 guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. We believe the adoption will not significantly impact our results of operations and financial position.
In March 2020, FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We expect to apply the optional expedient for contract modification to account for the change in the reference rate on impacted credit facilities prospectively by adjusting the effective interest rate.
On April 16, 2018, our shareholders approved, among other things, an amendment to our Amended and Restated Articles of Incorporation (the “Articles”) to effect a recapitalization (the “Recapitalization”) pursuant to which each share of our then-existing class B common stock was exchanged for one share of the our then-existing Class A common stock plus $19.59 in cash, without interest. On April 17, 2018, we filed an amendment to our Articles effecting the Recapitalization, followed by an amendment and restatement of our Articles, which resulted in the elimination of our class B common stock and the reclassification of our class A common stock as a share of Common Stock, par value $0.001 per share (“Common Stock”). We issued 3,617,615 shares of Common Stock and paid $72.4 million in exchange for all class B shares outstanding and to settle outstanding share-based awards for class B common stock. The Common Stock continues to trade on the NASDAQ Global Market under the revised symbol “NRC.”
In connection with the Recapitalization, on April 18, 2018, we entered into a credit agreement with First National Bank of Omaha, a national banking association (“FNB”), as described in Note 8.
(3)
|
Contracts with Customers
|
The following table disaggregates revenue for the years ended December 31, 2020 and 2019 based on timing of revenue recognition (In thousands):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Subscription services recognized ratably over time
|
|
$
|
122,499
|
|
|
$
|
114,216
|
|
|
$
|
104,777
|
|
Services recognized at a point in time
|
|
|
2,932
|
|
|
|
4,992
|
|
|
|
4,775
|
|
Fixed, non-subscription recognized over time
|
|
|
2,907
|
|
|
|
3,248
|
|
|
|
3,163
|
|
Unit price services recognized over time
|
|
|
4,939
|
|
|
|
5,526
|
|
|
|
6,971
|
|
Total revenue
|
|
$
|
133,277
|
|
|
$
|
127,982
|
|
|
$
|
119,686
|
|
Our solutions within the digital VoC platform in 2020, 2019 and 2018 accounted for 73.3%, 62.7% and 49.6% of total revenue, respectively. The remaining revenue consists of legacy Experience and Governance Solutions.
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (In thousands):
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Accounts receivables
|
|
$
|
13,923
|
|
|
$
|
11,639
|
|
Contract assets included in other current assets
|
|
$
|
311
|
|
|
$
|
103
|
|
Deferred revenue
|
|
$
|
(15,585
|
)
|
|
$
|
(16,354
|
)
|
42
Significant changes in contract assets and contract liabilities during the years ended December 31, 2020 and 2019 are as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
Contract
Asset
|
|
|
Deferred
Revenue
|
|
|
Contract
Asset
|
|
|
Deferred
Revenue
|
|
|
|
Increase (Decrease)
|
|
Revenue recognized that was included in deferred revenue at beginning of year due to completion of services
|
|
$
|
-
|
|
|
$
|
(16,083
|
)
|
|
$
|
-
|
|
|
$
|
(15,785
|
)
|
Increases due to invoicing of client, net of amounts recognized as revenue
|
|
|
-
|
|
|
|
15,338
|
|
|
|
-
|
|
|
|
15,631
|
|
Decreases due to completion of services (or portion of services) and transferred to accounts receivable
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
-
|
|
Change due to cumulative catch-up adjustments arising from changes in expected contract consideration
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
264
|
|
Increases due to revenue recognized in the period with additional performance obligations before invoicing
|
|
|
311
|
|
|
|
-
|
|
|
|
103
|
|
|
|
-
|
|
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, 2020 approximated $205,000, which is expected to be recognized during 2021.
We make equity investments to promote business and strategic objectives. For investments that do not have a readily determinable fair value, we apply either cost or equity method of accounting depending on the nature of our investment and our ability to exercise significant influence. Investments are periodically analyzed to determine whether or not there are any indicators of impairment and written down to fair value if the investment has incurred an other than temporary impairment. Our investment of $1.3 million in convertible preferred stock of PracticingExcellence.com, Inc., a privately-held Delaware corporation (“PX”) is included in non-current assets. It is not practicable for us to estimate fair value at each reporting date due to the cost and complexity of the calculations for this non-public entity. Therefore, it is carried at cost less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, if any. We have a seat on PX's board of directors and our investment, which is not considered to be in-substance common stock, represents approximately 15.7% of the issued and outstanding equity interests in PX.
(5)
|
Property and Equipment
|
At December 31, 2020, and 2019, property and equipment consisted of the following:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Furniture and equipment
|
|
$
|
4,808
|
|
|
$
|
5,025
|
|
Computer equipment
|
|
|
2,638
|
|
|
|
2,706
|
|
Computer software
|
|
|
27,087
|
|
|
|
24,532
|
|
Building
|
|
|
7,515
|
|
|
|
9,349
|
|
Leaseholds
|
|
|
232
|
|
|
|
41
|
|
Land
|
|
|
425
|
|
|
|
425
|
|
Property and equipment at cost
|
|
|
42,705
|
|
|
|
42,078
|
|
Less accumulated depreciation and amortization
|
|
|
30,979
|
|
|
|
28,548
|
|
Net property and equipment
|
|
$
|
11,726
|
|
|
$
|
13,530
|
|
Depreciation and amortization expense related to property and equipment, including assets under capital lease, for the years ended December 31, 2020, 2019, and 2018 was $6.5 million, $5.4 million, and $4.8 million, respectively. There were no significant impairments in property and equipment during 2020, 2019, and 2018. However, we did shorten the useful lives of certain assets to reflect our best estimate of when assets are expected to be disposed of or replaced.
(6)
|
Goodwill and Intangible Assets
|
Goodwill and intangible assets consisted of the following at December 31, 2020:
|
|
Gross
|
|
|
Accumulated
Impairment
|
|
|
Net
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
$
|
57,969
|
|
|
$
|
(714
|
)
|
|
$
|
57,255
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
(In years)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite trade name
|
|
|
|
|
|
|
|
1,191
|
|
|
|
|
|
|
|
1,191
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related
|
|
5
|
-
|
15
|
|
|
|
9,344
|
|
|
|
9,256
|
|
|
|
88
|
|
Technology
|
|
|
7
|
|
|
|
|
1,360
|
|
|
|
1,229
|
|
|
|
131
|
|
Trade names
|
|
5
|
-
|
10
|
|
|
|
1,572
|
|
|
|
1,572
|
|
|
|
--
|
|
Total amortizing intangible assets
|
|
|
|
|
|
|
|
12,276
|
|
|
|
12,057
|
|
|
|
219
|
|
Total intangible assets other than goodwill
|
|
|
|
|
|
|
$
|
13,467
|
|
|
$
|
12,057
|
|
|
$
|
1,410
|
|
Goodwill and intangible assets consisted of the following at December 31, 2019:
|
|
Gross
|
|
|
Accumulated
Impairment
|
|
|
Net
|
|
|
|
(In thousands)
|
|
Goodwill
|
|
$
|
57,935
|
|
|
$
|
-
|
|
|
$
|
57,935
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
(In years)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite trade name
|
|
|
|
|
|
|
|
1,191
|
|
|
|
|
|
|
|
1,191
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related
|
|
5
|
-
|
15
|
|
|
|
9,338
|
|
|
|
9,154
|
|
|
|
184
|
|
Technology
|
|
|
7
|
|
|
|
|
1,360
|
|
|
|
1,007
|
|
|
|
353
|
|
Trade names
|
|
5
|
-
|
10
|
|
|
|
1,572
|
|
|
|
1,572
|
|
|
|
--
|
|
Total amortizing intangible assets
|
|
|
|
|
|
|
|
12,270
|
|
|
|
11,733
|
|
|
|
537
|
|
Total intangible assets other than goodwill
|
|
|
|
|
|
|
$
|
13,461
|
|
|
$
|
11,733
|
|
|
$
|
1,728
|
|
The following represents a summary of changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 (in thousands):
Balance as of December 31, 2018
|
|
$
|
57,831
|
|
Foreign currency translation
|
|
|
104
|
|
Balance as of December 31, 2019
|
|
$
|
57,935
|
|
Impairment
|
|
|
(714
|
)
|
Foreign currency translation
|
|
|
34
|
|
Balance as of December 31, 2020
|
|
$
|
57,255
|
|
As discussed in Note 1, we recorded an impairment of $714,000 to the Canada reporting unit’s goodwill in December 2020.
Aggregate amortization expense for customer related intangibles, trade names, and technology for the years ended December 31, 2020, 2019 and 2018 was $318,000, $374,000, and $662,000, respectively. Estimated future amortization expense for 2021, 2022 and 2023 is $180,000, $40,000, and -0-, respectively.
44
For the years ended December 31, 2020, 2019, and 2018, income before income taxes consists of the following:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
U.S. Operations
|
|
$
|
41,357
|
|
|
$
|
40,045
|
|
|
$
|
32,056
|
|
Foreign Operations
|
|
|
110
|
|
|
|
474
|
|
|
|
2,653
|
|
Income before income taxes
|
|
$
|
41,467
|
|
|
$
|
40,519
|
|
|
$
|
34,709
|
|
Income tax expense consisted of the following components:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
3,546
|
|
|
$
|
5,574
|
|
|
$
|
2,144
|
|
Deferred
|
|
|
(308
|
)
|
|
|
718
|
|
|
|
1,328
|
|
Total
|
|
$
|
3,238
|
|
|
$
|
6,292
|
|
|
$
|
3,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
225
|
|
|
$
|
94
|
|
|
$
|
882
|
|
Deferred
|
|
|
(6
|
)
|
|
|
33
|
|
|
|
(178
|
)
|
Total
|
|
$
|
219
|
|
|
$
|
127
|
|
|
$
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
578
|
|
|
$
|
1,322
|
|
|
$
|
204
|
|
Deferred
|
|
|
172
|
|
|
|
372
|
|
|
|
282
|
|
Total
|
|
$
|
750
|
|
|
$
|
1,694
|
|
|
$
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,207
|
|
|
$
|
8,113
|
|
|
$
|
4,662
|
|
Federal Tax Reform
On December 22, 2017, the Tax Cut and Jobs Act (the “Tax Act”) was enacted which made broad and complex changes to the U.S. tax code, including the following:
|
●
|
Reduction in the U.S. Federal Corporate Tax Rate: The Tax Act reduced the corporate tax rate to 21%, effective
January 1, 2018
|
|
●
|
Availability of 100% bonus depreciation on assets placed in service after September 27, 2017
|
|
●
|
Certain stock compensation plans potentially subject to limitations on excess tax benefits
|
|
●
|
The Global Intangible Low Taxed Income (GILTI) provision
|
As a result of the Tax Act, we determined that we would no longer indefinitely reinvest the earnings of our Canadian subsidiary. Our Canadian subsidiary declared a deemed dividend to the Company for $9.6 million and $3 million in 2020 and 2018, respectively. Additionally, a withholding tax of 5% was paid for each dividend distribution.
The Tax Act subjects a U.S. corporation to tax on its Global Intangible Low Taxed Income (“GILTI”). Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act. Under Generally Accepted Accounting Principles, we can make an accounting policy election to either treat taxes due on the GILTI inclusion as a current period expense or factor such amounts into the measurement of deferred taxes. We elected the current period expense method and have not reflected any corresponding deferred tax assets and liabilities associated with the GILTI tax in the table of deferred tax assets and liabilities. GILTI tax has been recorded as current period expense of $10,000, $13,000, and $40,000 in 2020, 2019, and 2018, respectively.
We received notice in December 2019, that we met qualification requirements for the Nebraska Advantage LB312 Act (“NAA”) related to certain investment and full-time equivalent employee thresholds in the year ended 2017. NAA provides direct refunds of sales tax on qualified property, as well as investment credits and employment credits that can be claimed through credits of Nebraska income tax, employment tax, and sales tax on non-qualified property. We will receive direct refunds of Nebraska sales tax on qualified property incurred from 2014 to 2023. Investment credits started to accumulate in 2014 and can be earned through 2023. These credits can be claimed against Nebraska income taxes or through sales tax on non-qualified property through 2028. The employment credits are earned from 2017 through 2023, and they can be claimed against Nebraska payroll taxes through 2028. In 2019, we recorded cumulative adjustments for direct refunds and credits earned through the year ending December 31, 2019, which reduced operating expenses by approximately $1.9 million. For the year ended December 31, 2020, adjustments for credits reduced operating expenses by approximately $435,000. In addition, income tax credits of $45,000 and $24,000 were recorded as a reduction to income tax expense for the years ended December 31, 2020 and 2019, respectively.
The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax (benefit) expense are summarized as follows:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Expected federal income taxes
|
|
$
|
8,708
|
|
|
$
|
8,509
|
|
|
$
|
7,285
|
|
Foreign tax rate differential
|
|
|
6
|
|
|
|
26
|
|
|
|
146
|
|
State income taxes, net of federal benefit and state tax credits
|
|
|
607
|
|
|
|
1,344
|
|
|
|
376
|
|
Share-based compensation
|
|
|
(5,713
|
)
|
|
|
(1,579
|
)
|
|
|
(3,041
|
)
|
Compensation limit for covered employees
|
|
|
463
|
|
|
|
--
|
|
|
|
--
|
|
Federal tax credits
|
|
|
(261
|
)
|
|
|
(419
|
)
|
|
|
(150
|
)
|
Uncertain tax positions
|
|
|
157
|
|
|
|
34
|
|
|
|
90
|
|
Nondeductible expenses (income) related to recapitalization
|
|
|
--
|
|
|
|
(24
|
)
|
|
|
151
|
|
Goodwill Impairment
|
|
|
184
|
|
|
|
--
|
|
|
|
--
|
|
Tax depreciation method change
|
|
|
--
|
|
|
|
--
|
|
|
|
(308
|
)
|
Withholding tax on repatriation of foreign earnings
|
|
|
18
|
|
|
|
107
|
|
|
|
--
|
|
GILTI
|
|
|
10
|
|
|
|
13
|
|
|
|
40
|
|
Other
|
|
|
28
|
|
|
|
102
|
|
|
|
73
|
|
|
|
$
|
4,207
|
|
|
$
|
8,113
|
|
|
$
|
4,662
|
|
Deferred tax assets and liabilities at December 31, 2020 and 2019, were comprised of the following:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
29
|
|
|
$
|
35
|
|
Accrued expenses
|
|
|
696
|
|
|
|
537
|
|
Share-based compensation
|
|
|
735
|
|
|
|
1,267
|
|
Accrued bonuses
|
|
|
145
|
|
|
|
120
|
|
Employer payroll tax deferral
|
|
|
323
|
|
|
|
--
|
|
Foreign tax credit from repatriation
|
|
|
--
|
|
|
|
535
|
|
Other
|
|
|
27
|
|
|
|
--
|
|
Gross deferred tax assets
|
|
|
1,955
|
|
|
|
2,494
|
|
Less valuation allowance
|
|
|
--
|
|
|
|
(535
|
)
|
Deferred tax assets
|
|
|
1,955
|
|
|
|
1,959
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
93
|
|
|
|
135
|
|
Deferred contract costs
|
|
|
1,111
|
|
|
|
990
|
|
Property and equipment
|
|
|
1,725
|
|
|
|
1,926
|
|
Intangible assets
|
|
|
6,109
|
|
|
|
5,553
|
|
Repatriation withholding
|
|
|
174
|
|
|
|
528
|
|
Unrealized translation gain on intercompany loan
|
|
|
--
|
|
|
|
214
|
|
Other
|
|
|
8
|
|
|
|
12
|
|
Deferred tax liabilities
|
|
|
9,220
|
|
|
|
9,358
|
|
Net deferred tax liabilities
|
|
$
|
(7,265
|
)
|
|
$
|
(7,399
|
)
|
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 have deferred $1,323,000 of employer social security tax payments into future years. We have had no other impacts to our consolidated financial statements or related disclosures from the CARES Act.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income, carry-back opportunities, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences excluding the foreign tax credit carryforward. In 2020, we wrote off the deferred tax asset for prior year foreign tax credit carryforwards of $535,000 and the related valuation allowance. We made the assessment that due to our Canadian subsidiary’s decreased projected future income and the lower US tax rate compared to the Canadian tax rate, it was unlikely we would realize this asset.
We had an unrecognized tax benefit at December 31, 2020 and 2019, of $768,000 and $592,000, respectively, excluding interest of $15,000 and $7,000 at December 31, 2020 and 2019, respectively. Of these amounts, $668,000 and $515,000 at December 31, 2020 and 2019, 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 2020 and 2019 is as follows:
|
|
(In thousands)
|
|
Balance of unrecognized tax benefits at December 31, 2018
|
|
$
|
554
|
|
Reductions due to lapse of applicable statute of limitations
|
|
|
(43
|
)
|
Reductions due to tax positions of prior years
|
|
|
--
|
|
Reductions due to settlement with taxing authorities
|
|
|
(300
|
)
|
Additions based on tax positions related to the current year
|
|
|
381
|
|
Balance of unrecognized tax benefits at December 31, 2019
|
|
$
|
592
|
|
Reductions due to lapse of applicable statute of limitations
|
|
|
(34
|
)
|
Additions due to tax positions of prior years
|
|
|
4
|
|
Reductions due to settlement with taxing authorities
|
|
|
--
|
|
Additions based on tax positions related to the current year
|
|
|
206
|
|
Balance of unrecognized tax benefits at December 31, 2020
|
|
$
|
768
|
|
We file income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and Canada federal and provincial jurisdictions. Tax years 2017 and forward remain subject to U.S. federal examination. Tax years 2014 and forward remain subject to state examination. Tax years 2016 and forward remain subject to Canadian federal and provincial examination.
Our long-term debt consists of the following:
|
|
2020
|
|
|
2019
|
|
|
|
(In thousands)
|
|
Term Loans
|
|
$
|
30,713
|
|
|
$
|
34,281
|
|
Less: current portion
|
|
|
(4,061
|
)
|
|
|
(4,378
|
)
|
Less: unamortized debt issuance costs
|
|
|
(105
|
)
|
|
|
(108
|
)
|
Notes payable, net of current portion
|
|
$
|
26,547
|
|
|
$
|
29,795
|
|
Our credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on May 28, 2020 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $33,002,069 term loan (the “Term Loan”) and (iii) a $15,000,000 delayed draw-dawn term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”). The Delayed Draw Term Loan may be used to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit can be used to fund ongoing working capital needs and for other general corporate purposes. The May 2020 amendment increased the Line of Credit from $15,000,000 to $30,000,000.
The amended Term Loan revised the remaining payments for the existing balance outstanding of $33,002,069 to monthly installments of $462,988 through May 2025, with a balloon payment due at maturity in May 2025. The Term Loan bears interest at a fixed rate per annum of 5%. Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day London Interbank Offered Rate plus 225 basis points (2.40% at December 31, 2020). Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2023. There were no borrowings on the Line of Credit during 2020. 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 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 terms of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio of 3.00x or less for all testing periods throughout the term(s) of the Credit Facilities. As of December 31, 2020, we were in compliance with our financial covenants.
Scheduled maturities of notes payable at December 31, 2020 are as follows:
2021
|
|
$
|
4,093
|
|
2022
|
|
|
4,306
|
|
2023
|
|
|
4,529
|
|
2024
|
|
|
4,762
|
|
2025
|
|
|
13,023
|
|
(9)
|
Share-Based Compensation
|
We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur. As described in Note 2, we completed a Recapitalization in April 2018 which, among other things, settled all then-existing outstanding class B share-based awards and resulted in the elimination of the class B common stock. As a result, we accelerated vesting of all outstanding class B share-based awards, resulting in accelerated share-based compensation of $331,000 in the year ended December 31, 2018. All outstanding class B share-based awards were then settled for the same stock to cash proportion of the class B common stock described in Note 2, less the exercise price, if any, which approximated the awards’ intrinsic values.
Our 2001 Equity Incentive Plan provided 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 former class A common stock and 300,000 shares of our former class B common stock. Stock options granted could have been either nonqualified or incentive stock options. Stock options vest over one to five years following the date of grant and option terms are generally five to ten years following the date of grant. Due to the expiration of the 2001 Equity Incentive Plan, at December 31, 2015, there were no shares of stock available for future grants.
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 and, prior to the Recapitalization, 500,000 shares of our former class B 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. At December 31, 2020, there were 830,419 shares of Common Stock available for issuance pursuant to future grants under the 2004 Director Plan. We have accounted for grants of 2,169,581 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 and, prior to the Recapitalization, 300,000 shares of our former class B common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant. At December 31, 2020, there were 779,800 shares of Common Stock available for issuance pursuant to future grants under the 2006 Equity Incentive Plan. We have accounted for grants of 1,020,200 shares of Common Stock and restricted stock under the 2006 Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.
During 2020, 2019 and 2018, we granted options to purchase 70,471, 100,615 and 116,276 shares of Common Stock, respectively. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
Expected dividend yield at date of grant
|
|
|
1.84
|
%
|
|
|
2.60
|
%
|
|
|
2.59
|
%
|
Expected stock price volatility
|
|
|
33.62
|
%
|
|
|
34.01
|
%
|
|
|
32.47
|
%
|
Risk-free interest rate
|
|
|
1.35
|
%
|
|
|
2.38
|
%
|
|
|
2.51
|
%
|
Expected life of options (in years)
|
|
|
7.39
|
|
|
|
7.46
|
|
|
|
7.28
|
|
The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.
The following table summarizes stock option activity under the 2001 and 2006 Equity Incentive Plans and the 2004 Director Plan for the year ended December 31, 2020:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Terms
(Years)
|
|
|
Aggregate
Intrinsic
Value
(In
thousands)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
1,245,922
|
|
|
$
|
18.08
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
70,471
|
|
|
$
|
62.23
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(630,373
|
)
|
|
$
|
14.20
|
|
|
|
|
|
|
$
|
25,912
|
|
Forfeited
|
|
|
(85,449
|
)
|
|
$
|
32.28
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
600,571
|
|
|
$
|
25.31
|
|
|
|
5.58
|
|
|
$
|
11,665
|
|
Exercisable at December 31, 2020
|
|
|
270,876
|
|
|
$
|
18.00
|
|
|
|
4.14
|
|
|
$
|
6,811
|
|
The following table summarizes information related to stock options for the years ended December 31, 2020, 2019 and 2018:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
Weighted average grant date fair value of stock options granted
|
|
$
|
18.67
|
|
|
$
|
11.99
|
|
|
$
|
10.02
|
|
Intrinsic value of stock options exercised (in thousands)
|
|
$
|
25,912
|
|
|
$
|
8,280
|
|
|
$
|
10,621
|
|
Intrinsic value of stock options vested (in thousands)
|
|
$
|
1,965
|
|
|
$
|
1,891
|
|
|
$
|
2,719
|
|
As of December 31, 2020, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.4 million which was expected to be recognized over a weighted average period of 2.96 years.
There was $1.7 million in cash received from stock options exercised for the year ended December 31, 2020 and no cash received from options exercised in 2019 or 2018. We recognized $680,000, $934,000 and $1.1 million of non-cash compensation for the years ended December 31, 2020, 2019, and 2018, 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 $6.3 million, $2.0 million and $3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
During 2019 and 2018, we granted 6,005 and 6,793 non-vested shares of Common Stock, respectively, under the 2006 Equity Incentive Plan. No shares of non-vested Common Stock were granted during the year ended December 31, 2020. As of December 31, 2020, we had 6,005 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 $23,000, $290,000 and $428,000 of non-cash compensation for the years ended December 31, 2020, 2019, and 2018, 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 and $168,000 for the years ended December 31, 2020 and 2018, respectively. No restricted stock vested during the year end December 31, 2019.
The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plans for the year ended December 31, 2020:
|
|
Common Stock
Outstanding
|
|
|
Common Stock
Weighted
Average Grant
Date Fair Value
Per Share
|
|
Outstanding at December 31, 2019
|
|
|
84,176
|
|
|
$
|
17.23
|
|
Granted
|
|
|
--
|
|
|
$
|
--
|
|
Vested
|
|
|
(71,378
|
)
|
|
$
|
13.59
|
|
Forfeited
|
|
|
(6,793
|
)
|
|
$
|
36.80
|
|
Outstanding at December 31, 2020
|
|
|
6,005
|
|
|
$
|
38.30
|
|
As of December 31, 2020, the total unrecognized compensation cost related to non-vested stock awards was approximately $138,000 and is expected to be recognized over a weighted average period of 3.00 years.
We lease printing, computer, other equipment and office space in the United States and Canada. The leases remaining terms as of December 31, 2020 range from less than one year to 4.7 years.
Certain equipment and office lease agreements include provisions for periodic adjustments to rates and charges. The rates and charges are adjusted based on actual usage or actual costs for internet, common area maintenance, taxes or insurance, as determined by the lessor and are considered variable lease costs.
The components of lease expense for the years ended December 31, 2020 and 2019 included (in thousands):
|
|
2020
|
|
|
2019
|
|
Operating leases
|
|
$
|
600
|
|
|
$
|
781
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Asset amortization
|
|
|
355
|
|
|
|
252
|
|
Interest on lease liabilities
|
|
|
37
|
|
|
|
39
|
|
Variable lease cost
|
|
|
62
|
|
|
|
86
|
|
Short-term lease cost
|
|
|
42
|
|
|
|
42
|
|
Total net lease cost
|
|
$
|
1,096
|
|
|
$
|
1,200
|
|
In 2020, we adjusted the useful life of the operating right of use assts associated with our Atlanta, Georgia and Markham, Ontario office leases based on the expectation that we will vacate the office space before the end of the lease term. We recorded rent expense in connection with our operating leases of $779,000 in 2018.
50
Supplemental balance sheet information related to leases (in thousands):
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
Operating ROU assets
|
|
$
|
1,308
|
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
|
|
Current operating lease liabilities
|
|
|
461
|
|
|
|
524
|
|
Noncurrent operating lease liabilities
|
|
|
896
|
|
|
|
1,139
|
|
Total operating lease liabilities
|
|
$
|
1,357
|
|
|
$
|
1,663
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
1,014
|
|
|
$
|
802
|
|
Computer Equipment
|
|
|
662
|
|
|
|
511
|
|
Computer Software
|
|
|
207
|
|
|
|
207
|
|
Property and equipment under finance lease, gross
|
|
|
1,883
|
|
|
|
1,520
|
|
Less accumulated amortization
|
|
|
(605
|
)
|
|
|
(734
|
)
|
Property and equipment under finance lease, net
|
|
$
|
1,278
|
|
|
$
|
786
|
|
|
|
|
|
|
|
|
|
|
Current obligations of finance leases
|
|
$
|
493
|
|
|
$
|
227
|
|
Noncurrent obligations of finance leases
|
|
|
778
|
|
|
|
559
|
|
Total finance lease liabilities
|
|
$
|
1,271
|
|
|
$
|
786
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years):
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3.68
|
|
|
|
4.17
|
|
Finance leases
|
|
|
2.69
|
|
|
|
3.56
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
4.40
|
%
|
|
|
4.81
|
%
|
Finance leases
|
|
|
3.38
|
%
|
|
|
4.60
|
%
|
Supplemental cash flow and other information related to leases were as follows (in thousands):
|
|
2020
|
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
596
|
|
|
$
|
789
|
|
Operating cash flows from finance leases
|
|
|
36
|
|
|
|
38
|
|
Financing cash flows from finance leases
|
|
|
332
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for operating lease liabilities
|
|
|
276
|
|
|
|
16
|
|
ROU assets obtained in exchange for finance lease liabilities
|
|
|
817
|
|
|
|
192
|
|
Undiscounted payments under non-cancelable finance and operating leases at December 31, 2020 were as follows (in thousands):
|
|
Finance Leases
|
|
|
Operating Leases
|
|
2021
|
|
$
|
527
|
|
|
$
|
509
|
|
2022
|
|
|
481
|
|
|
|
322
|
|
2023
|
|
|
305
|
|
|
|
319
|
|
2024
|
|
|
13
|
|
|
|
203
|
|
2025
|
|
|
--
|
|
|
|
118
|
|
Thereafter
|
|
|
--
|
|
|
|
--
|
|
Total minimum lease payments
|
|
|
1,326
|
|
|
|
1,471
|
|
Less: Amount representing interest
|
|
|
(55
|
)
|
|
|
(114
|
)
|
Present value of minimum lease payments
|
|
|
1,271
|
|
|
|
1,357
|
|
Current portion
|
|
|
(493
|
)
|
|
|
(461
|
)
|
Lease obligations, net of current portion
|
|
$
|
778
|
|
|
$
|
896
|
|
In addition to the above, we have an operating lease for office space commencing February 2021 which requires monthly base rent payments of $14,288 through January 2024.
Until January 2020, one of our directors served as an officer and director of Ameritas Life Insurance Corp. (“Ameritas”) and continues to service on the board of directors of Ameritas. 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 $248,000, $242,000 and $200,000 in 2020, 2019 and 2018 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 with $478,000 recorded as expense in 2020.
During 2017, we acquired a cost method investment in convertible preferred stock of PX (see Note 4). Also in 2017, we paid $250,000 to acquire certain perpetual content licenses from PX for content we include in certain of our subscription services. We also have an agreement with PX which commenced in 2016 under which we act as a reseller of PX services and receive a portion of the revenues. The total revenue earned from the PX reseller agreement in the years ended December 31, 2020, 2019 and 2018 was $294,000, $578,000 and $439,000, respectively. We will no longer earn revenue under this agreement after September 30, 2021 due to termination of the reseller agreement.
We sponsor a qualified 401(k) plan covering substantially all associates with no eligibility service requirement. Under the 401(k) plan, we match 25.0% of the first 6.0% of compensation contributed by each associate. Employer contributions, which are discretionary, vest to participants at a rate of 20% per year. We contributed $521,000, $447,000 and $396,000 in 2020, 2019 and 2018, respectively, as a matching percentage of associate 401(k) contributions.
Our six operating segments are aggregated into one reporting segment because they have similar economic characteristics and meet the other aggregation criteria from the FASB guidance on segment disclosure. The six operating segments are Experience, The Governance Institute, Market Insights, Transparency, National Research Corporation Canada and Transitions, which offer a portfolio of solutions that address specific needs around market insight, experience, transparency and governance for healthcare providers, payers and other healthcare organizations.
The table below presents entity-wide information regarding our revenue and assets by geographic area (in thousands):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
130,305
|
|
|
$
|
124,369
|
|
|
$
|
115,451
|
|
Canada
|
|
|
2,972
|
|
|
|
3,613
|
|
|
|
4,235
|
|
Total
|
|
$
|
133,277
|
|
|
$
|
127,982
|
|
|
$
|
119,686
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
77,448
|
|
|
$
|
78,906
|
|
|
$
|
77,330
|
|
Canada
|
|
|
1,863
|
|
|
|
2,622
|
|
|
|
2,291
|
|
Total
|
|
$
|
79,311
|
|
|
$
|
81,528
|
|
|
$
|
79,621
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
128,319
|
|
|
$
|
95,668
|
|
|
$
|
91,080
|
|
Canada
|
|
|
5,104
|
|
|
|
15,017
|
|
|
|
16,952
|
|
Total
|
|
$
|
133,423
|
|
|
$
|
110,685
|
|
|
$
|
108,032
|
|
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 are required to pay the remaining $2.0 million no later than February 1, 2022, subject to offset for indemnification claims as provided in the purchase agreement. The closing payment was funded, and we expect to fund the deferred portion of the purchase price, with cash on hand.
52