NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and include all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are considered of a normal recurring nature. Quarterly results of operations are not necessarily indicative of annual results.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated balance sheet at that date. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of Computer Programs and Systems, Inc. ("CPSI" or the "Company") for the year ended December 31, 2021 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
During the second quarter of 2021, we elected to change our method of estimating the labor costs incurred in developing software assets requiring capitalization under Accounting Standards Codification ("ASC") 350-40, Internal Use Software. Prior to this change, we estimated the associated labor costs using an estimated time-equivalent for workload metrics commonly utilized within agile software development environments. With this change, we now estimate these labor costs using the distribution of these agile workload metrics between capitalizable and non-capitalizable units of work. We believe this change is preferable as the new methodology better estimates capitalizable labor costs and is consistent with industry best practices. We have determined that this change is a change in accounting estimate effected by a change in accounting principle and, as such, has been accounted for on a prospective basis. See Note 6, “Software Development,” for further information.
Principles of Consolidation
The condensed consolidated financial statements of CPSI include the accounts of TruBridge, LLC ("TruBridge"), Evident, LLC ("Evident"), Healthland Holding Inc. ("HHI"), iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc. ("HRG"), all of which are wholly-owned subsidiaries of CPSI. The accounts of HHI include those of its wholly-owned subsidiaries, Healthland Inc. ("Healthland"), Rycan Technologies, Inc. ("Rycan"), and American HealthTech, Inc. ("AHT"). All significant intercompany balances and transactions have been eliminated.
2. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted in 2022
There were no new accounting standards required to be adopted in 2022 that would have a material impact on our consolidated financial statements.
New Accounting Standards Yet to be Adopted
We do not believe that any other recently issued but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
3. REVENUE RECOGNITION
Revenue is recognized upon transfer of control of promised products or services to clients in an amount that reflects the consideration we expect to receive in exchange for those products and services. We enter into contracts that can include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations. The Company employs the 5-step revenue recognition model under ASC 606, Revenue from Contracts with Customers, to: (1) identify the contract with the client, (2) identify the performance obligations in the contract, (3)
determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized net of shipping charges and any taxes collected from clients, which are subsequently remitted to governmental authorities.
TruBridge
TruBridge provides an array of business processing services ("BPS") consisting of accounts receivable management, private pay services, insurance services, medical coding, electronic billing, statement processing, payroll processing, and contract management. Fees are recognized over the period of the client contractual relationship as the services are performed based on the stand-alone selling price ("SSP"), net of discounts. Fees for many of these services are invoiced, and revenue recognized accordingly, based on the volume of transactions or a percentage of client accounts receivable collections. Payment is due monthly for BPS with certain amounts varying based on utilization and/or volumes.
TruBridge also provides professional IT services. Revenue from professional IT services is recognized as the services are performed based on SSP. Payment is due monthly as services are performed.
System Sales and Support
The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, training, hardware and software application support and hardware maintenance services to acute care community hospitals and post-acute care providers.
Non-recurring Revenues
•Perpetual software licenses, installation, conversion, and related training are not considered separate and distinct performance obligations due to the proprietary nature of our software and are, therefore, accounted for as a single performance obligation on a module-by-module basis. Revenue is recognized as each module's implementation is completed based on the module's SSP, net of discounts. Fees for licenses, installation, conversion, and related training are typically due in three installments: (1) at placement of order, (2) upon installation of software and commencement of training, and (3) upon satisfactory completion of monthly accounting cycle or end-of-month operation by application and as applicable for each application. Often, short-term and/or long-term financing arrangements are provided for software implementations; refer to Note 11 - Financing Receivables for further information. Electronic health records ("EHR") implementations include a system warranty that terminates thirty days from the software go-live date, the date on which the client begins using the system in a live environment.
•Hardware revenue is recognized separately from software licenses at the point in time it is delivered to the client. The SSP of hardware is cost plus a reasonable margin. Payment is generally due upon delivery of the hardware to the client. Standard manufacturer warranties apply to hardware.
Recurring Revenues
•Software application support and hardware maintenance services sold with software licenses and hardware are separate and distinct performance obligations. Revenue for support and maintenance services is recognized based on SSP, which is the renewal price, ratably over the life of the contract, which is generally three to five years. Payment is due monthly for support services provided.
•Subscriptions to third party content revenue is recognized as a separate performance obligation ratably over the subscription term based on SSP, which is cost plus a reasonable margin. Payment is due monthly for subscriptions to third party content.
•Software as a Service ("SaaS") arrangements for EHR software and related conversion and training services are considered a single performance obligation. Revenue is recognized on a monthly basis as the SaaS service is provided to the client over the contract term. Payment is due monthly for SaaS services provided.
Refer to Note 17 - Segment Reporting, for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.
Deferred Revenue
Deferred revenue represents amounts invoiced to clients for which the services under contract have not been completed and revenue has not been recognized, including annual renewals of certain software subscriptions and customer deposits for implementations to be performed at a later date. Revenue is recognized ratably over the life of the software subscriptions as services are provided and at the point-in-time when implementations have been completed.
The following table details deferred revenue for the six months ended June 30, 2022 and 2021, included in the condensed consolidated balance sheets: | | | | | | | | | | | | | |
| (In thousands) | | | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
| Beginning balance | | | $ | 11,529 | | | $ | 8,130 | |
| Deferred revenue recorded | | | 15,329 | | | 11,011 | |
| Deferred revenue acquired | | | — | | | 1,700 | |
| Less deferred revenue recognized as revenue | | | (12,704) | | | (9,466) | |
| Ending balance | | | $ | 14,154 | | | $ | 11,375 | |
The deferred revenue recorded during the six months ended June 30, 2022 is comprised primarily of the annual renewals of certain software subscriptions billed during the first quarter of each year and deposits collected for future EHR installations. The deferred revenue recognized as revenue during the six months ended June 30, 2022 and 2021 is comprised primarily of the periodic recognition of annual renewals that were deferred until earned and deposits for future EHR installations that were deferred until earned.
Costs to Obtain and Fulfill a Contract with a Customer
Costs to obtain a contract include the commission costs related to SaaS licensing agreements, which are capitalized and amortized ratably over the expected life of the customer. As a practical expedient, we generally recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset would have been one year or less, with the exception of commissions generated from TruBridge sales. TruBridge commissions, which are paid up to twelve months in advance of services performed, are capitalized and amortized over the prepayment period. Costs to obtain a contract are expensed within sales and marketing expenses in the accompanying condensed consolidated statements of income.
Contract fulfillment costs related to the implementation of SaaS arrangements are capitalized and amortized ratably over the expected life of the customer. Costs to fulfill contracts consist of the payroll costs for the implementation of SaaS arrangements, including time for training, conversion and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "System sales and support - Cost of sales" in the accompanying condensed consolidated statements of income.
Costs to obtain and fulfill contracts related to SaaS arrangements are included within the "Prepaid expenses and other" and "Other assets, net of current portion" line items on our condensed consolidated balance sheets.
The following table details costs to obtain and fulfill contracts with customers for the six months ended June 30, 2022 and 2021, included in the condensed consolidated balance sheets: | | | | | | | | | | | | | |
| (In thousands) | Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 | | |
| Beginning balance | $ | 7,312 | | | $ | 5,992 | | | |
| Costs to obtain and fulfill contracts capitalized | 5,390 | | | 3,355 | | | |
| Less costs to obtain and fulfill contracts recognized as expense | (3,419) | | | (2,985) | | | |
| Ending balance | $ | 9,283 | | | $ | 6,362 | | | |
Remaining Performance Obligations
Disclosures regarding remaining performance obligations are not considered material as the overwhelming majority of the Company's remaining performance obligations either (a) are related to contracts with an expected duration of one year or less, or (b) exhibit revenue recognition in the amount to which the Company has the right to invoice.
4. BUSINESS COMBINATION
Acquisition of Healthcare Resource Group
On March 1, 2022, we acquired all of the assets and liabilities of Healthcare Resource Group, Inc., a Washington corporation ("HRG"), pursuant to a Stock Purchase Agreement dated March 1, 2022. Based in Spokane, Washington, HRG is a leading provider of customized revenue cycle management ("RCM") solutions and consulting services that enable hospitals and clinics to improve efficiency, profitability, and patient satisfaction.
Consideration for the acquisition included cash (net of cash of the acquired entity) of $43.6 million (inclusive of seller's transaction expenses). During 2022, we have incurred approximately $0.8 million of pre-tax acquisition costs in connection with the acquisition of HRG. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.
Our acquisition of HRG will be treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price is based on management's judgment after evaluating several factors, including a preliminary valuation assessment. The allocation is preliminary and subject to changes, which could be significant, as additional information becomes available and appraisals of intangible assets and deferred tax positions are finalized.
The preliminary allocation of the purchase price paid for HRG as of June 30, 2022 was as follows:
| | | | | |
| (In thousands) | Purchase Price Allocation |
| Acquired cash | $ | 3,989 | |
| Accounts receivable | 5,655 |
| Prepaid expenses | 398 |
| Property and equipment | 467 |
| Other assets | 73 |
| Intangible assets | 24,200 |
| Operating lease assets | 1,315 |
| Goodwill | 21,083 |
| Accounts payable and accrued liabilities | (2,403) |
| Deferred taxes, net | (5,899) |
| Operating lease liability | (1,315) |
| |
| |
| Net assets acquired | $ | 47,563 | |
The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives, which range from four to nine years. The amortization is included in amortization of acquisition-related intangibles in our condensed consolidated statements of income.
The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16 - Fair Value). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.
Our condensed consolidated statement of operations for the six months ended June 30, 2022 includes revenues of approximately $14.6 million and pre-tax net income of approximately $2.0 million attributed to the acquired business since the March 1, 2022 acquisition date.
The following unaudited pro forma revenue, net income and earnings per share amounts for the three and six months ended June 30, 2022 give effect to the HRG acquisition as if it had been completed on January 1, 2021. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the HRG acquisition been completed during the periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results.
The pro forma information does not fully reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the HRG acquisition.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| (In thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Pro forma revenues | $ | 82,726 | | | $ | 76,966 | | | $ | 166,937 | | | $ | 152,654 | |
| Pro forma net income | $ | 3,323 | | | $ | 5,713 | | | $ | 11,687 | | | $ | 9,374 | |
| Pro forma diluted earnings per share | $ | 0.23 | | | $ | 0.39 | | | $ | 0.79 | | | $ | 0.64 | |
Pro forma net income was calculated by adjusting the results for the applicable period to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2021 and other miscellaneous, immaterial adjustments.
Acquisition of TruCode
On May 12, 2021, we acquired all of the assets and liabilities of TruCode LLC, a Virginia limited liability company (“TruCode”), pursuant to a Stock Purchase Agreement dated May 12, 2021. Based in Alpharetta, Georgia, TruCode provides configurable, knowledge-based software that gives coders, clinical documentation improvement specialists and auditors the flexibility to code according to their knowledge, preferences and experience. The cloud-based medical coding solution has been bundled with the TruBridge solutions and services to enhance revenue cycle performance for healthcare organizations of all sizes.
Consideration for the acquisition included cash (net of cash of the acquired entity) of $59.9 million (inclusive of sellers' transaction expenses), plus a contingent earnout payment of up to $15.0 million tied to TruCode's earnings before interest, tax, depreciation, and amortization ("EBITDA") (subject to certain pro-forma adjustments) for the twelve-month period concluding on the anniversary date of the acquisition (the "earnout period"). As of June 30, 2022, $1.6 million of the original $2.5 million contingent consideration estimated in determining the purchase price was reversed as TruCode's earnings over the earnout period were less than estimated at the date of acquisition. During 2021, we incurred approximately $0.9 million of pre-tax acquisition costs in connection with the acquisition of TruCode. Acquisition costs are included in general and administrative expenses in our consolidated statements of income.
Our acquisition of TruCode was treated as a purchase in accordance with ASC 805, Business Combinations, which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transaction. Our allocation of the purchase price is based on management's judgment after evaluating several factors, including a valuation assessment.
The allocation of the purchase price paid for TruCode was as follows:
| | | | | |
| (In thousands) | Purchase Price Allocation |
| Acquired cash | $ | 4,249 | |
| Accounts receivable | 924 |
| Prepaid expenses | 2 |
| |
| |
| Intangible assets | 37,300 |
| Goodwill | 27,287 |
| Accounts payable and accrued liabilities | (1,840) |
| |
| |
| Contingent consideration | (2,500) |
| Deferred revenue | (1,300) |
| Net assets acquired | $ | 64,122 | |
The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our condensed consolidated statements of income.
The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy (see Note 16 - Fair Value). Level 3 inputs included, among others, discount rates that we estimated would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, client attrition rates and market comparables.
5. PROPERTY AND EQUIPMENT
Property and equipment, net was comprised of the following at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Land | $ | 2,848 | | | $ | 2,848 | |
| Buildings and improvements | 8,279 | | | 8,269 | |
| | | |
| Computer equipment | 8,086 | | | 7,868 | |
| Leasehold improvements | 783 | | | 783 | |
| Office furniture and fixtures | 1,008 | | | 682 | |
| Automobiles | 18 | | | 18 | |
| Property and equipment, gross | 21,022 | | | 20,468 | |
| Less: accumulated depreciation | (10,146) | | | (8,878) | |
| Property and equipment, net | $ | 10,876 | | | $ | 11,590 | |
6. SOFTWARE DEVELOPMENT
Software development costs are accounted for in accordance with ASC 350-40, Internal-Use Software. We capitalize incurred labor costs for software development from the time the preliminary project phase is completed until the software is available for general release. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. We estimate the useful life of our capitalized software and amortize its value on a straight-line basis over that estimated life, which is estimated to be five years. If the actual life of the asset is deemed to be impaired, a write-down of the value of the asset may be recorded as a charge to earnings. Amortization begins when the related software features are placed in service.
During the second quarter of 2021, our ongoing monitoring activities associated with the capitalization of software development costs and the related correlation between capitalization rates and operational metrics designed to reflect the distribution of work revealed that our then-current labor capitalization methodology did not fully reflect all of the critical activities necessary to develop software assets. Consequently, during the second quarter of 2021, we elected to change our method of estimating the labor costs incurred in developing software assets. Prior to this change, we estimated the associated labor costs using an estimated time-equivalent for workload metrics commonly utilized within agile software development environments. With this change, we now estimate these labor costs using the distribution of these agile workload metrics between capitalizable and non-capitalizable units of work. We believe this change is preferable as the new methodology better estimates capitalizable labor costs and is consistent with industry best practices. We have determined that this change in accounting for software development costs is a change in accounting estimate effected by a change in accounting principle and, as such, has been accounted for on a prospective basis. In connection with this change, we capitalized software development costs of $8.8 million during the year ended December 31, 2021. We estimate that the effect of this change was to increase capitalized amounts by approximately $4.6 million for the year ended December 31, 2021, with a corresponding decrease to product development costs.
Software development costs, net was comprised of the following at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Software development costs | $ | 21,432 | | | $ | 12,693 | |
| Less: accumulated amortization | (2,308) | | | (1,049) | |
| Software development costs, net | $ | 19,124 | | | $ | 11,644 | |
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities was comprised of the following at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Salaries and benefits | $ | 10,382 | | | $ | 8,482 | |
| Severance | 272 | | | 236 | |
| Commissions | 1,147 | | | 1,158 | |
| Self-insurance reserves | 1,313 | | | 1,409 | |
| Contingent consideration | 920 | | | 2,500 | |
| Operating lease liabilities, current portion | 1,477 | | | 1,592 | |
| Other | 1,710 | | | 1,786 | |
| Other accrued liabilities | $ | 17,221 | | | $ | 17,163 | |
8. NET INCOME PER SHARE
The Company presents basic and diluted earnings per share ("EPS") data for its common stock. Basic EPS is calculated by dividing the net income attributable to stockholders of the Company by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is determined by adjusting the net income attributable to stockholders of the Company and the weighted average number of shares of common stock outstanding during the period for the effects of all dilutive potential common shares, including awards under stock-based compensation arrangements.
The Company's unvested restricted stock awards (see Note 10) are considered participating securities under ASC 260, Earnings Per Share, because they entitle holders to non-forfeitable rights to dividends until the awards vest or are forfeited. When a company has a security that qualifies as a "participating security," the Codification requires the use of the two-class method when computing basic EPS. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net income to allocate to common stockholders, income is allocated to both common stock and participating securities based on their respective weighted average shares outstanding for the period, with net income attributable to common stockholders ultimately equaling net income less net income attributable to participating securities. Diluted EPS for the Company's common stock is computed using the more dilutive of the two-class method or the treasury stock method.
The following is a calculation of the basic and diluted EPS for the Company's common stock, including a reconciliation between net income and net income attributable to common stockholders: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands, except per share data) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 3,076 | | | $ | 6,141 | | | $ | 11,189 | | | $ | 10,285 | |
| Less: Net income attributable to participating securities | (58) | | | (129) | | | (219) | | | (236) | |
| Net income attributable to common stockholders | $ | 3,018 | | | $ | 6,012 | | | $ | 10,970 | | | $ | 10,049 | |
| | | | | | | |
| Weighted average shares outstanding used in basic per common share computations | 14,469 | | | 14,335 | | | 14,425 | | | 14,247 | |
| Add: Dilutive potential common shares | — | | | 9 | | | — | | | 35 | |
| Weighted average shares outstanding used in diluted per common share computations | 14,469 | | | 14,344 | | | 14,425 | | | 14,282 | |
| | | | | | | |
| Basic EPS | $ | 0.21 | | | $ | 0.42 | | | $ | 0.76 | | | $ | 0.71 | |
| Diluted EPS | $ | 0.21 | | | $ | 0.42 | | | $ | 0.76 | | | $ | 0.70 | |
During 2020, 2021, and 2022, performance share awards were granted to certain executive officers and key employees of the Company that will result in the issuance of common stock if the predefined performance criteria are met. The awards provide for an aggregate target of 279,374 shares, of which none have been included in the calculation of diluted EPS for the three or six months ended June 30, 2022 because the related threshold award performance levels have not been achieved as of June 30, 2022. See Note 10 - Stock-Based Compensation and Equity for more information.
9. INCOME TAXES
The Company determines the tax provision for interim periods using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our effective tax rate for the three months ended June 30, 2022 increased to 19.9% from 14.3% for the three months ended June 30, 2021. Our effective tax rate during the second quarter of 2021 benefited from changing estimates regarding certain state effective tax rates, with no such changes in estimated rates during the second quarter of 2022.
Our effective tax rate for the six months ended June 30, 2022 remained relatively unchanged from the effective tax rate for the six months ended June 30, 2021, decreasing slightly to 16.0% from16.1%.
10. STOCK-BASED COMPENSATION AND EQUITY
Stock-based compensation expense is measured at the grant date based on the fair value of the award, and is recognized as an expense over the employee's or non-employee director's requisite service period.
The following table details total stock-based compensation expense for the three and six months ended June 30, 2022 and 2021, included in the condensed consolidated statements of income: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Costs of sales | $ | 291 | | | $ | 269 | | | $ | 577 | | | $ | 482 | |
| Operating expenses | 1,412 | | | 1,175 | | | 2,843 | | | 1,997 | |
| Pre-tax stock-based compensation expense | 1,703 | | | 1,444 | | | 3,420 | | | 2,479 | |
| Less: income tax effect | (375) | | | (318) | | | (752) | | | (545) | |
| Net stock-based compensation expense | $ | 1,328 | | | $ | 1,126 | | | $ | 2,668 | | | $ | 1,934 | |
The Company's stock-based compensation awards are in the form of restricted stock and performance share awards granted pursuant to the Company's Amended and Restated 2019 Incentive Plan (the "Plan"), as amended. As of June 30, 2022, there was $13.4 million of unrecognized compensation expense related to unvested and unearned stock-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted-average period of 2.2 years.
Restricted Stock
The Company grants restricted stock to executive officers, certain key employees and non-employee directors under the Plan with the fair value of the awards representing the fair value of the common stock on the date the restricted stock is granted. Shares of restricted stock generally vest in equal annual installments over the applicable vesting period, which ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods.
A summary of restricted stock activity under the Plan during the six months ended June 30, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 | | |
| Shares | | Weighted-Average
Grant Date
Fair Value Per Share | | Shares | | Weighted-Average
Grant Date
Fair Value Per Share | | | | |
| Unvested restricted stock outstanding at beginning of period | 314,883 | | | $ | 29.79 | | | 412,967 | | | $ | 28.87 | | | | | |
| Granted | 144,064 | | | 34.44 | | | 153,700 | | | 31.22 | | | | | |
| | | | | | | | | | | |
| Vested | (181,405) | | | 29.79 | | | (245,455) | | | 29.16 | | | | | |
| Forfeited | (8,936) | | | 31.60 | | | (6,329) | | | 29.10 | | | | | |
| Unvested restricted stock outstanding at end of period | 268,606 | | | $ | 32.22 | | | 314,883 | | | $ | 29.79 | | | | | |
Performance Share Awards
The Company grants performance share awards to executive officers and certain key employees under the Plan, with the number of shares of common stock earned and issuable under each award determined at the end of a three-year performance period, based on the Company's achievement of performance goals predetermined by the Compensation Committee of the Board of Directors at the time of grant. These performance share awards include a modifier to the total number of shares earned based on the Company's total shareholder return ("TSR") compared to an industry index. If certain levels of the performance objective are met, the award results in the issuance of shares of common stock corresponding to such level. Performance share awards that result in the issuance of shares of common stock are not subject to time-based vesting at the conclusion of the three-year performance period.
In the event that the Company's financial performance meets the predetermined targets for the performance objectives of the performance share awards, the Company will issue each award recipient the number of shares of common stock equal to the target award specified in the individual's underlying performance share award agreement. In the event the financial results of the Company exceed the predetermined targets, additional shares up to the maximum award may be issued. In the event the financial results of the Company fall below the predetermined targets, a reduced number of shares may be issued. If the financial results of the Company fall below the threshold performance levels, no shares will be issued. The total number of shares issued for the performance share award may be increased, decreased, or unchanged based on the TSR modifier described above.
The recipients of performance share awards do not receive dividends or possess voting rights during the performance period and, accordingly, the fair value of the performance share awards is the quoted market value of CPSI's common stock on the grant date less the present value of the expected dividends not received during the relevant period. The TSR modifier applicable to the performance share awards is considered a market condition and therefore is reflected in the grant date fair value of the award. A Monte Carlo simulation has been used to account for this market condition in the grant date fair value of the award.
Expense related to performance share awards is recognized using ratable straight-line amortization over the three-year performance period. In the event the Company determines it is no longer probable that the minimum performance level will be achieved, all previously recognized compensation expense related to the applicable awards is reversed in the period such a determination is made.
A summary of performance share award activity under the Plan during the six months ended June 30, 2022 and 2021 is as follows, based on the target award amounts set forth in the performance share award agreements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 | | |
| Shares | | Weighted-Average
Grant Date
Fair Value Per Share | | Shares | | Weighted-Average
Grant Date
Fair Value Per Share | | | | |
| Performance share awards outstanding at beginning of period | 249,952 | | | $ | 29.59 | | | 252,852 | | | $ | 29.27 | | | | | |
| Granted | 101,799 | | | 37.98 | | | 93,444 | | | 31.26 | | | | | |
| Forfeited or unearned | (45,060) | | | 31.70 | | | (20,373) | | | 29.92 | | | | | |
| Earned and issued | (27,317) | | | 31.75 | | | (75,971) | | | 30.50 | | | | | |
| | | | | | | | | | | |
| Performance share awards outstanding at end of period | 279,374 | | | $ | 32.09 | | | 249,952 | | | $ | 29.59 | | | | | |
Stock Repurchases
On September 4, 2020, our Board of Directors approved a stock repurchase program under which we may repurchase up to $30.0 million of our common stock through September 3, 2022. On July 27, 2022, the Board of Directors extended the expiration date of the stock repurchase program to September 4, 2024. We repurchased 78,779 shares during the six months ended June 30, 2022 and 17,387 shares during the six months ended June 30, 2021. The approximate dollar value of shares that may yet be repurchased under the stock repurchase program was $25.6 million as of June 30, 2022. Any future stock repurchase transactions may be made through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Any repurchase activity will depend on many factors, such as the availability of shares of our common stock, general market conditions, the trading price of our common stock, alternative uses for capital, the Company’s financial performance, compliance with the terms of our Amended and Restated Credit Agreement and other factors. Concurrent with the authorization of this stock repurchase program, the Board of Directors opted to indefinitely suspend all quarterly dividends.
In addition to shares repurchased under the approved stock repurchase program, we purchased 52,905 shares during the six months ended June 30, 2022 and 21,444 shares during the six months ended June 30, 2021 to fund required tax withholdings related to the vesting of restricted stock. Shares withheld to cover required tax withholdings related to the vesting of restricted stock do not reduce our total share repurchase authority.
11. FINANCING RECEIVABLES
Short-Term Payment Plans
The Company provides fixed monthly payment arrangements ("short-term payment plans") over terms ranging from three to twelve months for certain add-on software installations. As a practical expedient, we do not adjust the amount of consideration recognized as revenue for the financing component as unearned income when we expect payment within one year or less. These receivables, included in the current portion of financing receivables, were comprised of the following at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Short-term payment plans, gross | $ | 56 | | | $ | 121 | |
| Less: allowance for losses | (3) | | | (6) | |
| Short-term payment plans, net | $ | 53 | | | $ | 115 | |
Long-Term Financing Arrangements
Additionally, the Company provides financing for purchases of its information and patient care systems to certain healthcare providers under long-term financing arrangements expiring in various years through 2028. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions that would be used for a separate financing transaction between the Company and licensee at contract inception, and takes into account the credit characteristics of the licensee and market interest rates as of the date of the agreement. As such, the amount of fixed fee revenue recognized at the beginning of the license term will be reduced by the calculated financing component. As payments are received from the licensee, the Company recognizes a portion of the financing component as interest income, reported as other income in the condensed consolidated statements of income. These receivables typically have terms from two to seven years.
The decrease in long-term financing arrangement balances during the six months ended June 30, 2022 is primarily a result of the continued evolution of customer licensing preferences. Although the overwhelming majority of our historical EHR installations prior to 2019 were made under a perpetual license model, the dramatic shift in customer preferences to a SaaS license model began during 2019 with 49% of the year's new acute care EHR installations being performed in a SaaS model, compared to only 12% in 2018. The shift in customer preference toward a SaaS model has since continued, with SaaS installations representing approximately 68% of new acute care EHR installations in 2020, 63% in 2021 and 100% in the first half of 2022. Due to the nature of the revenue recognition requirements for SaaS arrangements coupled with recurring monthly payments, these arrangements do not give rise to long-term financing arrangements.
The components of these receivables were as follows at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Long-term financing arrangements, gross | $ | 11,935 | | | $ | 15,659 | |
| Less: allowance for expected credit losses | (683) | | | (716) | |
| Less: unearned income | (926) | | | (1,339) | |
| Long-term financing arrangements, net | $ | 10,326 | | | $ | 13,604 | |
Future minimum payments to be received subsequent to June 30, 2022 are as follows:
| | | | | |
| (In thousands) | |
| Years Ending December 31, | |
| 2022 | $ | 3,147 | |
| 2023 | 4,632 | |
| 2024 | 2,670 | |
| 2025 | 1,309 | |
| 2026 | 153 | |
| Thereafter | 24 | |
| Total minimum payments to be received | 11,935 | |
| Less: allowance for expected credit losses | (683) | |
| Less: unearned income | (926) | |
| Receivables, net | $ | 10,326 | |
| |
Credit Quality of Financing Receivables and Allowance for Expected Credit Losses
The following table is a roll-forward of the allowance for expected credit losses for the six months ended June 30, 2022 and year ended December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Balance at Beginning of Period | | Provision | | Charge-offs | | Recoveries | | Balance at End of Period |
| June 30, 2022 | $ | 722 | | | $ | (36) | | | $ | — | | | $ | — | | | $ | 686 | |
| December 31, 2021 | $ | 1,489 | | | $ | 481 | | | $ | (1,248) | | | $ | — | | | $ | 722 | |
The Company’s financing receivables are comprised of a single portfolio segment, as the balances are all derived from short-term payment plan arrangements and long-term financing arrangements within our target market of community hospitals. The Company evaluates the credit quality of its financing receivables based on a combination of factors, including, but not limited to, customer collection experience, current and future economic conditions, the customer’s financial condition, and known risk characteristics impacting the respective customer base of community hospitals, the most notable of which relate to enacted and potential changes in Medicare and Medicaid reimbursement rates as community hospitals typically generate a significant portion of their revenues and related cash flows from beneficiaries of these programs. In addition to specific account identification, the Company utilizes historical collection experience to establish the allowance for expected credit losses. Financing receivables are written off only after the Company has exhausted all collection efforts.
Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms. To facilitate customer collection and credit monitoring efforts, financing receivable amounts are invoiced and reclassified to trade accounts receivable when they become due, with all invoiced amounts placed on nonaccrual status. As a result, all past due amounts related to the Company’s financing receivables are included in trade accounts receivable in the accompanying condensed consolidated balance sheets. The following is an analysis of the age of financing receivables amounts (excluding short-term payment plans) that have been reclassified to trade accounts receivable and were past due as of June 30, 2022 and December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 1 to 90 Days Past Due | | 91 to 180 Days Past Due | | 181 + Days Past Due | | Total Past Due |
| June 30, 2022 | $ | 928 | | | $ | 169 | | | $ | 449 | | | $ | 1,546 | |
| December 31, 2021 | $ | 713 | | | $ | 78 | | | $ | 73 | | | $ | 864 | |
From time to time, the Company may agree to alternative payment terms outside of the terms of the original financing receivable agreement due to customer difficulties in achieving the original terms. In general, such alternative payment arrangements do not result in a re-aging of the related receivables. Rather, payments pursuant to any alternative payment arrangements are applied to the already outstanding invoices beginning with the oldest outstanding invoices as the payments are received.
Because amounts are reclassified to trade accounts receivable when they become due, there are no past due amounts included within financing receivables, current portion, net or financing receivables, net of current portion in the accompanying condensed consolidated balance sheets.
The Company utilizes an aging of trade accounts receivable as the primary credit quality indicator for its financing receivables, which is facilitated by the reclassification of customer payment amounts to trade accounts receivable when they become due. The table below categorizes customer financing receivable balances (excluding short-term payment plans) based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Stratification of uninvoiced client financing receivables based on aging of related trade accounts receivable: | | | |
| Uninvoiced client financing receivables related to trade accounts receivable that are 1 to 90 Days Past Due | $ | 5,890 | | | $ | 9,100 | |
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due | 1,927 | | | 329 | |
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due | 864 | | | 386 | |
| Total uninvoiced client financing receivables balances of clients with a trade accounts receivable | $ | 8,681 | | | $ | 9,815 | |
| Total uninvoiced client financing receivables of clients with no related trade accounts receivable | 2,328 | | | 4,505 | |
| Total financing receivables with contractual maturities of one year or less | 56 | | | 121 | |
| Less: allowance for expected credit losses | (686) | | | (722) | |
| Total financing receivables | $ | 10,379 | | | $ | 13,719 | |
12. INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of June 30, 2022 and December 31, 2021 are summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| (In thousands) | Customer Relationships | | Trademark | | Developed Technology | | Non-Compete Agreements | | Total |
| Gross carrying amount, beginning of period | $ | 112,570 | | | $ | 12,320 | | | $ | 37,600 | | | $ | — | | | $ | 162,490 | |
| Intangible assets acquired | 19,600 | | | — | | | 3,200 | | | 1,400 | | | 24,200 | |
| Accumulated amortization | (46,874) | | | (5,626) | | | (23,124) | | | (93) | | | (75,717) | |
Net intangible assets as of June 30, 2022 | $ | 85,296 | | | $ | 6,694 | | | $ | 17,676 | | | $ | 1,307 | | | $ | 110,973 | |
| Weighted average remaining years of useful life | 9 | | 13 | | 8 | | 5 | | 10 |
| | | | | | | | | |
| December 31, 2021 |
| (In thousands) | Customer Relationships | | Trademark | | Developed Technology | | Non-Compete Agreements | | Total |
| Gross carrying amount, beginning of period | $ | 84,370 | | | $ | 11,120 | | | $ | 29,700 | | | $ | — | | | $ | 125,190 | |
| Intangible assets acquired | 28,200 | | | 1,200 | | | 7,900 | | | — | | | 37,300 | |
| Accumulated amortization | (41,738) | | | (5,177) | | | (20,372) | | | — | | | (67,287) | |
Net intangible assets as of December 31, 2021 | $ | 70,832 | | | $ | 7,143 | | | $ | 17,228 | | | $ | — | | | $ | 95,203 | |
The following table represents the remaining amortization of definite-lived intangible assets as of June 30, 2022: | | | | | |
| (In thousands) | |
| For the year ended December 31, | |
| 2022 | $ | 8,973 | |
| 2023 | 16,058 | |
| 2024 | 14,523 | |
| 2025 | 14,208 | |
| 2026 | 12,919 | |
| Thereafter | 44,292 | |
| Total | $ | 110,973 | |
The following table sets forth the change in the carrying amount of goodwill by segment for the six months ended June 30, 2022: | | | | | | | | | | | | | | |
| (In thousands) | Acute Care EHR | Post-acute Care EHR | TruBridge | Total |
Balance as of December 31, 2021 | $ | 97,095 | | $ | 29,570 | | $ | 51,048 | | $ | 177,713 | |
| Goodwill acquired | — | | — | | 20,873 | | 20,873 | |
| | | | |
Balance as of June 30, 2022 | $ | 97,095 | | $ | 29,570 | | $ | 71,921 | | $ | 198,586 | |
Goodwill is evaluated for impairment annually on October 1, or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist.
13. LONG-TERM DEBT
Long-term debt was comprised of the following at June 30, 2022 and December 31, 2021: | | | | | | | | | | | |
| (In thousands) | June 30,
2022 | | December 31, 2021 |
| Term loan facility | $ | 69,125 | | | $ | 69,375 | |
| Revolving credit facility | 73,700 | | | 31,000 | |
| | | |
| Debt obligations | 142,825 | | | 100,375 | |
| Less: unamortized debt issuance costs | (1,726) | | | (1,015) | |
| Debt obligation, net | 141,099 | | | 99,360 | |
| Less: current portion | (3,141) | | | (4,394) | |
| Long-term debt | $ | 137,958 | | | $ | 94,966 | |
As of June 30, 2022, the carrying value of debt approximated the fair value due to the variable interest rate, which reflected the market rate.
Credit Agreement
In conjunction with our acquisition of HHI in January 2016, we entered into a syndicated credit agreement with Regions Bank ("Regions") serving as administrative agent, which provided for a $125 million term loan facility and a $50 million revolving credit facility. On June 16, 2020, we entered into an Amended and Restated Credit Agreement that increased the aggregate principal amount of our credit facilities to $185 million, including a $75 million term loan facility and a $110 million revolving credit facility. On May 2, 2022, we entered into a First Amendment (the "First Amendment") to the Amended and Restated Credit Agreement, that increased the aggregate principal amount of our credit facilities to $230 million, which includes a $70 million term loan facility and a $160 million revolving credit facility. In addition, the interest rate provisions of the First Amendment reflect the transition from the London Interbank Offered Rate (" LIBOR") to the Secured Overnight Financing Rate ("SOFR") as the new benchmark interest rate for each loan.
Each of our credit facilities continues to bear interest at a rate per annum equal to an applicable margin plus, at our option, either (1) the Adjusted SOFR rate for the relevant interest period, subject to a floor of 0.50%, (2) an alternate base rate determined by reference to the greater of (a) the prime lending rate of Regions, (b) the federal funds rate for the relevant
interest period plus one half of one percent per annum and (c) the one month SOFR rate, subject to the aforementioned floor, plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for SOFR loans and the letter of credit fee ranges from 1.8% to 3.0%. The applicable margin range for base rate loans ranges from 0.8% to 2.0%, in each case based on the Company's consolidated net leverage ratio.
Principal payments with respect to the term loan facility are due on the last day of each fiscal quarter beginning June 30, 2022, with quarterly principal payments of approximately $0.9 million through March 31, 2027, with maturity on May 2, 2027 or such earlier date as the obligations under the Amended and Restated Credit Agreement as amended by the First Amendment become due and payable pursuant to the terms of such agreement. Any principal outstanding under the revolving credit facility is due and payable on the maturity date.
Anticipated annual future maturities of the term loan facility and revolving credit facility are as follows as of June 30, 2022: | | | | | |
| (In thousands) | |
| 2022 | $ | 1,750 | |
| 2023 | 3,500 | |
| 2024 | 3,500 | |
| 2025 | 3,500 | |
| 2026 | 3,500 | |
| Thereafter | 127,075 | |
| $ | 142,825 | |
Our credit facilities are secured pursuant to the Amended and Restated Credit Agreement, dated as of June 16, 2020, among the parties identified as obligors therein and Regions, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible assets (subject to certain exceptions) of the Company and certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”), including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. Our obligations under the Amended and Restated Credit Agreement are also guaranteed by the Subsidiary Guarantors.
The First Amendment provides incremental facility capacity of $75 million, subject to certain conditions. The Amended and Restated Credit Agreement, as amended by the First Amendment, includes a number of restrictive covenants that, among other things and in each case subject to certain exceptions and baskets, impose operating and financial restrictions on the Company and the Subsidiary Guarantors, including the ability to incur additional debt; incur liens and encumbrances; make certain restricted payments, including paying dividends on the Company's equity securities or payments to redeem, repurchase, or retire the Company's equity securities (which are subject to our compliance, on a pro forma basis to give effect to the restricted payment, with the fixed charge coverage ratio and consolidated net leverage ratio described below); enter into certain restrictive agreements; make investments, loans and acquisitions; merge or consolidate with any other person; dispose of assets; enter into sale and leaseback transactions; engage in transactions with affiliates; and materially alter the business we conduct. The First Amendment requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the First Amendment, the Company is required to comply with a maximum consolidated net leverage ratio of 3.75:1.00 for each quarter through March 31, 2023, after which time the maximum consolidated net leverage ratio will be 3.50:1.00. Further, under the First Amendment, in connection with any acquisition by the Company exceeding $25 million, the Company may elect to increase the maximum permitted consolidated net leverage ratio for the fiscal quarter in which the acquisition occurs and each of the following three fiscal quarters by 0.50:1.00 above the otherwise permitted maximum. If the consolidated net leverage ratio is less than 2.50:1.00, there is no limit on the amount of incremental facilities. The Amended and Restated Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in such agreement as of June 30, 2022.
The First Amendment removed the requirement that the Company mandatorily prepay the credit facilities with excess cash flow generated during the prior fiscal year. The Company is permitted to voluntarily prepay the credit facilities at any time without penalty, subject to customary “breakage” costs with respect to prepayments of SOFR rate loans made on a day other than the last day of any applicable interest period.
14. OPERATING LEASES
The Company leases office space in various locations in Alabama, Pennsylvania, Minnesota, Maryland, Mississippi, and Washington. These leases have terms expiring from 2022 through 2030 but do contain optional extension terms. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Supplemental balance sheet information related to operating leases was as follows: | | | | | | | |
| (In thousands) | June 30,
2022 | | |
| Operating lease assets | | | |
| Operating lease assets | $ | 8,304 | | | |
| Operating lease liabilities | | | |
| Other accrued liabilities | 1,477 | | | |
| Operating lease liabilities, net of current portion | 6,827 | | | |
| Total operating lease liabilities | $ | 8,304 | | | |
| Weighted average remaining lease term in years | 6 | | |
| Weighted average discount rate | 4.3% | | |
Because our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.
The future minimum lease payments payable under these operating leases subsequent to June 30, 2022 are as follows: | | | | | |
| (In thousands) | |
| 2022 | $ | 990 | |
| 2023 | 1,967 | |
| 2024 | 1,898 | |
| 2025 | 1,202 | |
| 2026 | 1,225 | |
| Thereafter | 2,065 | |
| Total lease payments | 9,347 | |
| Less imputed interest | (1,043) | |
| Total | $ | 8,304 | |
Total lease expense for the six months ended June 30, 2022 and 2021 was $0.9 million and $1.0 million, respectively.
Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the six months ended June 30, 2022 was $0.9 million.
15. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Management does not believe it is reasonably possible that such matters will have a material adverse effect on the Company’s financial statements.
16. FAIR VALUE
FASB Codification topic, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value
measurements. The Codification requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
As of June 30, 2022, we measured the fair value of contingent consideration that represents the potential earnout incentive for TruCode's former equity holders. We estimated the fair value of the contingent consideration based on the probability of TruCode meeting EBITDA targets (subject to certain pro-forma adjustments). We did not have any other instruments that required fair value measurement as of June 30, 2022.
The following tables summarize the carrying amounts and fair value of the contingent consideration at June 30, 2022 and December 31, 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at June 30, 2022 Using |
| Carrying Amount at | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| (In thousands) | 6/30/2022 | | (Level 1) | | (Level 2) | | (Level 3) |
| Description | | | | | | | |
| Contingent consideration | $ | 920 | | | $ | — | | | $ | — | | | $ | 920 | |
| Total | $ | 920 | | | $ | — | | | $ | — | | | $ | 920 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value at December 31, 2021 Using |
| Carrying Amount at | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| (In thousands) | 12/31/2021 | | (Level 1) | | (Level 2) | | (Level 3) |
| Description | | | | | | | |
| Contingent consideration | $ | 2,500 | | | $ | — | | | $ | — | | | $ | 2,500 | |
| Total | $ | 2,500 | | | $ | — | | | $ | — | | | $ | 2,500 | |
17. SEGMENT REPORTING
Our chief operating decision makers ("CODM") utilize three operating segments, "TruBridge," "Acute Care EHR," and "Post-acute Care EHR" based on our three distinct business units with unique market dynamics and opportunities. These segments represent the components of the Company for which separate financial information is available that is utilized on a regular basis by the CODM in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of the segments based on revenues and adjusted EBITDA. The Company previously evaluated the performance of the segments based on segment gross profit. Management believes adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. Our CODM group is comprised of the Chief Executive Officer, Chief Growth Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. There are no intersegment revenues to be eliminated in computing segment revenue.
The CODM do not evaluate operating segments nor make decisions regarding operating segments based on assets. Consequently, we do not disclose total assets by reportable segment.
The following table presents a summary of the revenues and adjusted EBITDA of our three operating segments for the three and six months ended June 30, 2022 and 2021: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues by segment: | | | | | | | |
| TruBridge | $ | 48,583 | | | $ | 32,566 | | | 91,692 | | | 64,205 | |
| Acute Care EHR | | | | | | | |
| Recurring revenue | 26,732 | | | 26,807 | | | $ | 54,097 | | | $ | 54,017 | |
| Non-recurring revenue | 2,939 | | | 4,755 | | | 5,966 | | | 9,435 | |
| Total Acute Care EHR revenue | 29,671 | | | 31,562 | | | 60,063 | | | 63,452 | |
| Post-acute Care EHR | | | | | | | |
| Recurring revenue | 3,792 | | | 4,170 | | | 7,687 | | | 8,392 | |
| Non-recurring revenue | 680 | | | 235 | | | 1,155 | | | 489 | |
| Total Post-acute Care EHR revenue | 4,472 | | | 4,405 | | | 8,842 | | | 8,881 | |
| Total revenues | $ | 82,726 | | | $ | 68,533 | | | $ | 160,597 | | | $ | 136,538 | |
| | | | | | | |
| Adjusted EBITDA by segment: | | | | | | | |
| TruBridge | 8,744 | | | 6,860 | | | 19,549 | | | 13,378 | |
| Acute Care EHR | 4,311 | | | 6,190 | | | 9,332 | | | 10,876 | |
| Post-acute Care EHR | 114 | | | 1,242 | | | 442 | | | 1,862 | |
| Total adjusted EBITDA | $ | 13,169 | | | $ | 14,292 | | | $ | 29,323 | | | $ | 26,116 | |
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The following table reconciles net income from continuing operations to adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Net income, as reported | $ | 3,076 | | | $ | 6,141 | | | 11,189 | | | 10,285 | |
| Deferred revenue and other acquisition-related adjustments | 30 | | | 158 | | | 109 | | | 158 | |
| Depreciation expense | 690 | | | 563 | | | 1,269 | | | 1,116 | |
| Amortization of software development costs | 733 | | | 192 | | | 1,259 | | | 265 | |
| Amortization of acquisition-related intangibles | 4,758 | | | 3,383 | | | 8,430 | | | 6,440 | |
| Stock-based compensation | 1,703 | | | 1,444 | | | 3,420 | | | 2,479 | |
| Severance and other non-recurring charges | 667 | | | 814 | | | 1,262 | | | 3,007 | |
| Interest expense and other, net | 1,079 | | | 573 | | | 1,839 | | | 386 | |
| Gain on contingent consideration | (330) | | | — | | | (1,580) | | | — | |
| Provision for income taxes | 763 | | | 1,024 | | | 2,126 | | | 1,980 | |
| Total adjusted EBITDA | $ | 13,169 | | | $ | 14,292 | | | $ | 29,323 | | | $ | 26,116 | |
Certain of the items excluded or adjusted to arrive at adjusted EBITDA are described below:
•Deferred revenue and other acquisition-related adjustments - Deferred revenue and other acquisition-related adjustments includes acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in business acquisitions. The fair value of deferred revenue represents an amount equivalent to the estimated cost plus an appropriate profit margin, to perform services related to the acquiree's software and product support, which assumes a legal obligation to do so, based on the deferred revenue balance as of the acquisition date. We add back deferred revenue and other adjustments for adjusted EBITDA because we believe the inclusion of this amount directly correlates to the underlying performance of our operations.
•Amortization of acquisition-related intangibles - Acquisition related amortization expense is a non-cash expense arising primarily from the acquisition of intangibles in connection with acquisitions or investments. We exclude acquisition-related amortization expense from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets.
•Stock-based compensation - Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards. We exclude stock-based compensation expense from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing and valuation of grants of new stock-based awards, including grants in connection with acquisitions.
•Severance and other non-recurring charges - Non-recurring charges relate to certain severance and other charges incurred in connection with activities that are considered non-recurring. We exclude non-recurring expenses (primarily related to costs associated with our recent business transformation initiative and non-recurring lease termination costs) and transaction-related costs from adjusted EBITDA because we believe (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods.
18. SUBSEQUENT EVENTS
On July 27, 2022, our Board of Directors extended the expiration date of the Company's existing $30 million stock repurchase program to September 4, 2024. The repurchase program was originally approved by the Company's Board of Directors on September 4, 2020, and was set to expire on September 4, 2022, prior to this extension. Under this program, the Company has repurchased 146,200 shares of common stock as of August 3, 2022, with an aggregate value of $4.4 million, and $25.6 million remains authorized for future repurchases.