COMPUTER PROGRAMS & SYSTEMS INC [CPSI] Filings

10-Q 1 cpsi-20230331.htm 10-Q cpsi-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-49796

COMPUTER PROGRAMS AND SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware						74-3032373
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

54 St. Emanuel Street, Mobile, Alabama						36602
(Address of Principal Executive Offices)						(Zip Code)

(251) 639-8100

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $.001 per share	CPSI	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of May 8, 2023, there were 14,528,307 shares of the issuer’s common stock outstanding.

COMPUTER PROGRAMS AND SYSTEMS, INC.

Quarterly Report on Form 10-Q

(For the three months ended March 31, 2023)

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) – March 3 1 , 202 3 and December 31, 20 2 2	3
	Condensed Consolidated Statements of Income (Unaudited) – Three Months Ended March 3 1 , 202 3 and 20 2 2	4
	Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Three Months Ended March 3 1 , 202 3 and 20 2 2	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Th ree Months Ended March 3 1 , 202 3 and 20 2 2	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40

PART I

FINANCIAL INFORMATION


Item 1.			Financial Statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	6,816	$	6,951
Accounts receivable (net of allowance for expected credit losses of $2,850 and $2,854, respectively)	54,731		51,311
Financing receivables, current portion, net (net of allowance for expected credit losses of $139 and $223, respectively)	4,424		4,474
Inventories	1,182		784
Prepaid income taxes	464		701
Prepaid expenses and other	14,683		10,338
Total current assets	82,300		74,559
Property and equipment, net	9,402		9,884
Software development costs, net	32,004		27,257
Operating lease assets	7,156		7,567
Financing receivables, net of current portion (net of allowance for expected credit losses of $379 and $326, respectively)	2,774		3,312
Other assets, net of current portion	6,973		8,131
Intangible assets, net	97,985		102,000
Goodwill	198,253		198,253

Total assets	$	436,847	$	430,963
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,640	$	7,035
Current portion of long-term debt	3,141		3,141
Deferred revenue	11,637		11,590
Accrued vacation	6,467		6,214

Other accrued liabilities	15,264		16,475
Total current liabilities	49,149		44,455
Long-term debt, net of current portion	135,603		136,388
Operating lease liabilities, net of current portion	5,207		5,651
Deferred tax liabilities	13,330		12,758
Total liabilities	203,289		199,252
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 15,099 and 14,906 shares issued, respectively	15		15
Additional paid-in capital	193,522		192,275

Retained earnings	57,005		53,921
Treasury stock, 568 shares and 483 shares, respectively	(16,984)		(14,500)
Total stockholders’ equity	233,558		231,711
Total liabilities and stockholders’ equity	$	436,847	$	430,963

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Sales revenues:
RCM	$	48,631	$	40,511
EHR	35,191		34,763
Patient engagement	2,411		2,597
Total sales revenues	86,233		77,871
Costs of sales:
RCM	27,183		20,398
EHR	16,348		15,339
Patient engagement	646		944
Total costs of sales	44,177		36,681
Gross profit	42,056		41,190
Operating expenses:
Product development	9,836		8,064
Sales and marketing	6,959		7,042
General and administrative	14,952		13,426
Amortization of acquisition-related intangibles	4,014		3,672
Total operating expenses	35,761		32,204
Operating income	6,295		8,986
Other income (expense):
Other income	267		157
Gain on contingent consideration	—		1,250

Interest expense	(2,669)		(917)
Total other (expense) income	(2,402)		490
Income before taxes	3,893		9,476
Provision for income taxes	809		1,363
Net income	$	3,084	$	8,113
Net income per common share—basic	$	0.21	$	0.55
Net income per common share—diluted	$	0.21	$	0.55
Weighted average shares outstanding used in per common share computations:
Basic	14,136		14,381
Diluted	14,136		14,381

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-in-Capital		Retained Earnings		Treasury Stock		Total Stockholders’ Equity

	Shares	Amount
Three Months Ended March 31, 2023 and 2022:
Balance at December 31, 2022	14,913	$	15	$	192,275	$	53,921	$	(14,500)	$	231,711
Net income	—	—		—		3,084		—		3,084

Issuance of restricted stock	186	—		—		—		—		—

Stock-based compensation	—	—		1,247		—		—		1,247
Treasury stock acquired	—	—		—		—		(2,484)		(2,484)
Balance at March 31, 2023	15,099	$	15	$	193,522	$	57,005	$	(16,984)	$	233,558

Balance at December 31, 2021	14,734	$	15	$	187,079	$	38,054	$	(2,576)	$	222,572
Net income	—	—		—		8,113		—		8,113

Issuance of restricted stock	172	—		—		—		—		—






















Stock-based compensation	—	—		1,717		—		—		1,717
Treasury stock acquired	—	—		—		—		(1,650)		(1,650)

Balance at March 31, 2022	14,906	$	15	$	188,796	$	46,167	$	(4,226)	$	230,752

The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Operating Activities:
Net income	$	3,084	$	8,113
Adjustments to net income:
Provision for credit losses	(352)		734
Deferred taxes	572		692
Stock-based compensation	1,247		1,717
Depreciation	498		578

Amortization of acquisition-related intangibles	4,014		3,672
Amortization of software development costs	1,486		526
Amortization of deferred finance costs	90		73
Gain on contingent consideration	—		(1,250)


Changes in operating assets and liabilities:
Accounts receivable	(3,099)		(2,020)
Financing receivables	619		1,810
Inventories	(398)		288
Prepaid expenses and other	(3,187)		(2,316)
Accounts payable	5,605		(1,140)
Deferred revenue	47		2,602
Other liabilities	(990)		(2,951)
Prepaid income taxes	237		689
Net cash provided by operating activities	9,473		11,817
Investing Activities:
Purchase of business, net of cash acquired	—		(43,362)
Investment in software development	(6,233)		(4,291)
Purchase of property and equipment	(16)		(27)
Net cash used in investing activities	(6,249)		(47,680)
Financing Activities:


Payments of long-term debt principal	(875)		(937)

Proceeds from revolving line of credit	5,000		48,000
Payments of revolving line of credit	(5,000)		(5,000)

Treasury stock purchases	(2,484)		(1,650)
Net cash (used in) provided by financing activities	(3,359)		40,413
(Decrease) increase in cash and cash equivalents	(135)		4,550
Cash and cash equivalents at beginning of period	6,951		11,431
Cash and cash equivalents at end of period	$	6,816	$	15,981
Supplemental disclosure of cash flow information:
Cash paid for interest	$	898	$	843
Cash paid for income taxes, net of refund	$	—	$	48
The accompanying notes are an integral part of these condensed consolidated financial statements.

COMPUTER PROGRAMS AND SYSTEMS, INC.

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, 2022 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, 2022 and the notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Commencing with the fourth quarter of 2022, the Company realigned its reporting structure due to certain organizational changes. As a result, the Company changed its three reportable segments from (i) TruBridge, (ii) Acute Care Electronic Health Record ("EHR"), and (iii) Post-acute Care EHR to (i) Revenue Cycle Management ("RCM"), (ii) EHR, and (iii) Patient engagement. All prior segment information has been recast to reflect the Company's new segment structure and current period presentation. Refer to Note 17 - Segment Reporting for more information.

During the first quarter of 2023, we identified certain costs related to the implementation of our cloud strategy and our security operations center that were recorded within the caption "Costs of Sales - EHR" on our condensed consolidated statements of income, that we determined do not solely contribute to the production of EHR products and services, but support the overall business. Consequently, effective January 1, 2023, certain costs related to the implementation of our cloud strategy, which were formerly included within the caption "Costs of Sales - EHR" have been recorded as components of "Operating expenses - Product development". In addition, certain costs related to the Company's security operations center, which were formerly included within the caption "Costs of Sales - EHR" have been recorded as components of "Operating expenses - General and administrative". Additionally, immaterial travel costs were reclassified from within the caption "Costs of Sales - RCM" to "Operating expenses - Product development". Amounts presented for the three months ended March 31, 2022 have been reclassified to conform to the current presentation.

In addition, during the first quarter of 2023, we refined our operating expense allocation methodology to more accurately distribute the appropriate share of costs among operating segments. Amounts presented for the three months ended March 31, 2022 are reflective of the current operating expense methodology in order to conform to the current presentation.

The following table provides the amounts reclassified and the impact of applying the current operating expense allocation methodology for the three months ended March 31, 2022.


(in thousands)	As previously reported		Re-classifications		As reclassified		Impact of operating expense allocations		As currently reported
Costs of sales
RCM	$	20,430	$	(32)	$	20,398	$	—	$	20,398
EHR	16,683		(687)		15,996		(657)		15,339
Gross Profit	39,815		719		40,534		657		41,190
Operating expenses
Product development	7,101		306		7,407		657		8,064
General and administrative	13,014		412		13,426		—		13,426
Total operating expenses	$	30,829	$	718	$	31,547	$	657	$	32,204

Principles of Consolidation

The condensed consolidated financial statements of CPSI include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

2. RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Standards Adopted in 2023

There were no new accounting standards required to be adopted in 2023 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.

•Revenue Cycle Management

Our RCM business unit 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. SSP for BPS services is determined based on observable stand-alone selling prices. 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.

Our RCM business unit also provides professional IT services. Revenue from professional IT services is recognized as the services are performed based on SSP, which is determined by observable stand-alone selling prices. Payment is due monthly as services are performed.

Lastly, our RCM business unit also provides certain software solutions and related support under Software as a Service ("SaaS") arrangements and time-based software licenses. Revenue from SaaS arrangements is recognized in a manner consistent with SaaS arrangements for EHR software, as discussed below. Revenue from time-based software licenses is recognized upon delivery to the client (“point in time”) and revenue from non-license components (i.e., support) is recognized ratably over the respective contract term (“over time”). SSP for time-based licenses is determined using the residual approach, while the non-license component is based on cost plus reasonable margin.

•Electronic Health Records

The Company enters into contractual obligations to sell perpetual software licenses, installation, conversion, and related training services, software application support, hardware, and hardware maintenance services to acute care community hospitals and post-acute providers.

•Non-recurring Revenues

•Perpetual software licenses and installation, conversion, and related training services 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. We determine each module's SSP using the residual method. Fees for licenses and installation, conversion, and related training services 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. EHR implementations include a system warranty that terminates thirty days from the software go-live date, the date 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 and revenue is recognized on a gross basis. 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 and maintenance 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, and revenue is recognized on a gross basis. Payment is due monthly for subscriptions to third party content.

•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 of the consolidated financial statements for further information, including revenue by client base (acute care or post-acute care) bifurcated by recurring and non-recurring revenue.

•Patient Engagement

The Company enters into contractual obligations to sell perpetual and term-based software licenses, implementation and customization professional services, and software application support services to a variety of healthcare organizations including hospital systems, health ministries, and government and non-profit organizations.

•Non-recurring Revenues

•Perpetual software licenses are sold only to one re-seller client and are considered a separate and distinct performance obligation. Revenue is recognized at the point in time perpetual licenses are delivered to the client, which occurs at the time of sale. The SSP of perpetual licenses is directly observable. Payment is generally due upon delivery of licenses.

•Implementation and customization services are considered a separate and distinct performance obligation. Revenue is recognized over time based on SSP, which is generally directly observable. Payment for professional services is typically due in two installments: (1) upon signature of the agreement and (2) upon customer acceptance of the delivered services.

•Recurring Revenues

•Term-based software licenses are considered a separate and distinct performance obligation. Revenue is recognized based on SSP, which is directly observable, at the point in time the term-based licenses

are delivered to the client or upon annual renewal. Payment is generally due upon delivery of licenses or upon annual renewal.

•Software application support services sold with software licenses are separate and distinct performance obligations. The related revenues are 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 generally due for the full amount of annual support fees at the beginning of an annual license term.

Refer to Note 17 of the condensed consolidated financial statements for further information.

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 three months ended March 31, 2023 and 2022, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Beginning balance	$	11,590	$	11,529
Deferred revenue recorded	6,490		9,263

Less deferred revenue recognized as revenue	(6,443)		(6,661)
Ending balance	$	11,637	$	14,131

The deferred revenue recorded during the three months ended March 31, 2023 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 three months ended March 31, 2023 and 2022 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 and RCM arrangements, 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. Costs to obtain a contract are expensed within the caption "Operating expenses - Sales and marketing" 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, conversions, and installation that is necessary for the software to be utilized. Contract fulfillment costs are expensed within the caption "Costs of sales - EHR" in the accompanying condensed consolidated statements of income.

Costs to obtain and fulfill contracts related to SaaS and RCM 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 three months ended March 31, 2023 and 2022, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Beginning balance	$	11,577	$	7,312
Costs to obtain and fulfill contracts capitalized	1,824		3,047
Less costs to obtain and fulfill contracts recognized as expense	(1,264)		(1,799)
Ending balance	$	12,137	$	8,560

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 incurred approximately $1.2 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 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 was based on management's judgment after evaluating several factors, including a valuation assessment.

The allocation of the purchase price paid for HRG 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	20,750
Accounts payable and accrued liabilities	(2,403)
Deferred taxes, net	(5,565)
Operating lease liability	(1,315)


Net assets acquired	$	47,564

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.

5. PROPERTY AND EQUIPMENT

Property and equipment, net was comprised of the following at March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Land	$	2,848	$	2,848
Buildings and improvements	8,320		8,320

Computer equipment	8,228		8,228
Leasehold improvements	783		783
Office furniture and fixtures	1,024		1,008
Automobiles	18		18
Property and equipment, gross	21,221		21,205
Less: accumulated depreciation	(11,819)		(11,321)
Property and equipment, net	$	9,402	$	9,884

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 useful life of the asset is determined to be shorter than our estimated useful life, we will amortize the remaining book value over the remaining actual useful life, or the asset may be deemed to be impaired and, accordingly, 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.

Software development costs, net was comprised of the following at March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Software development costs	$	38,023	$	31,789
Less: accumulated amortization	(6,019)		(4,532)
Software development costs, net	$	32,004	$	27,257

7. OTHER ACCRUED LIABILITIES

Other accrued liabilities was comprised of the following at March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Salaries and benefits	$	7,120	$	8,430
Severance	2,102		2,504
Commissions	971		1,280
Self-insurance reserves	—		1,358
Interest	1,681		—
Operating lease liabilities, current portion	2,075		2,063
Other	1,315		840
Other accrued liabilities	$	15,264	$	16,475

Prior to 2023, our employee health benefits plan was administered as a self-insured plan, with the Company bearing the risk of claims (partially limited by related stop-loss insurance, as is industry norm). Under a self-insured plan, we maintained reserves for an estimate of the liability from claims that have been incurred but were not yet reported at the end of the period. Effective January 1, 2023, our employee health benefits plan is now administered as a fully-insured plan, with full risk of claims exposure transferred to the health insurance carrier, thus ceasing the need for self-insurance reserves.

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 March 31,
(In thousands, except per share data)	2023		2022
Net income	$	3,084	$	8,113
Less: Net income attributable to participating securities	(63)		(166)
Net income attributable to common stockholders	$	3,021	$	7,947

Weighted average shares outstanding used in basic per common share computations	14,136		14,381
Add: Dilutive potential common shares	—		—
Weighted average shares outstanding used in diluted per common share computations	14,136		14,381

Basic EPS	$	0.21	$	0.55
Diluted EPS	$	0.21	$	0.55

During 2021, 2022, and 2023, 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 279,712 shares, of which none have been included in the calculation of diluted EPS for the three months ended March 31, 2023 because the related threshold award performance levels have not been achieved as of March 31, 2023. 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 March 31, 2023 increased to 20.8% from 14.4% for the three months ended March 31, 2022. A non-taxable gain of $1.25 million resulting from a partial reversal of the TruCode earnout benefited our effective tax rate by 2.8% for the three months ended March 31, 2022. Additionally, changes in income tax benefits related to stock based compensation resulted in a 2.5% increase in the first quarter of 2023's effective tax rate compared to the first quarter of 2022, as the first quarter of 2023 experienced a shortfall in income tax benefits related to stock based compensation, increasing the period's effective tax rate by 1.3%. Conversely, the first quarter of 2022 experienced a windfall in income tax benefits related to stock based compensation, decreasing the period's effective tax rate by 1.2%.

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 months ended March 31, 2023 and 2022, included in the condensed consolidated statements of income:


	Three Months Ended March 31,
(In thousands)	2023		2022
Costs of sales	$	181	$	267
Operating expenses	1,066		1,450
Pre-tax stock-based compensation expense	1,247		1,717
Less: income tax effect	(274)		(378)
Net stock-based compensation expense	$	973	$	1,339

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 of March 31, 2023, there was $13.7 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 2.5 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. During the vesting period, recipients of restricted stock are entitled to dividends and possess voting rights. 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 three months ended March 31, 2023 and 2022 is as follows:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
	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	281,161	$	32.24	314,883	$	29.79
Granted	185,487	29.23		144,064	34.44

Vested	(133,298)	31.33		(174,943)	29.75

Unvested restricted stock outstanding at end of period	333,350	$	30.93	284,004	$	32.17

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 a small-cap stock market 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 may 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 three months ended March 31, 2023 and 2022 is as follows, based on the target award amounts set forth in the performance share award agreements:


	Three Months Ended March 31, 2023			Three Months Ended March 31, 2022
	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	252,375	$	31.84	249,952	$	29.59
Granted	123,406	31.21		101,799	37.98
Forfeited or unearned	(96,069)	26.96		(25,948)	31.75
Earned and issued	—	—		(27,317)	31.75

Performance share awards outstanding at end of period	279,712	$	33.24	298,486	$	32.06

Stock Repurchases

On September 4, 2020, our Board of Directors approved a stock repurchase program under which we were authorized to 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 49,789 shares during the three months ended March 31, 2023 and no shares during the three months ended March 31, 2022. The approximate dollar value of shares that may yet be repurchased under the stock repurchase program was $16.5 million as of March 31, 2023. 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 in September 2020, the Board of Directors opted to indefinitely suspend all quarterly dividends.

In addition to shares repurchased under the approved stock repurchase program, we purchased 36,095 shares during the three months ended March 31, 2023 and 50,720 shares during the three months ended March 31, 2022 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 March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Short-term payment plans, gross	$	599	$	330
Less: allowance for losses	(30)		(16)
Short-term payment plans, net	$	569	$	314

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 three months ended March 31, 2023 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 2022 and the three months ended March 31, 2023. 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 March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Long-term financing arrangements, gross	$	7,704	$	8,683
Less: allowance for expected credit losses	(488)		(533)
Less: unearned income	(587)		(678)
Long-term financing arrangements, net	$	6,629	$	7,472

Future minimum payments to be received subsequent to March 31, 2023 are as follows:


(In thousands)
Years Ending December 31,
2023	$	3,398
2024	2,795
2025	1,332
2026	153
2027	15
Thereafter	11
Total minimum payments to be received	7,704
Less: allowance for expected credit losses	(488)
Less: unearned income	(587)
Receivables, net	$	6,629

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 three months ended March 31, 2023 and year ended December 31, 2022:


(In thousands)	Balance at Beginning of Period		Provision		Charge-offs		Recoveries		Balance at End of Period
March 31, 2023	$	549	$	(31)	$	—	$	—	$	518
December 31, 2022	$	722	$	(211)	$	38	$	—	$	549

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 March 31, 2023 and December 31, 2022:


(In thousands)	1 to 90 Days Past Due		91 to 180 Days Past Due		181 + Days Past Due		Total Past Due
March 31, 2023	$	507	$	411	$	279	$	1,197
December 31, 2022	$	1,086	$	278	$	283	$	1,647

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)	March 31, 2023		December 31, 2022
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	$	3,137	$	3,876
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	1,557		1,369
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	882		1,894
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	5,576	$	7,139
Total uninvoiced client financing receivables of clients with no related trade accounts receivable	1,541		866
Total financing receivables with contractual maturities of one year or less	599		330
Less: allowance for expected credit losses	(518)		(549)
Total financing receivables	$	7,198	$	7,786

12. INTANGIBLE ASSETS AND GOODWILL

Our purchased definite-lived intangible assets as of March 31, 2023 and December 31, 2022 are summarized as follows:


	March 31, 2023
(In thousands)	Customer Relationships		Trademark		Developed Technology		Non-Compete Agreements		Total
Gross carrying amount, beginning of period	$	132,170	$	12,320	$	40,800	$	1,400	$	186,690

Accumulated amortization	(55,120)		(6,300)		(26,982)		(303)		(88,705)
Net intangible assets as of March 31, 2023	$	77,050	$	6,020	$	13,818	$	1,097	$	97,985
Weighted average remaining years of useful life	8		13		8		4		10

	December 31, 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	(52,371)		(6,076)		(26,010)		(233)		(84,690)
Net intangible assets as of December 31, 2022	$	79,799	$	6,244	$	14,790	$	1,167	$	102,000

The following table represents the remaining amortization of definite-lived intangible assets as of March 31, 2023:


(In thousands)
For the year ended December 31,
2023	$	12,043
2024	14,523
2025	14,208
2026	12,919
2027	9,047
Thereafter	35,245
Total	$	97,985

The following table sets forth the change in the carrying amount of goodwill by segment for the three months ended March 31, 2023:


(In thousands)	RCM		EHR		Patient engagement		Total
Balance as of December 31, 2022	$	61,821	$	126,665	$	9,767	$	198,253
Goodwill impairment	—		—		—		—

Balance as of March 31, 2023	$	61,821	$	126,665	$	9,767	$	198,253

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 March 31, 2023 and December 31, 2022:


(In thousands)	March 31, 2023		December 31, 2022
Term loan facility	$	66,500	$	67,375
Revolving credit facility	73,700		73,700

Debt obligations	140,200		141,075
Less: unamortized debt issuance costs	(1,456)		(1,546)
Debt obligation, net	138,744		139,529
Less: current portion	(3,141)		(3,141)
Long-term debt	$	135,603	$	136,388

As of March 31, 2023, 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 March 31, 2023:


(In thousands)
2023	$	2,625
2024	3,500
2025	3,500
2026	3,500
2027	127,075
Thereafter	—
	$	140,200

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. On March 9, 2023, the calculation of the fixed charge coverage ratio was amended to specifically exclude from the definition of fixed charges the Company's share repurchases conducted during the third and fourth quarters of 2022. We believe that we were in compliance with the covenants contained in such agreement as of March 31, 2023.

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 2023 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)

March 31,
2023

December 31,
2022

Operating lease assets