COMPUTER PROGRAMS & SYSTEMS INC [CPSI] Filings

10-Q 1 cpsi-20220331.htm 10-Q cpsi-20220331

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, 2022


☐			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 9, 2022, there were 14,763,784 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, 2022)

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) – March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Income (Unaudited) – Three Months Ended March 31, 2022 and 2021	4
	Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) – Three Months Ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	42
Item 6.	Exhibits	43

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, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	15,981	$	11,431
Accounts receivable (net of allowance for expected credit losses of $2,699 and $1,826, respectively)	41,483		34,431
Financing receivables, current portion, net (net of allowance for expected credit losses of $287 and $325, respectively)	5,740		6,488
Inventories	567		855
Prepaid income taxes	4,115		4,599
Prepaid expenses and other	12,911		11,194
Total current assets	80,797		68,998
Property and equipment, net	11,467		11,590
Software development costs, net	15,409		11,644
Operating lease assets	8,079		7,097
Financing receivables, net of current portion (net of allowance for expected credit losses of $592 and $397, respectively)	6,012		7,231
Other assets, net of current portion	4,952		3,874
Intangible assets, net	115,731		95,203
Goodwill	197,883		177,713

Total assets	$	440,330	$	383,350
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,240	$	8,079
Current portion of long-term debt	4,863		4,394
Deferred revenue	14,131		11,529
Accrued vacation	5,478		5,262

Other accrued liabilities	15,023		17,163
Total current liabilities	46,735		46,427
Long-term debt, net of current portion	136,633		94,966
Operating lease liabilities, net of current portion	6,018		5,505
Deferred tax liabilities	20,192		13,880
Total liabilities	209,578		160,778
Stockholders’ equity:
Common stock, $0.001 par value; 30,000 shares authorized; 14,906 and 14,734 shares issued and outstanding, respectively	15		15
Additional paid-in capital	188,796		187,079

Retained earnings	46,167		38,054
Treasury stock, 140 shares and 89 shares, respectively	(4,226)		(2,576)
Total stockholders’ equity	230,752		222,572
Total liabilities and stockholders’ equity	$	440,330	$	383,350

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,
	2022		2021
Sales revenues:
TruBridge	$	43,108	$	31,639
System sales and support	34,763		36,366
Total sales revenues	77,871		68,005
Costs of sales:
TruBridge	21,373		15,779
System sales and support	16,683		17,376
Total costs of sales	38,056		33,155
Gross profit	39,815		34,850
Operating expenses:
Product development	7,101		8,429
Sales and marketing	7,042		5,301
General and administrative	13,014		13,149
Amortization of acquisition-related intangibles	3,672		3,057
Total operating expenses	30,829		29,936
Operating income	8,986		4,914
Other income (expense):
Other income	157		814
Gain on contingent consideration	1,250		—
Interest expense	(917)		(627)
Total other income	490		187
Income before taxes	9,476		5,101
Provision for income taxes	1,363		957
Net income	$	8,113	$	4,144
Net income per common share—basic	$	0.55	$	0.29
Net income per common share—diluted	$	0.55	$	0.28
Weighted average shares outstanding used in per common share computations:
Basic	14,381		14,159
Diluted	14,381		14,221
Dividends declared per common share	$	—	$	—

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, 2022 and 2021:
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

Balance at December 31, 2020	14,511	$	15	$	181,622	$	19,624	$	(1,261)	$	200,000
Net income	—	—		—		4,144		—		4,144

Issuance of restricted stock	210	—		—		—		—		—

Forfeiture of common stock	(6)	—		—		—		—		—
Stock-based compensation	—	—		1,034		—		—		1,034
Treasury stock acquired	—	—		—		—		(1,063)		(1,063)

Balance at March 31, 2021	14,715	$	15	$	182,656	$	23,768	$	(2,324)	$	204,115

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,
	2022		2021
Operating Activities:
Net income	$	8,113	$	4,144
Adjustments to net income:
Provision for credit losses	734		938
Deferred taxes	692		1,058
Stock-based compensation	1,717		1,034
Depreciation	578		553
Amortization of acquisition-related intangibles	3,672		3,057
Amortization of software development costs	526		73
Amortization of deferred finance costs	73		73
Gain on contingent consideration	(1,250)		—


Changes in operating assets and liabilities:
Accounts receivable	(2,020)		(2,183)
Financing receivables	1,810		1,994
Inventories	288		(258)
Prepaid expenses and other	(2,316)		321
Accounts payable	(1,140)		(974)
Deferred revenue	2,602		703
Other liabilities	(2,951)		3,576
Prepaid income taxes	689		(399)
Net cash provided by operating activities	11,817		13,710
Investing Activities:
Purchase of business, net of cash acquired	(43,362)		—
Investment in software development	(4,291)		(872)
Purchase of property and equipment	(27)		(493)
Net cash used in investing activities	(47,680)		(1,365)
Financing Activities:


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

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

Treasury stock purchases	(1,650)		(1,063)
Net cash provided by (used in) financing activities	40,413		(7,000)
Increase in cash and cash equivalents	4,550		5,345
Cash and cash equivalents at beginning of period	11,431		12,671
Cash and cash equivalents at end of period	$	15,981	$	18,016
Supplemental disclosure of cash flow information:
Cash paid for interest	$	843	$	554
Cash paid for income taxes, net of refund	$	48	$	298
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, 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 three months ended March 31, 2022 and 2021, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Beginning balance	$	11,529	$	8,130
Deferred revenue recorded	9,263		5,847

Less deferred revenue recognized as revenue	(6,661)		(5,144)
Ending balance	$	14,131	$	8,833

The deferred revenue recorded during the three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 2022 and 2021, included in the condensed consolidated balance sheets:


(In thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Beginning balance	$	7,312	$	5,992
Costs to obtain and fulfill contracts capitalized	3,047		1,836
Less costs to obtain and fulfill contracts recognized as expense	(1,799)		(1,475)
Ending balance	$	8,560	$	6,353

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 $43.4 million (inclusive of seller's transaction expenses). During 2022, we have incurred approximately $0.5 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 March 31, 2022 was as follows:


(In thousands)	Purchase Price Allocation
Acquired cash	3,989
Accounts receivable	5,609
Prepaid expenses	406
Property and equipment	428
Other assets	73
Intangible assets	24,200
Operating lease assets	1,315
Goodwill	20,380
Accounts payable and accrued liabilities	(2,543)
Deferred taxes, net	(5,193)
Operating lease liability	(1,315)


Net assets acquired	$	47,349

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.

Our condensed consolidated statement of operations for the three months ended March 31, 2022 includes revenues of approximately $3.8 million and pre-tax net income of approximately $0.5 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 months ended March 31, 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 March 31,
(In thousands, except per share data)	2022		2021
Pro forma revenues	$	84,211	$	75,688
Pro forma net income	$	6,822	$	2,317
Pro forma diluted earnings per share	$	0.46	$	0.15

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 March 31, 2022, $1.25 million of the original $2.5 million contingent consideration estimated in determining the purchase price was reversed as our estimates of TruCode's earnings over the remaining earnout period have declined since 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

5. PROPERTY AND EQUIPMENT

Property and equipment, net was comprised of the following at March 31, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Land	$	2,848	$	2,848
Buildings and improvements	8,279		8,269

Computer equipment	8,229		7,868
Leasehold improvements	806		783
Office furniture and fixtures	743		682
Automobiles	18		18
Property and equipment, gross	20,923		20,468
Less: accumulated depreciation	(9,456)		(8,878)
Property and equipment, net	$	11,467	$	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 March 31, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Software development costs	$	16,984	$	12,693
Less: accumulated amortization	(1,575)		(1,049)
Software development costs, net	$	15,409	$	11,644

7. OTHER ACCRUED LIABILITIES

Other accrued liabilities was comprised of the following at March 31, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Salaries and benefits	$	7,814	$	8,482
Severance	199		236
Commissions	1,104		1,158
Self-insurance reserves	1,087		1,409
Contingent consideration	1,250		2,500
Operating lease liabilities, current portion	2,061		1,592
Other	1,508		1,786
Other accrued liabilities	$	15,023	$	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 March 31,
(In thousands, except per share data)	2022		2021
Net income	$	8,113	$	4,144
Less: Net income attributable to participating securities	(166)		(103)
Net income attributable to common stockholders	$	7,947	$	4,041

Weighted average shares outstanding used in basic per common share computations	14,381		14,159
Add: Dilutive potential common shares	—		62
Weighted average shares outstanding used in diluted per common share computations	14,381		14,221

Basic EPS	$	0.55	$	0.29
Diluted EPS	$	0.55	$	0.28

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 298,486 shares, of which none have been included in the calculation of diluted EPS for the three months ended March 31, 2022 because the related threshold award performance levels have not been achieved as of March 31, 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 March 31, 2022 decreased to an expense of 14.4% from an expense of 18.8% for the three months ended March 31, 2021. 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, while the net effective tax rate impact of state income tax items decreased by 2.4% for the three months ended March 31, 2022, as the first quarter of 2021 was significantly impacted by changes in estimated state tax rates and amendments to previously-filed state returns.

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, 2022 and 2021, included in the condensed consolidated statements of income:


	Three Months Ended March 31,
(In thousands)	2022		2021
Costs of sales	$	267	$	213
Operating expenses	1,450		821
Pre-tax stock-based compensation expense	1,717		1,034
Less: income tax effect	(378)		(227)
Net stock-based compensation expense	$	1,339	$	807

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 March 31, 2022, there was $16.5 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 2.4 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 three months ended March 31, 2022 and 2021 is as follows:


	Three Months Ended March 31, 2022			Three Months Ended March 31, 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		134,314	31.26

Vested	(174,943)	29.75		(245,455)	29.16
Forfeited	—	—		(6,329)	29.10
Unvested restricted stock outstanding at end of period	284,004	$	32.17	295,497	$	29.71

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 three months ended March 31, 2022 and 2021 is as follows, based on the target award amounts set forth in the performance share award agreements:


	Three Months Ended March 31, 2022			Three Months Ended March 31, 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	(25,948)	31.75		(20,373)	29.92
Earned and issued	(27,317)	31.75		(75,971)	30.50

Performance share awards outstanding at end of period	298,486	$	32.06	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. We repurchased no shares during the three months ended March 31, 2022 and 12,056 shares during the three months ended March 31, 2021. The approximate dollar value of shares that may yet be repurchased under the stock repurchase program was $28.1 million as of March 31, 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 50,720 shares during the three months ended March 31, 2022 and 21,444 shares during the three months ended March 31, 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 March 31, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Short-term payment plans, gross	$	74	$	121
Less: allowance for losses	(4)		(6)
Short-term payment plans, net	$	70	$	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 2026. 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, 2022 is primarily a result of the continued evolution of customer licensing preferences. Although the overwhelming majority of our historical EHR installations have been 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 and 63% in 2021. 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, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Long-term financing arrangements, gross	$	13,704	$	15,659
Less: allowance for expected credit losses	(875)		(716)
Less: unearned income	(1,147)		(1,339)
Long-term financing arrangements, net	$	11,682	$	13,604

Future minimum payments to be received subsequent to March 31, 2022 are as follows:


(In thousands)
Years Ending December 31,
2022	$	4,837
2023	4,658
2024	2,729
2025	1,309
2026	153
Thereafter	18
Total minimum payments to be received	13,704
Less: allowance for expected credit losses	(875)
Less: unearned income	(1,147)
Receivables, net	$	11,682

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, 2022 and year ended December 31, 2021:


(In thousands)	Balance at Beginning of Period		Provision		Charge-offs		Recoveries		Balance at End of Period
March 31, 2022	$	722	$	157	$	—	$	—	$	879
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 March 31, 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
March 31, 2022	$	771	$	382	$	123	$	1,276
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)	March 31, 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	$	6,555	$	9,100
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due	556		329
Uninvoiced client financing receivables related to trade accounts receivable that are 181 + Days Past Due	342		386
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable	$	7,453	$	9,815
Total uninvoiced client financing receivables of clients with no related trade accounts receivable	5,104		4,505
Total financing receivables with contractual maturities of one year or less	74		121
Less: allowance for expected credit losses	(879)		(722)
Total financing receivables	$	11,752	$	13,719

12. INTANGIBLE ASSETS AND GOODWILL

Our purchased definite-lived intangible assets as of March 31, 2022 and December 31, 2021 are summarized as follows:


	March 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	(43,943)		(5,402)		(21,614)		—		(70,959)
Net intangible assets as of March 31, 2022	$	88,227	$	6,918	$	19,186	$	1,400	$	115,731
Weighted average remaining years of useful life	9		13		9		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 March 31, 2022:


(In thousands)
For the year ended December 31,
2022	$	13,216
2023	15,440
2024	13,906
2025	13,590
2026	12,968
Thereafter	46,611
Total	$	115,731

The following table sets forth the change in the carrying amount of goodwill by segment for the three months ended March 31, 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	—		—		20,170		20,170

Balance as of March 31, 2022	$	97,095	$	29,570	$	71,218	$	197,883

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, 2022 and December 31, 2021:


(In thousands)	March 31, 2022		December 31, 2021
Term loan facility	$	68,438	$	69,375
Revolving credit facility	74,000		31,000

Debt obligations	142,438		100,375
Less: unamortized debt issuance costs	(942)		(1,015)
Debt obligation, net	141,496		99,360
Less: current portion	(4,863)		(4,394)
Long-term debt	$	136,633	$	94,966

As of March 31, 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, which includes a $75 million term loan facility and a $110 million revolving credit facility.

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 LIBOR 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 LIBOR rate, subject to the aforementioned floor, plus one percent per annum, or (3) a combination of (1) and (2). The applicable margin range for LIBOR 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 September 30, 2020, with quarterly principal payments of approximately $0.9 million through June 30, 2022, approximately $1.4 million through June 30, 2024 and approximately $1.9 million through March 31, 2025, with maturity on June 16, 2025 or such earlier date as the obligations under the Amended and Restated Credit Agreement 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, 2022:


(In thousands)
2022	$	3,750
2023	5,625
2024	6,563
2025	126,500
2026	—
Thereafter	—
	$	142,438

Our credit facilities are secured pursuant to an Amended and Restated Pledge and Security Agreement, dated 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 Amended and Restated Credit Agreement provides incremental facility capacity of $50 million, subject to certain conditions. The Amended and Restated Credit Agreement 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 Amended and Restated Credit Agreement requires the Company to maintain a minimum fixed charge coverage ratio of 1.25:1.00 throughout the duration of such agreement. Under the Amended and Restated Credit Agreement, the Company is required to comply with a maximum consolidated net leverage ratio of 3.50:1.00. 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 March 31, 2022.

The Amended and Restated Credit Agreement requires the Company to mandatorily prepay the credit facilities with 50% of excess cash flow (minus certain specified other payments). This mandatory prepayment requirement is applicable only if the Company's consolidated net leverage ratio exceeds 2.50:1.00. 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 LIBOR rate loans made on a day other than the last day of any applicable interest period. An excess cash flow prepayment related to excess cash flow generated during 2021 was not required during the first quarter of 2022.

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)	March 31, 2022
Operating lease assets
Operating lease assets	$	8,079
Operating lease liabilities
Other accrued liabilities	2,061
Operating lease liabilities, net of current portion	6,018
Total operating lease liabilities	$	8,079
Weighted average remaining lease term in years	5
Weighted average discount rate	4.4%

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 March 31, 2022 are as follows:


(In thousands)
2022	$	1,558
2023	2,022
2024	1,913
2025	1,202
2026	1,225
Thereafter	1,115
Total lease payments	9,035
Less imputed interest	(956)
Total	$	8,079

Total lease expense for both the three months ended March 31, 2022 and 2021 was $0.4 million.

Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the three months ended March 31, 2022 was $