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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED December 31, 2022
OR

☐ | 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)
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

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 x 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 x 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. (Check one):

Large accelerated filer |  | ¨ |  | Accelerated filer |  | ý
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control of financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ |  |
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statement of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨ |  |
Indicate by check mark whether any of those error corrections are restatement that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨ |  |

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
The aggregate market value of common stock held by non-affiliates of the registrant at June 30, 2022 wa s $458,075,176.
As of March 9, 2023, the registrant had outstanding 14,530,201 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K:
Portions of the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this report to the extent described herein.
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TABLE OF CONTENTS

Item No. |  | Page No.
Special Note Regarding Forward-Looking Statements | 4
PART I
1 | Business | 6
| Overview | 6
| Industry Dynamics | 6
| Strategy | 8
| Our Products and Services | 9
| Software Development | 14
| Product Management | 14
| System Implementation and Training | 15
| Clients, Sales and Marketing | 15
| Backlog | 17
| Competition | 17
| Health Information Security and Privacy Practices | 18
| Managing Cybersecurity Risks | 18
| Intellectual Property | 19
| Material Government Regulations | 19
| Human Capital | 20
| Executive Officers | 21
| Company Web Site | 22
1A. | Risk Factors | 23
1B. | Unresolved Staff Comments | 42
2 | Properties | 42
3 | Legal Proceedings | 42
4 | Mine Safety Disclosures | 42
PART II
5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 43
6 | Reserved | 44
7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44
7A. | Quantitative and Qualitative Disclosures about Market Risk | 60
8 | Financial Statements and Supplementary Data | 61
9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 97
9A. | Controls and Procedures | 97
9B. | Other Information | 98
9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspectio ns | 98
PART III
10 | Directors, Executive Officers and Corporate Governance | 99
11 | Executive Compensation | 99
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 100
13 | Certain Relationships and Related Transactions, and Director Independence | 100
14 | Principal Accountant Fees and Services | 100

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PART IV
15 | Exhibits and Financial Statement Schedules | 101
16 | Form 10-K Summary | 101
SIGNATURES | 101
*Portions of the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this report to the extent described herein.

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified generally by the use of forward-looking terminology and words such as "expects," "anticipates," "estimates," "believes," "predicts," "intends," "plans," "potential," "may," "continue," "should," "will" and words of comparable meaning. Without limiting the generality of the preceding statement, all statements in this Annual Report relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and future financial results are forward-looking statements. We caution investors that any such forward-looking statements are only predictions and are not guarantees of future performance. Certain risks, uncertainties and other factors may cause actual results to differ materially from those projected in the forward-looking statements. The following is a summary of the principal risks that could adversely affect our business, financial condition, results of operations and cash flows.
Risks Related to Our Industry
•a public health crisis, such as the ongoing COVID-19 pandemic, and related economic disruption;
•saturation of our target market and hospital consolidations;
•unfavorable economic or market conditions that may cause a decline in spending for information technology and services;
•significant legislative and regulatory uncertainty in the healthcare industry;
•exposure to liability for failure to comply with regulatory requirements;
Risks Related to Our Business
•transition to a subscription-based recurring revenue model and modernization of our technology;
•competition with companies that have greater financial, technical and marketing resources than we have;
•potential future acquisitions that may be expensive, time consuming, and subject to other inherent risks;
•our ability to attract and retain qualified personnel;
•disruption from periodic restructuring of our sales force;
•our potential inability to manage our growth in the new markets we may enter;
•exposure to numerous and often conflicting laws, regulations, policies, standards or other requirements through our international business activities;
•potential litigation against us and investigations;
•our use of offshore third-party resources;
Risks Related to Our Products and Services
•potential failure to develop new products or enhance current products that keep pace with market demands;
•exposure to claims if our products fail to provide accurate and timely information for clinical decision-making;
•exposure to claims for breaches of security and viruses in our systems;
•undetected errors or problems in new products or enhancements;
•our potential inability to convince customers to migrate to current or future releases of our products;
•failure to maintain our margins and service rates;
•increase in the percentage of total revenues represented by service revenues, which have lower gross margins;
•exposure to liability in the event we provide inaccurate claims data to payors;
•exposure to liability claims arising out of the licensing of our software and provision of services;
•dependence on licenses of rights, products and services from third parties;
•a failure to protect our intellectual property rights;
•exposure to significant license fees or damages for intellectual property infringement;
•service interruptions resulting from loss of power and/or telecommunications capabilities;
Risks Related to Our Indebtedness
•our potential inability to secure additional financing on favorable terms to meet our future capital needs;
•substantial indebtedness that may adversely affect our business operations;
•our ability to incur substantially more debt;
•pressures on cash flow to service our outstanding debt;
•restrictive terms of our credit agreement on our current and future operations;
Risks Related to Our Common Stock and Other General Risks
•changes in and interpretations of financial accounting matters that govern the measurement of our performance;
•the potential for our goodwill or intangible assets to become impaired;
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•quarterly fluctuations in our financial results due to various factors;
•volatility in our stock price;
•failure to maintain effective internal control over financial reporting;
•lack of employment or non-competition agreements with most of our key personnel;
•inherent limitations in our internal control over financial reporting;
•vulnerability to significant damage from natural disasters;
•exposure to market risk related to interest rate changes; and
•potential material adverse effects due to macroeconomic conditions.
For more information about the risks described above and other risks affecting us, see "Risk Factors" beginni ng on page 23 of this Annual Report. We also caution investors that the forward-looking information described herein represents our outlook only as of this date, and we undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this Annual Report.
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PART I

ITEM 1. | BUSINESS

Overview
CPSI is a leading provider of healthcare solutions and services for community hospitals, their clinics and other healthcare systems. Founded in 1979, CPSI is the parent of six companies – Evident, LLC ("Evident"), American HealthTech, Inc. ("AHT"), TruBridge, LLC ("TruBridge"), iNetXperts, Corp. d/b/a Get Real Health, TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc. ("HRG"). Our combined companies are focused on helping improve the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our customers. Evident provides comprehensive acute care electronic healthcare record ("EHR") solutions for community hospitals and their affiliated clinics. AHT is one of the nation’s largest providers of post-acute care EHR solutions and services for post-acute care facilities. TruBridge focuses on providing business, consulting and managed information technology (" IT") services, along with its complete revenue cycle management ("RCM") solution, for all care settings. Get Real Health focuses on solutions aimed at improving patient engagement for individuals and healthcare providers. TruCode provides medical coding software that enables complete and accurate code assignment for proper reimbursement. HRG provides specialized RCM solutions for facilities of all sizes.
Commencing with the fourth quarter of 2022, the Company operates its business in three operating segments, which are also our reportable segments: RCM, EHR, and Patient Engagement. The individual companies align with the reporting segments and contribute towards the combined focus of improving the health of the communities we serve as follows:
•The RCM reporting segment includes TruBridge, HRG, and TruCode, and focuses on providing business management, consulting, and managed IT services along with its complete RCM solution for all care settings, regardless of their primary healthcare information solutions provider.
•The EHR segment includes Evident and AHT, and provides comprehensive acute and post-acute care EHR solutions and related services for community hospitals, their physician clinics, and skilled nursing and assisted living facilities.
•The Patient Engagement segment offers comprehensive patient engagement and empowerment technology solutions through Get Real Health to improve patient outcomes and engagement strategies with care providers.
Our companies currently support community hospitals and other healthcare systems with a geographically diverse patient mix within the domestic community healthcare market. Our target market for our RCM, EHR, and Patient Engagement solutions includes community hospitals with fewer than 400 acute care beds, and their clinics, as well as independent or small to medium sized chains of skilled nursing facilities. Approximately 98% of our acute care hospital EHR customer base is comprised of hospitals with fewer than 100 beds. The target market for our post-acute care solutions consists of approximately 15,500 skilled nursing facilities that are either independently owned or part of a larger management group with multiple facilities. During 2022, we generated revenues of $326.6 million from the sale of our products and services.
See Note 18 to the consolidated financial statements included herein for additional information on our three reportable segments.
Industry Dynamics
The healthcare industry is the largest industry in the United States economy, comprising approximately 18.3% of the U.S. gross domestic product in 2021 according to the Centers for Medicare and Medicaid Services ("CMS"). CMS estimates that national health spending is projected to grow at an average annual rate of 5.1% through 2030 and will reach $6.8 trillion in 2030.
Hospital expenditures grew by 4.4% to approximately $1.3 trillion in 2021, slower than the 6.2% growth rate in 2020. According to the American Hospital Association’s AHA Hospital Statistics, 2021 Edition, there are approximately 4,700 community hospitals in the United States that are in our target market of hospitals with fewer than 400 beds, with approximately 2,900 of those having fewer than 100 acute care beds. In addition, there is a market of small specialty hospitals that focus on discrete medical areas such as surgery, rehabilitation and long-term acute care.
The healthcare industry is constantly challenged by changing economic dynamics, increased regulation and pressure to improve the quality of care. More recently, hospitals and health systems have continued to navigate financial and operational pressures that were exacerbated by the COVID-19 pandemic, including the high costs associated with preparing for a surge of COVID-19 patients and resource-intensive treatment, added expense due to supply chain and labor market disruptions, and loss of revenue
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due to lower patient volumes for nonemergent care. These factors create an environment of escalating costs of care which, because of their heavy reliance on Medicare and Medicaid programs, our hospital clients have limited ability to recover through reimbursement changes. However, we believe healthcare providers can successfully address these issues with the help of our advanced medical information systems, including our RCM solutions and our suite of complementary services. Specific examples of the challenges and opportunities facing healthcare providers include the following:
Changing Economic Dynamics
The healthcare industry is heavily influenced by legislative and regulatory initiatives of the federal and state governments. These initiatives have a particularly significant impact on our customer base, as community hospitals generate a significant portion of their revenues from beneficiaries of the Medicare and Medicaid programs. Consequently, even small changes in federal and state programs have a disproportionate effect on community hospitals as compared to larger facilities where greater portions of their revenues are generated from beneficiaries of private insurance programs.
Medicare and Medicaid funding and reimbursements fluctuate annually and, with projected growth in healthcare costs, will continue to be scrutinized as the federal and state governments attempt to control the costs and growth of the program. As the federal government seeks to further limit deficit spending in the future due to fiscal restraints, it will likely continue to place constraints on healthcare spending programs such as Medicare and Medicaid matching grants, which will place further cost pressures on hospitals and other healthcare providers. Further reductions in reimbursements from these programs could lead to hospitals postponing expenditures on information technology and may motivate hospitals to revisit long-held cost structures, which could positively impact demand for RCM and other services.
While legislative and regulatory initiatives are placing significant pressure on the related reimbursements, community hospitals are also faced with likely increased demand for Medicare and Medicaid services. The challenges posed by this dual-threat are complicated by the shift away from volume-based reimbursement towards value-based reimbursement, linking reimbursement to quality measurements and outcomes. The increasing prevalence of high deductible health plans and value-based reimbursement models is transforming domestic healthcare delivery into a more patient-centric experience. This transformation brings about new and increased data needs, resulting in additional regulatory demands for data that patients find useful in decision-making. These new regulatory demands increase regulatory risks and compliance burdens for CPSI and our clients, but also pose opportunities for CPSI to provide additional value-added products and services to our target market.
To compete in the continually changing healthcare environment, providers are increasingly using technology in order to help maximize the efficiency of their business practices, to assist in enhancing patient care, and to maintain the privacy and security of patient information. Healthcare providers are placing increased demands on their information systems to accomplish these tasks. We believe that information systems must facilitate management of patient information across administrative, financial and clinical tasks and must also effectively interface with a variety of payor organizations within the increasingly complex reimbursement environment.
The American Recovery and Reinvestment Act of 2009
In 2009, the U.S. federal government enacted the American Recovery and Reinvestment Act (the "ARRA"), which included the Health Information Technology for Economic and Clinical Health Act ("HITECH"). HITECH authorized the EHR incentive program, which provided significant incentive funding to physicians and hospitals that have adopted and are appropriately using technology such as our EHR solutions. The end result of the ARRA has been to accelerate the adoption of EHR technology nationwide, significantly increasing industry-wide penetration rates and our penetration rates within our existing customer base for our current menu of applications. As a result, the revenue opportunities for new customer additions have greatly diminished, as have our opportunities for add-on sales to existing customers.
Continued Push for Improved Patient Care
With the increased pressure to improve the quality of healthcare and reduce costs, there is a general shift towards value-based reimbursement, which increases the demand for information technology solutions for clinical decision support. This migration toward clinical decision support solutions is further supported by the ARRA.
In the face of decreasing revenue and increasing pressure to improve patient care, healthcare providers are in need of management tools and related services that (1) increase efficiency in the delivery of healthcare services, (2) reduce medical errors, (3) effectively track the cost of delivering services so that those costs can be properly managed and (4) increase the speed and rate of reimbursement. A hospital’s failure to adequately invest in a modern medical information system could result in fewer patient referrals, cost inefficiencies, lower than expected reimbursement, increased malpractice risk and possible regulatory infractions. Additionally, we believe that the industry will continue to increase its utilization of third party services
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that contribute to the achievement of these and other objectives necessary for success in the current environment. We believe these dynamics should allow for future revenue growth for both our information technology solutions and our complementary suite of services.
COVID-19 Pandemic
Following heroic efforts by healthcare providers on the frontlines and advances in technology and science bringing vaccines to market in an unprecedented timeframe, the healthcare industry continues to deal with the lingering effects of the COVID-19 pandemic, including financial disruptions and critical labor shortages. Looking beyond 2022, we believe there will be continued pressure on hospital staffing, creating greater demand for automation and machine learning to allow staff to focus on patient care. Payors are experiencing staffing issues, similar to hospitals, which is causing delays in authorizations, denials and extended processing times for appeals. As a result of these issues and pressures, we expect ongoing and continued growth in demand for our RCM and related services.
The pandemic has also heightened patient interest and demand for digital engagement. While purchasing demand for digital patient engagement solutions in the United States has not yet fully materialized, we believe healthcare leaders will embrace the digital acceleration, identifying new channels to connect with patients and strengthen the patient experience over the next few years. Our digital front door technology helps create efficiencies and patient engagement that lead to greater patient connections and improved care. We also expect to see continued health care policy legislation focused on patients, like pricing transparency and the No Surprises Act, which is intended to address unexpected gaps in insurance coverage that result in "surprise medical bills" when patients unknowingly obtain medical services (such as emergency services) from out-of-network providers.
Strategy
Our primary objectives are to increase the market share of our RCM solutions and services, maintain a strong retention rate within our EHR client base while pursuing competitive and vulnerable EHR replacement opportunities, and further establish our position as a leading provider of patient engagement solutions. These objectives are all in support of our corporate strategy, centered around the following components:
Core Growth
Our core growth initiatives include cross-selling RCM solutions and services into our existing sizeable EHR client base and expanding our RCM market share with sales to new community hospitals and larger health systems.
Over the course of our more than 40-year history, we have developed a significant customer base of community hospitals and skilled nursing facilities. This customer base is our most valuable asset, providing not only the critical mass necessary to scale our development, client support and service resources to meet the evolving needs of our customers, but also serving as fertile ground for our cross-selling efforts for additional value-added solutions and services. Chief among our cross-sell opportunities is RCM, where we utilize our industry-leading RCM services and solutions to improve the financial health of our EHR clients by improving cash flow metrics in the face of the myriad cost and reimbursement challenges facing healthcare organizations. Our operational expertise and technology tools provide proven results in improving claim acceptance rates, accelerating payments from third party payors, and increasing private pay collections.
Margin Optimization
These efforts support the core growth efforts as we routinely seek, find and execute on initiatives that modernize our business, increasing our efficiency and resulting in cost savings that allow us to reinvest in additional growth opportunities.
Chief among our margin optimization initiatives are parallel workstreams dedicated to (1) standardizing and streamlining existing workflows by leveraging automation to improve both the accuracy and efficiency of our services, and (2) systematically leveraging offshore resources to mitigate the high costs and disruption risks associated with single-source talent markets. Talent availability has proven to be a significant challenge for our mostly-domestic customer base, and our nationwide reach does little to mitigate this nationwide dilemma. With talent scarcity a real risk and prospects for growth that require significant scale, the successful execution of our growth prospects requires both broadening our talent pool beyond the domestic market and ensuring talent resources are put to their highest and best use.
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Digital Innovation
In addition to our core growth and margin optimization initiatives is a focus on identifying new innovation and larger adjacency opportunities, driven by demand for patient engagement, industry insights, reporting and analytics technology.
As today's patients and providers have a more collaborative approach to healthcare, our patient engagement offerings provide a secure ecosystem that supports home care, clinicians, and the patients they serve by providing tools and analytics to provide a complete view of patients' health and improve health outcomes. In addition to supporting improved care, our patient engagement platform provides financial benefits to providers and hospital systems through increased revenue opportunities and digital transformation of workflows to fill staffing gaps. This platform gives healthcare providers the insights and tools they need to provide efficient, cost-effective care as they collaborate with today's growing population of engaged patients.
Underpinning each of the three components to our strategy is a capital allocation strategy designed to afford the flexibility necessary to be adaptive and opportunistic with future investment decisions. Such flexibility is necessary if we are to continue to bring timely products and services to a rapidly changing healthcare landscape. We serve the needs of multiple stakeholder groups as customers benefit from the related products and services, our employees benefit from expanded opportunities for development, and our stockholders benefit from the increasing diversity in revenue sources.
Our Products and Services
RCM
We offer RCM services through TruBridge, our wholly-owned subsidiary, which can be grouped into the following categories:
•Revenue Cycle Management Products. Our RCM solutions empower providers and caregivers in hospitals, healthcare systems and skilled nursing organizations to accelerate their revenue cycle through a suite of comprehensive, web-based solutions designed to improve financial operations and staff productivity and increase reimbursement. Our RCM products include the following offerings:
◦Patient Liability Estimates. Improve patient satisfaction, maximize point-of-service collections, and equip staff with the ability to provide transparent pricing with the Patient Liability Estimate module.
◦Eligibility Verification. Reduce claim denials and carrier rejections by performing on-demand eligibility look-ups, assuring the care provided is covered.
◦Claim Scrubbing and Submission. A powerful claim management solution for submitting, validating, and processing a healthcare facility’s claims with ease and with a high quality of edits.
◦Remittance Management. Remittance advice can be effortlessly gathered and managed with the Electronic Remittance Advice Retrieval and Remittance Management modules, simplifying workflow and involvement.
◦Denial/Audit Management. Equips healthcare facilities with the tools necessary to combat denied and audited claims, assisting organizations in recovering lost revenue.
◦Contract Management. Allows healthcare facilities to take control over complex healthcare contracts by prospectively pricing every claim submitted to payers, retrospectively pricing every remittance to ensure proper payment was received, and modeling proposed contract terms during payer negotiations.
•Revenue Cycle Management Services. Our RCM services span a healthcare enterprise’s revenue cycle and provide clients with a strong alternative to in-house operations. These services leverage our deep service and technology experience and are designed to allow clients to streamline their administrative staffing while improving operational efficiencies. Our RCM services include the following service offerings: Accounts Receivable Management, Private Pay Service, Medical Coding, Revenue Cycle Consulting, and other additional Insurance and Patient Billing Services.
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•Consulting and Business Management Services. Our consulting and business management services are designed to help healthcare organizations by assessing their needs, setting goals, and creating an action plan to achieve those goals, and, if needed, implementing the action plan. Many of our professional consultants have decades of experience and all are skilled in adopting new technologies, redesigning processes, educating staff, and providing interim or on-going management services. Our consulting and business management services include the following service offerings: Consulting, Business Intelligence, Staffing, and Administrative.
•Managed IT Services. Our managed IT services provide a range of services designed to meet the IT needs of community healthcare enterprises. The pace of technological change can be overwhelming. Our services allow clients to affordably maintain an advanced IT infrastructure, meet regulatory requirements, and reduce risk. Our managed IT services include the following service offerings: Cloud Services, Backup and Recovery, Collaboration and Connectivity, Security Services, Systems Management, and Help Desk.
•Encoder Solutions. TruCode by TruBridge develops, sells and supports encoder technology for the hospital, consulting and payer markets. TruCode is known for its knowledge-based coding methodology, which presents coding guidance and references at the point of coding, helping to improve coding accuracy and productivity.
EHR
Acute Care Software Systems
Through our wholly-owned subsidiary, Evident, we offer healthcare IT solutions designed to cater to the specific needs of community hospital organizations under the software solution platforms Thrive and Centriq.
Thrive
Within Thrive, we offer a full array of software applications using one fully integrated system designed to streamline the flow of information to the primary functional areas of community hospitals. We intend to continue to enhance our existing software applications and develop new applications as required by evolving industry standards and the changing needs of our clients. Pursuant to our client support agreements, we provide our clients with software enhancements and upgrades periodically on a when-and-if-available basis. See "Acute Care Support and Maintenance Services." These enhancements enable each client, regardless of its original installation date, to have the benefit of our most advanced products available. Our software applications within Thrive:
•provide automated processes that improve clinical workflow and support clinical decision-making;
•allow healthcare providers to efficiently input and easily access the most current patient medical data in order to improve quality of care and patient safety;
•integrate clinical, financial and patient information to promote efficient use of time and resources, while eliminating dependence on paper medical records;
•provide tools that permit healthcare organizations to analyze past performance, model new plans for the future and measure and monitor the effectiveness of those plans;
•provide for rapid and cost-effective implementation, whether through the installation of an in-house system or through our Software as a Service ("SaaS") services; and
•increase the flow of information by replacing centralized data over which there is limited control with broad-based, secure access by clinical and administrative personnel to data relevant to their functional areas.
Our software applications within Thrive are grouped for support purposes according to the following general functional categories described below:
•Patient Management. Our patient management software enables a hospital to identify a patient at any point in the healthcare delivery system and to collect and maintain patient information throughout the entire process of patient care on an enterprise-wide basis. Thrive's single database structure permits authorized hospital personnel to simultaneously access appropriate portions of a patient’s record from any point on the system.
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Our patient management software applications include: Registration, Patient Accounting, Health Information Management, Patient Index, Enterprise Wide Scheduling, Contract Management, and Quality Improvement.
•Financial Accounting. Our financial accounting software provides a variety of business office applications designed to efficiently track and coordinate information needed for managerial decision-making. Our financial accounting software applications include: Executive Information System, General Ledger, Accounts Payable, Payroll/Personnel, Time and Attendance, Electronic Direct Deposits, Human Resources, Budgeting, Fixed Assets, and Materials Management.
•Clinical. Our clinical software automates record keeping and reporting for many clinical functions including laboratory, radiology, physical therapy, respiratory care and pharmacy. These products eliminate tedious paperwork, calculations and written documentation while allowing for easy retrieval of patient data and statistics. Our clinical software applications include: Laboratory Information Systems, Laboratory Instrument Interfaces, Radiology Information Systems, ImageLink Picture Archiving and Communication System (PACS), Physical Therapy and Respiratory Care, and Pharmacy.
•Patient Care. Our patient care applications allow hospitals to create computerized "patient files" in place of the traditional paper file systems. This software enables physicians, nurses and other hospital staff to improve the quality of patient care through increased access to patient information, assistance with projected care requirements and feedback regarding patient needs. Our software also addresses current safety initiatives in the healthcare industry such as the transition from written prescriptions and physician orders to computerized physician order entry. Our patient care software applications include: Order Entry/Results Reporting, Point-of-Care System, Patient Acuity, ChartLink®, Computerized Physician Order Entry (CPOE), Medication Verification, Resident Assessment Instruments, Thrive Provider EHR, Outreach Client Access, Electronic Forms, Physician Documentation, and Emergency Department System.
•Enterprise Applications. We provide software applications that support the products described above and are useful to all areas of the hospital. These applications include: ad hoc reporting, automatic batch and real-time system backups, an integrated fax system, archival data repository, document scanning and Microsoft Office integration, and an Application Portal.
Centriq
The Centriq platform was designed to be an intuitive user interface that is easy for clinicians to use and attractive to both patients and clinicians. Additionally, as a web-based platform, users are able to connect to the system from any device that is connected to the internet. Ease of use combined with Centriq’s ability to centralize data from various care areas provide the end user with a powerful tool to view past and present patient information with ease. Each system or application offers a broad set of features and functionalities that can help clinics reduce costs, increase revenue, and improve administrative and clinical staff efficiency, all while enhancing patient care and safety. Key Centriq capabilities include:
•Computerized Practitioner Order Entry ("CPOE"). The cornerstone of inpatient EHR systems, CPOE promotes user adoption by including medication interaction alerts, access to relevant laboratory results, duplicate order checking, customizable order sets and protocols, and order templates containing pre-populated screens.
•Clinical Documentation. This system securely enables a patient’s caregivers to view the vital signs, intake-output values, progress notes, and nursing tasks that are entered into the patient’s EHR.
•Emergency Department. This system expedites and simplifies registration, patient tracking, order management, assessments, and other activities in a fast-paced environment.
•Laboratory. This system automates routine tasks such as lab order processing and tracking, enabling the practitioner to focus on the results and ultimately better patient care.
•Radiology. This application delivers faster turnaround times and enhanced communications among caregivers by automatically processing radiology orders, managing and tracking images, and generating reports.
•Pharmacy. This application helps pharmacies manage all aspects of medication verification and dispensing, including order coordination, interaction checks, administration, and charging.
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•Financial Accounting. A hospital financial accounting management solution that helps community hospitals gain better insight and perspective on their costs.
•Patient Management. An accounting system to better manage patient information and automate the hospital billing process.
•Ambulatory Software Solutions. Enables clinicians to focus on providing high-quality patient care by streamlining the management of patient data.
Post-acute Care Software Systems
CPSI entered into the post-acute care market with the acquisition of AHT in January 2016. Our comprehensive, long-term care management solutions include:
•Care Management. This integrated offering helps manage the delivery of quality care, collects and reports on resident information, and manages compliance risk. Core modules include: Work Center, Clinical, Smart Charting Order Administration (Point of Care), Quality Assurance, Therapy Tracking, Supplies Tracking, and Disease State Management.
•Financial and Enterprise Management. This comprehensive set of financial solutions enables customers to improve cash flow and better manage costs. Core modules include: Accounts Payable, General Ledger, Payroll, Financial Management, Trust Funds, and Enterprise Management.
Acute Care Support and Maintenance Services
After EHR installation, we provide software application support, hardware maintenance, continuing education and related services pursuant to a support agreement using our collaborative support model. The following describes services provided to customers using Thrive and Centriq:
• Total System Support. We believe the quality of continuing customer support is one of the most critical considerations in the selection of an information system provider. We provide hardware, technical and software support for all aspects of our system, which gives us the flexibility to take the necessary course of action to resolve any issue. Unlike our competitors who use third-party services for hardware and software support, we provide a single, convenient and efficient resource for all of our customers’ system support needs. In order to minimize the impact of a system problem, we train our customer service personnel to be technically proficient, courteous and prompt. Because a properly functioning information system is crucial to a hospital’s operations, our support teams are available 24 hours per day to assist customers with any problem that may arise. Customers can also use the Internet to directly access our support system.
• National Client Conference. All of our customers have the opportunity to attend our annual National Client Conference. CPSI hosts this conference to provide educational sessions, product demonstrations, and one-on-one time with application experts. The conference also allows important time for networking among customers and CPSI staff across all business platforms. As a result of the COVID-19 pandemic, our National Client Conference was held virtually in 2020 and 2021. In May 2022, the conference returned to an in-person event.
• Continuing Education. Effective learning tools are a key factor in successful EHR adoption and allowing clients to get the most out of a software investment. Therefore, ongoing learning and training is a cornerstone to our “total solution” and a key competitive differentiator. Our ongoing learning and training offerings also address some of the unique needs of community hospitals - limited resources and staff with cross-department responsibilities and budget and time constraints - all of which require a customized approach to learning and training. To meet these needs, Evident offers customers with online content that can be accessed at any time, scheduled online interactive classroom presentations, on-campus training at our facilities, educational sessions during user group conferences, and scheduled regional training sessions.
• Software Releases. We are committed to providing our customers with software and technology solutions that will continue to meet their information system needs. To accomplish this purpose, we continually work to enhance and improve our application programs. As part of this effort, for each customer covered under our general support agreement, we provide software updates as they become available at no additional cost. We design these enhancements to be seamlessly integrated into each customer’s existing system. The benefit of
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these enhancements is that each customer, regardless of its original installation date, uses the most advanced software available. Through this process, we can keep our customers up-to-date with the latest operational innovations in the healthcare industry as well as with changing governmental regulatory requirements. Another benefit of this "one system" concept is that our customer service teams can be more effective in responding to customer needs because they maintain a complete understanding of and familiarity with the one system that all customers use.
Purchasing a new information technology system requires the expenditure of a substantial amount of capital and other resources, and many customers are concerned that these systems will become obsolete as technology changes. Our periodic product updates eliminate our customers’ concerns about system obsolescence. We believe providing this benefit is a strong incentive for potential customers to select our products over the products of our competitors.
• Hardware Replacement. As part of our general support agreements, we are also committed to promptly replacing malfunctioning system hardware in order to minimize the effect of operational interruptions. By offering replacements of all hardware used in our system, we believe we are better able to meet and address all of the information technology needs of our customers.
• Cloud Electronic Health Record (Cloud EHR). We offer Cloud EHR services to customers via remote access telecommunications. Cloud EHR is a "Software as a Service" (or "SaaS") configuration and is a monthly subscription to access and use application software maintained by CPSI in a cloud environment. Under this configuration, a customer is able to obtain access to an advanced EHR without a significant initial capital outlay. We store and maintain all Cloud EHR customers’ critical patient and administrative data. These customers access this information remotely through direct telecommunications connections.
• Forms and Supplies. In addition to our support services, we offer our customers the standard and customized forms that they need for their patient and financial records, as well as the supplies necessary to support the operation of their server and peripheral equipment. Furnishing these forms and supplies helps us to achieve our objective of being a one-source solution for a hospital’s complete healthcare information system requirements.
•Public Cloud Infrastructure – During 2021, we formed a strategic partnership with Microsoft for Azure cloud hosting and infrastructure services, with the end-goal of migrating all existing internal and client data to Azure’s public cloud and utilizing the related infrastructure solutions to enhance both internal and client-facing processes and services. The eventual migration to Azure, which began during 2022, will benefit customers by removing the burden of maintaining their own on-premise infrastructure while the underlying applications will operate with higher availability and stability, reducing unexpected downtime. This modernized infrastructure will open the door to future innovations and data access as well.
Post-acute Care Support and Maintenance Services
Our comprehensive and integrated solution set is backed by ongoing training and support to ensure that clients can maximize their software investment. This is demonstrated by:
•Experienced and Dedicated Support Representatives. Seasoned experts are assigned to each client site who not only understand the challenges in the post-acute care industry, but know how to best address them. This includes proactive education on the key regulatory changes and requirements before they impact business operations.
•Client Portal and Training. Instant, on-line access to the most up-to-date industry information impacting long-term care, plus a vast array of product training opportunities.
•Client Enhancement Council. Access to a community of peers along with a robust set of resources and knowledge to help clients get the most out of their investment.
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•Annual Client Symposium. An opportunity for clients to share best practices, gain industry insight on key topics impacting post-acute care providers, network with peers, and learn more about current and future AHT product and service offerings.
Patient Engagement
Get Real Health offers a comprehensive digital front door platform that both improves outcomes and promotes patient engagement through the following tools:
•InstantPHR. Our interactive portal is designed to serve all patient populations and health organizations' needs. Ideal for chronic disease management, maintaining wellness goals, and meeting federal mandates, this solution is flexible enough to grow and change as industry trends dictate. InstantPHR can be integrated into nearly any existing EHR system to improve care and outcomes for individuals and professionals alike.
•CHBase™. This powerful tool funnels data from multiple sources into one platform. Patients have the ability to contribute data from their favorite apps and home health devices and combine it with clinical data from providers. This combined data can then be pulled into patient-oriented health applications or population health management and customer analytics. This process makes data comprehensive and relevant, thus maximizing its value to the entire care circle. Additionally, innovators have the capability to create, develop and connect other systems and applications through the CHBase APIs.
For additional details on our products, service, and support offerings, visit www.trubridge.com (TruBridge), www.evident.com (Evident), www.healthtech.net (AHT), www.getrealhealth.com (Get Real Health), www.trucode.com (TruCode), and www.hrgpros.com (HRG).
For the results of operations by segment, refer to Note 18 of the consolidated financial statements included herein.
Software Development
The healthcare information technology industry is characterized by rapid technological change requiring us to continually make investments to update, enhance and improve our products and services. 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 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 features are placed in service.
Total product development expenses included in our consolidated results of operations were approximately $30.9 million, $30.4 million and $33.5 million during the years ended December 31, 2022, 2021 and 2020, respectively. We capitalized software development costs of approximately $19.1 million, $9.4 million and $3.3 million during the years ended December 31, 2022, 2021 and 2020, respectively.
See Note 5 to the consolidated financial statements included herein for additional information on software development costs.
Product Management
We utilize an Application Portfolio Management (“APM”) framework to collect product metrics across all products and business units to enhance our product strategy with richer data that highlights opportunities. APM anchors our investments through identification of the most pressing issues, creating alignment within the organization and investing to maximize impact. Supplementing insights derived from APM, we continue to utilize our customer councils (Provider, Nursing, Chief Financial Officer, and Client Advisory) to prioritize and validate our product strategy.
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Accessibility, scalability and usability serve as our critical product pillars, with recent investments in modern user experiences and improved workflows having addressed all three. For example:
•Through data normalization efforts and the creation of a unified data model with our CHBase Unify product technology, our ability to develop and deploy solutions on our cloud software platform has accelerated. These foundational instruments have accelerated the pace of innovation, which has also created additional marketplace opportunities for our customers.
•By deploying solutions such as robotic process automation, we continuously strive to optimize user workflows for our clinical and financial solutions, increasing efficiencies and delivering modern user experiences.
•By investing in new patient engagement and communication solutions, we have improved staff, provider and patient interactions and increased patient participation in their healthcare experience.
System Implementation and Training
Conversion Services. When a client purchases or leases one of our systems, we convert their existing data to the new system. Our knowledge of hospital data processing, in conjunction with extensive in-house technical expertise, allows us to accomplish this task in a cost effective manner. When we install a new system, the data conversion has already occurred so that the system is immediately operational. Our goal is for each client to be productive on day one in order to eliminate time and money wasted on the costly and inefficient task of maintaining the same data on parallel systems. Our services also relieve the hospital staff of the time-consuming burden of data conversion. The conversion process is the initial phase of our long-term partnership and overall client experience.
Training. In order to integrate the new system and to ensure its success, we spend approximately sixteen weeks providing individualized training remotely and on-site at the go-live. We provide hardware and software application training for all hospital users, including staff members and healthcare providers, during all hospital shifts. We employ nurses, medical technicians, and providers along with our technical training staff in order to help us communicate more effectively with our clients during the training process. This training phase is also part of the overall client experience that is provided to all of our clients.
Clients, Sales and Marketing
Target Markets
The target market for our RCM product and services extends beyond hospitals of less than 100 beds, where we have historically focused our EHR efforts. We are acutely focused on our vision of selling our RCM solution to both our existing customer base, as well as to hospitals of 400 beds or under in the United States. There are approximately 4,700 of these hospitals with fewer than 400 beds. In addition, we market our RCM services to post-acute care facilities, of which there are approximately 15,500 in the United States.
Our strategy to grow our RCM business is centered around leveraging our established sales relationships within our substantial acute and post-acute EHR customer base in order to cross sell RCM services. In addition, we target hospitals that use competitor EHRs and upmarket larger hospitals and health systems that manage their RCM operations in-house. The hospitals are under increasing financial pressure caused by fluctuating patient volumes, increasing self-pay accounts, and the lingering impact of the COVID-19 pandemic.
A core initiative to our growth plan is to maintain a strong retention rate across our EHR base and pursue conservative growth of new EHR clients, as they are critical to driving cross-sales of our RCM solutions. We target hospitals under 100 beds in the United States that we believe are currently using a vendor that we have determined is vulnerable based on a variety of factors. Our goal in the ambulatory market is to aggressively target physician practices in those communities where the local hospital is a current CPSI client.
The target market for our acute care EHR systems consists of community hospitals with fewer than 200 acute care beds, with a primary focus on hospitals with fewer than 100 acute care beds. In the United States, there are approximately 3,800 community hospitals with fewer than 200 acute care beds, with approximately 2,900 having fewer than 100 acute care beds. In addition, we market our products to small specialty hospitals in the United States that focus on discrete medical areas such as behavioral health, surgery, rehabilitation and long-term acute care. Approximately 98% of our existing acute care clients are hospitals with fewer than 100 acute care beds.
The target market for our post-acute care EHR solution consists of approximately 15,500 long-term care and skilled nursing facilities in the United States. In addition, through a strategic relationship with Medtelligent, we are able to market an EHR for
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assisted living facilities creating add-on sales opportunities in our direct client base and new sales opportunities across the broader senior living market. Our goal in the post-acute care market is to continue to target both individual facilities as well as larger multi-facility corporate entities. In addition, we intend to extend our penetration into the post-acute care market by offering an assisted living facility EHR solution that we believe will broaden the appeal of our solutions to those operators who offer multiple care settings in their organizations.
Our patient engagement efforts continue to focus on the international market through our substantial international partner ecosystem while also initiating penetration of the domestic market. We target hospitals that use competitor EHRs, including upmarket larger hospitals and health systems that support multiple EHRs and data sources around affiliated providers and practices. The target market for our domestic launch is acute care EHR systems of community hospitals that are part of a hospital system. In the United States, there are approximately 3,400 community hospitals that fall into this category. Target markets internationally and domestically also include government healthcare and health information exchanges focused on leveraging technology to drive efficient care delivery in addition to citizen portal initiatives.
The following table presents our revenues generated from clients located within the U.S. ("Domestic") and all foreign countries, in total ("International").

| Year ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
Sales revenues: |  |  |  |  |
Domestic | $ | 320,443 |  |  | $ | 274,521 |  |  | $ | 257,883 |
International(1) | 6,205 |  |  | 6,108 |  |  | 6,605 |
| $ | 326,648 |  |  | $ | 280,629 |  |  | $ | 264,488 |
(1) International sales revenues are related to the Caribbean nation of St. Maarten, the islands of Turks and Caicos, Canada, England, Australia, the United Arab Emirates and the Netherlands.

Sales Staff
We have dedicated sales organizations in all three business units: RCM, EHR, and patient engagement. Many of our sales personnel are hired from within the Company and have previous experience in client support roles. We believe this experience positions them to more effectively sell our products and services within our target markets. We have also added some talent from outside the Company, creating a depth of experience we believe will enhance the effectiveness of the teams. Our sales organizations are generally divided into four areas: sales management, new client sales, existing client sales and sales support staff. New client sales staff are typically organized based on geographic territories, though we also have sales personnel that focus on national accounts in our post-acute care EHR business due to the number of national chain operators in that market. Our sales representatives who sell to existing clients have assigned clients within their territory, which is also geographically based. Some sales representatives in our services areas are assigned specifically to cross-sell services into our acute care EHR and post-acute care EHR client bases. A significant portion of the compensation for all sales personnel is commission based except for administrative support staff.
Marketing Strategy
Our corporate marketing strategy positions CPSI as a healthcare solutions company serving community healthcare organizations through our family of healthcare information technology companies.
With regard to our RCM solutions, we will continue to leverage our proven track record of success in accounts receivable management and private pay collections for community healthcare providers. With the increasing complexity of reimbursement requirements and a global shift in healthcare towards an increase in patient financial responsibility, the ability of our services business to bring expertise and best practice operational efficiencies to bear is a significant competitive advantage. In consulting services, the added complexity brought about by the transition to the ICD-10 code set, a standard transaction code set for diagnostic purposes under HIPAA, has created a significant demand for our coding services. Our strategy is to cross sell our RCM solutions into our loyal EHR customer base as we prioritize strengthening our client relationships. At the same time, we target the 400 bed and less hospital market outside of our EHR client network, which hospitals have a need to improve revenue cycles and address staffing issues.
Our EHR software and services address providers across the care continuum, with a primary focus on the community healthcare market. We believe our ability to serve ambulatory, acute and post-acute care settings with our products is another strategic advantage as new reimbursement models force the coordination of care by healthcare providers. Our ability to connect patients
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to care providers within their community and across communities through our own products and interoperability development, including our membership in the CommonWell Health Alliance, sets us apart from other competitors in our market. Our goal is to position ourselves as partners to community healthcare providers as they move to a more proactive care model based on the use of data analytics and patient engagement tools.
Our strategy to grow our patient engagement business is centered around leveraging our established customer relationships within our substantial partner ecosystem for continued sales around licensing and professional services. In addition, we target hospitals that use competitor EHRs, including upmarket larger hospitals and health systems that support multiple EHRs and data sources around affiliated providers and practices. A core initiative to our growth plan is to maintain a strong retention rate of this client base and pursue rapid growth of new clients domestically.
Backlog
Backlog consists of revenues we reasonably expect to recognize over the next twelve months under existing contracts. The revenues to be recognized may relate to a combination of one-time fees for system sales and recurring fees for support and maintenance and RCM services. As of December 31, 2022, we had a twelve-month backlog of approximately $6 million in connection with non-recurring system purchases and approximately $322 million in connection with recurring payments under support and maintenance and RCM services. As of December 31, 2021, we had a twelve-month backlog of approximately $5 million in connection with non-recurring system purchases and approximately $281 million in connection with recurring payments under support and maintenance and RCM services.
Competition
The market for our products and services is competitive, and we expect additional competition from established and emerging companies in the future. Our market is characterized by rapidly changing technology, global shifts in the healthcare system, evolving user needs and impactful regulatory and reimbursement changes. We believe the principal competitive factors that hospitals, clinics and post-acute care providers consider when choosing between us and our competitors are:
•perceived level of product and system security;
•product features, functionality and performance;
•range of services offered;
•level of client service and satisfaction;
•ease of integration and speed of implementation;
•product price;
•cost of services offered;
•results of services engagements;
•knowledge of the healthcare industry;
•training provided;
•sales and marketing efforts; and
•company reputation.
We believe that we compete favorably with our competitors on these factors. Our principal competitors for RCM solutions include RelayHealth Corp, SSI Group, LLC, Quadax Inc., Change Healthcare Holdings, Inc., Availity, LLC, and Navicure, Inc. Our principal competitors in the business management, consulting and managed IT services market are Resolution Health, Inc., The Outsource Group Inc., Patient Focus, Inc., Xtend Healthcare Inc., Ensemble Health Partners, and nThrive, Inc. These companies all focus on providing services to the healthcare market, and the services they offer are comparable in socpe to the competing services we offer. Secondary competitors in the RCM space include ARx LLC, Citadel Outsource Group LLC, Patient Matters, LLC, KIWI-TEK, LLC, and Aviacode Inc. TruCode's primary competitors include 3M, Nuance and Optum.
Our principal competitors in the acute care EHR market are Cerner Corporation, Medical Information Technology, Inc. ("Meditech"), and MEDHOST, Inc. These companies compete with us directly in our target market of small and midsize
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hospitals. They offer comparable products and systems that address the needs of hospitals in the markets we serve. Our secondary competitors in the acute care EHR market include N. Harris Computer Corporation and Epic Systems Corporation. These companies are significantly larger than we are, and they typically sell their products and services to larger hospitals outside of our target market. However, they will sometimes compete with us directly or, more commonly, when a larger health system who uses a system from one of these companies will offer it to a smaller hospital as part of a merger or alliance.
We also face competition from providers of practice management systems, general decision support and database systems and other segment-specific applications. Any of these companies as well as other technology or healthcare companies could decide at any time to specifically target hospitals within our target market.
Our principal competitors in the post-acute care EHR market are PointClickCare Corporation and MatrixCare, Inc. These companies compete with us directly in our target market of long-term post-acute care facilities. They offer comparable products and systems that address the needs of long-term care providers.
Our principal competitors in the patient engagement market include Relay Health, Get Well Network/Healthloop, Apollo Care Connect, Bridge Patient Portal, eClinicalWorks Patient Portal, Influence Health, and InteliChart.
Health Information Security and Privacy Practices
HIPAA is a federal law governing the use, disclosure, transmission and storage of certain individually identifiable health information, referred to as "protected health information," and that was enacted for the purpose of, among other things, protecting the privacy and security of protected health information. As directed by HIPAA, the Department of Health and Human Services (the "DHHS") has promulgated standards and rules for certain electronic health transactions, code sets, data security, unique identification numbers and privacy of protected health information. HIPAA and the standards promulgated by DHHS apply to certain health plans, healthcare clearinghouses and healthcare providers (referred to as "covered entities"), which includes our hospital and post-acute care clients. The Health Information Technology for Economic and Clinical Health Act (the "HITECH Act") and its implementing regulations published in January 2013 significantly expand HIPAA by extending privacy and security standards to "business associates" of healthcare providers that are covered entities. Under the HITECH Act, business associates are required to establish administrative, physical and technical safeguards and are subject to direct penalties for violations. Certain of our services frequently require us to act as a healthcare clearinghouse and/or a business associate to the hospitals and post-acute care clients that we serve. As a result, we are covered by the patient privacy and security standards of HIPAA and subject to oversight by DHHS. We believe that we have taken all necessary steps to comply with HIPAA, as it applies to us as a business associate, but it is important to note that DHHS could, at any time in the future, adopt new rules or modify existing rules in a manner that could require us to change our systems or operations.
Protecting individually identifiable health information and other sensitive data is a critical and essential function of CPSI’s operations and its software solutions. A variety of industry-standard approaches that meet or exceed regulatory requirements such as HIPAA and HITECH are employed. In order to avoid unauthorized access for the life span of this data, diverse methods of identification, authentication, authorization and encryption are utilized at various points throughout the operating system, application software and hardware. These methods and processes are shared amongst servers and other end-user devices and are complemented by change management processes and tools, which allow the software change control cycle to be a formal, defined process.
The collection, use, storage, disclosure, transfer, or other processing of any personal data regarding individuals in the European Union, including personal health data, is subject to the European Union’s General Data Protection Directive (“GDPR”), which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR.
Managing Cybersecurity Risks
Our business operations, including the provision of the products and services described above, involve the compilation and transmission of confidential information, including patient health information. We have included security features in our
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systems that are intended to protect the privacy and integrity of this information, but our systems may be vulnerable to security breaches, viruses, programming errors and other similar disruptive problems.
The Board of Directors is responsible for exercising oversight of management’s identification of, and planning for, the material risks facing the Company, and we believe our policies and procedures are adequate to ensure that relevant information about cybersecurity risks and incidents is appropriately reported and disclosed. In October 2017, the Board authorized the formation of a Cybersecurity Committee, which is now known as the Governance, Risk & Compliance (“GRC”) Committee. The GRC Committee is currently comprised of the Chief Technology and Innovation Officer, Chief Financial Officer, Chief Transformation Officer, General Manager of TruBridge, Corporate Security Officer, and General Counsel and Corporate Compliance Officer. The GRC Committee generally meets weekly, and has a formal meeting quarterly, to discuss the primary security and compliance-related risks currently facing the Company, including cybersecurity risks. The General Counsel and Corporate Compliance Officer then provides updates to the Board at each regular quarterly meeting. In October 2020, the Board created the Innovation and Technology Committee to aid the Board in its duties to assess and oversee the management of risks in the areas of information technology, information and data security, cybersecurity, disaster recovery, data privacy and business continuity. This committee oversees the GRC Committee’s activities relating to information technology and cybersecurity matters, and seeks to enhance communication and coordination of efforts between the Board and management in these areas.
Additionally, we appointed a Security Operations Center ("SOC") Director to oversee a number of initiatives designed to improve our cybersecurity protection, readiness and response. The Company partnered with a third party to provide Security as a Service ("SECaaS") to assist our internal SOC in reducing the likelihood and impact of a cybersecurity attack. The SOC oversees penetration testing, vulnerability scanning, intrusion prevention, endpoint and insider threat detection, log management and other cybersecurity-related projects. The Company consulted with third parties in 2017 and 2018 to conduct an evaluation of our cybersecurity risks. The Company also consulted with third parties to achieve ISO 27001 certification related to information security management, which was achieved during 2020. Finally, all users employed by or contracted to the Company are required to complete annual cybersecurity education and training, which includes identifying suspicious emails, internet threats, telecommunication threats and ransomware.
Although a portion of our workforce has returned to in-office environments following guidelines established by the Centers for Disease Control and Prevention, the successful expansion of work-from-home arrangements during the COVID-19 pandemic, in terms of employee productivity and satisfaction, has resulted in many of these arrangements becoming permanent. As such, we anticipate that our go-forward workforce will be more heavily distributed to remote work environments, and we will continue to focus on not introducing vulnerabilities into our technology systems..
Intellectual Property
We regard some aspects of our internal operations, software and documentation as proprietary, and rely primarily on a combination of contract and trade secret laws to protect our proprietary information. We believe, because of the rapid pace of technological change in the computer software industry, trade secret and copyright protection is less significant than factors such as the knowledge, ability and experience of our employees, frequent software product enhancements and the timeliness and quality of our support services. The source code for our proprietary software is protected as a trade secret. We enter into confidentiality or license agreements with our vendors, consultants and clients, and control access to and distribution of our software, documentation and other proprietary information. We cannot guarantee that these protections will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.
We do not believe our software products or other CPSI proprietary rights infringe on the property rights of third parties. However, we cannot guarantee that third parties will not assert infringement claims against us with respect to current or future software products or that any such assertion may not require us to enter into royalty arrangements or result in costly litigation.
Material Government Regulations
Our business operations are subject to various federal, state and international laws, and our products and services are governed by a number of rules and regulations. For example, we are affected by the following regulations:
•As discussed above, the HIPAA security and privacy standards affect our claims transmission services, since those services must be structured and provided in a way that supports our clients’ HIPAA compliance obligations, and GDPR is applicable to certain of our activities conducted from an establishment in the EU and our operations that are targeting clients and activities within the EU.
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•The United States Food and Drug Administration (the “FDA”) has determined that certain of our solutions, such as our ImageLink® and Blood Administration ® products, are medical devices that are actively regulated under the Federal Food, Drug and Cosmetic Act, as amended.
•The use of our solutions by physicians for electronic prescribing and electronic routing of prescriptions via the Surescripts network to pharmacies is governed by federal and state laws. States have differing regulations that govern the electronic transmission of certain prescriptions and prescription requirements.
Although there is no assurance that existing or future government laws, rules and other regulations applicable to our operations, products or services will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate materially increased expenditures in response to government regulations or future material impacts to our results or competitiveness. These regulations and related risks are described in more detail below under “Risk Factors” beginning on page 23 of this Annual Report.
Human Capital
As of December 31, 2022, we had approximately 2,500 employees, the majority of which are remote, with the remaining employees located at our offices in Alabama, Mississippi, Pennsylvania, Washington, and Minnesota. None of our employees are covered by a collective bargaining agreement or are represented by a labor union with respect to his or her employment with us. We have not experienced any work stoppages and we consider our relations with our employees to be good.
We seek to be an employer of choice to attract and retain top talent in order to deliver a one-of-a-kind service and to fully leverage the strengths of our workforce to exceed customer expectations and meet our growth objectives. By improving employee satisfaction, retention, and engagement, we also improve our ability to support our customers and protect the long-term interests of our stockholders. To that end, we strive to foster an engaged, diverse, inclusive, safe, purpose-driven culture where employees have equitable opportunities for success.
Diversity, Equity and Inclusion
We are committed to creating a welcoming and inclusive environment, where everyone is inspired to be the best they can be and feels empowered to openly express opinions and ideas that help drive innovation, progress, and excellence. We eagerly promote our relentless commitment to creating an inclusive and respectful culture across our family of companies. We are steadfast in our responsibility to embrace the diversity of all people and demonstrate our values – collaborative, dependable, proactive, empathetic and agile - with an unwavering focus on those essential to the Company achieving sustainable and meaningful growth. We have a long-standing commitment to equal employment opportunity ("EEO"), as evidenced by the Company’s EEO policy.
As part of our commitment the Company launched our Inclusion, Diversity, Equity Alliance ("Team IDEA") in 2020, an employee-led council with executive sponsorship that is focused on strengthening company-wide engagement on diversity, equity and inclusion, providing learning opportunities for our employees, and helping to identify areas for improvement and monitor progress against these initiatives. In 2022, Team IDEA conducted over 20 employee engagement events and deployed several Company policy updates that extend greater benefit with inclusiveness, care, and compassion at the forefront.
Now, more than ever, we are committed to listening with open hearts and leading with empathy — toward each other, toward our customers and toward our healthcare communities. We continue to invite our leaders, board, clients, and community leaders, along with our chief people officer, to advise us along this journey. In 2022, we launched an employee volunteer program that constructs a direct bridge between employees and the community and encourages employees to put their interests, skill sets, and time to use in solving community challenges.
Compensation and Benefits
We compensate employees with competitive wages and benefit programs designed to meet employee needs. Our compensation program is designed to recognize our employees' contributions to service excellence and business results. We use a combination of fixed and variable pay including base salary, bonus, commissions and merit increases which vary across the Company. In addition, as part of our incentive plan for executives and certain employees, we provide stock-based compensation to attract, retain and motivate our key leaders. For further information concerning our equity incentive plans, see Note 9, Stock-based Compensation and Equity.
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As the success of our employees is fundamentally connected to the well being of our people, our healthcare and benefit programs focus on four key pillars: physical, emotional, financial, and social well-being. We offer a wide array of benefits including comprehensive health and welfare insurances, a 401(K) plan with employer-match, generous time-off, paid parental leave, identity theft insurance, and financial support. We provide emotional well-being services through our medical carrier, Neuro580, and associated Employee Assistance Program. In addition, our financial education tools offer employees resources to reach their personal financial goals.
We continue to partner with our employees to understand how we can better support their health and wellness while allowing them to be their true and authentic selves at work every day.
Development
Our goal is to create opportunities for employee growth, development, education and training, including opportunities to cultivate talent and identify candidates for new roles from within the Company. We strive to ensure that we have the right leaders in place to drive our strategic initiatives not only today but also into the future. We are committed to a safe workplace and an ethical environment in which employees are respected in a culture of belonging and dignity and in which they can continually develop their skills and expertise to advance their careers.
We also believe that ongoing performance feedback encourages greater engagement in our business and improved individual performance. Each year, our employees participate in our Performance Development Program that summarizes key accomplishments for the preceding year, establishes new goals, and identifies critical capabilities for development. We encourage managers to solicit and share supportive 360-degree feedback, align talent with enterprise opportunities, and infuse a mindset of continuous learning and deliberate practices needed to drive global success.
Employee Recruitment
Our key talent philosophy is to develop talent from within and supplement with external hires. This approach has yielded a deep understanding of our business, vision, products, services and clients among our employee base, while adding new employees and ideas in support of our continuous improvement mindset. As a direct result of the operational COVID-19 pandemic adjustments made to the organization during 2020, the opportunity became available to offer more remote positions, whereas before, they would have been conducted from within an office space. Leveraging work collaboration tools and other technologies, the ability to hire remote employees has supported our efforts to expand our internal talent and welcome employees from diverse backgrounds and geographies, creating deeper team collaboration and a more engaging client experience. Our recruitment team uses internal and external resources to recruit diverse, highly skilled and talented workers, and we encourage employee referrals for open positions.
Communication and Engagement
Given the geographic diversity of our workforce, we use multiple modalities in our communication efforts. Our email and the employee hotline have been bolstered by weekly all-employee communications. Additionally, leaders participate in monthly business updates that facilitate awareness of current business initiatives, progress and results. These meetings encourage cross-functional collaboration and help ensure that our teams are not working in silos. These efforts have supported our ability to deliver a more consistent message across all our constituencies and thereby improve employee engagement.
Executive Officers
The executive officers of CPSI serve at the pleasure of the Board of Directors. Set forth below is a list of the current executive officers of CPSI and a brief explanation of each individual’s principal employment during the last five years.
Christopher L. Fowler – President and Chief Executive Officer. Christopher L. Fowler, age 47, was appointed as our President and Chief Executive Officer, and a member of the Board of Directors on July 1, 2022. Mr. Fowler began his career with CPSI in May 2000 as a Software Support Representative and later as a manager of Financial Software Services. From August 2004 until March 2008, Mr. Fowler served as Assistant Director and Director of Business Management Services. Mr. Fowler served as CPSI’s Vice President – Business Management Services from March 2008 until the formation of TruBridge in January 2018, after which time he served as its President. He then served as Chief Operating Officer of the Company from November 2015 through June 2022.
David A. Dye – Chief Operating Officer. David A. Dye, age 53, was appointed as our Chief Operating Officer on October 10, 2022. Mr. Dye previously served as our Chief Growth Officer since November 2015 and Chief Financial Officer, Secretary and Treasurer from June 2010 until November 2015. Mr. Dye served as our President and Chief Executive Officer from July 1999
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to May 2006. He was first elected as a director in March 2002 and served as our Chairman of the Board from May 2006 until April 2019. Mr. Dye began his career with CPSI in May 1990 as a Financial Software Support Representative and served in various capacities until July 1999. Mr. Dye served as a director of Bulow Biotech Prosthetics, LLC, a company headquartered in Nashville, Tennessee that operates prosthetic clinics in the Southeastern United States, from July 2006 until October 2018.
Matt J. Chambless – Chief Financial Officer, Secretary and Treasurer. Matt J. Chambless, age 42, was appointed as our Chief Financial Officer, Secretary and Treasurer in November 2015, having previously served as our Director of Financial Reporting from March 2012 until November 2015. Prior to joining CPSI, Mr. Chambless served as the Accounting Manager for Northside Hospital System from May 2011 until March 2012 and as an audit professional, including an Audit Manager, for Grant Thornton, LLP from August 2004 to May 2011.
Dawn M. Severance - Chief Sales Officer. Dawn M. Severance, age 53, was appointed as our Chief Sales Officer in November 2022 after serving as Senior Vice President of Sales for TruBridge since January 2021. Ms. Severance joined CPSI as part of the Healthland acquisition in 2016 where she served as Vice President of Sales. Ms. Severance served as Regional Vice President of Sales for CPSI from 2016 to May 2019 and as Vice President of Sales for TruBridge from May 2019 to January 2021.
Kevin Plessner - General Counsel. Kevin Plessner, age 40, was appointed as our General Counsel in January 2022. Mr. Plessner joined CPSI as part of the Get Real Health acquisition in 2019. He served as General Counsel at Get Real Health from 2013 until the 2019 acquisition, at which point he became Corporate Counsel at CPSI.
Wes D. Cronkite - Chief Technology and Innovation Officer. Wes D. Cronkite, age 40, was appointed as our Chief Innovation Officer in May 2021 and then was appointed Chief Technology and Innovation Officer in November 2022. Prior to joining CPSI, Mr. Cronkite served as Senior Vice President of Innovation at BrightSpring Health from August 2018 until April 2021. He also held various healthcare technology leadership roles at nThrive (formerly MedAssets) from March 2010 through August 2019, including Senior Vice President of Internal Analytics, Vice President of Strategic Initiatives, and Vice President of System Strategy and Operations.
Company Web Site
The Company maintains a web site at http://www.cpsi.com. The Company makes available on its web site, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as it is reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. The Company is not including the information contained on or available through its web site as a part of, or incorporating such information into, this Annual Report on Form 10-K.
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ITEM 1A. | RISK FACTORS

These are not the only risks and uncertainties that we face. Our business, financial condition, operating results, and stock price can be materially and adversely affected by a number of factors, whether currently known or unknown, including, but not limited to, those described below. Any one or more of such factors could directly or indirectly cause our actual financial condition and operating results to vary materially from our past or anticipated future financial condition or operating results.
RISKS RELATED TO OUR INDUSTRY
The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as the COVID-19 pandemic, and the governmental and societal responses thereto, could adversely affect our business, results of operations, and financial position.
Widespread outbreaks of disease or other public health crises, such as the COVID-19 pandemic, and responses thereto have in the past and may in the future cause harm to us, our employees, customers, vendors, and financial institutions, which could have a material adverse effect on our results of operations, financial condition, and cash flows. The impacts may include, but would not be limited to:
•Disruption to operations due to the unavailability of employees due to illness, quarantines, risk of illness, travel restrictions, vaccination mandates, or other factors that limit the availability of our existing or potential workforce;
•Limitations to the availability of our key personnel due to travel restrictions and access restrictions to our customers' facilities;
• Elevated employee turnover which may impact our performance and /or increase payroll expense and recruiting-related expenses;
•New or additional measures required by national, state, or local governments to combat COVID-19, such as a COVID-19 vaccine mandate, may impact the availability of our employees and/or increase operating costs;
•Decreased patient volumes which could impact the financial health of our customers and thereby increase our associated credit risk with customers and increase pressure to modify our contractual terms; and
•Significant disruption of global financial markets, which could negatively impact our or our customers' ability to access capital in the future.
The further spread of COVID-19, and the requirements to take action to help limit the spread of the virus, could impact the resources required to carry out our business as usual and may have a material adverse effect on our results of operations, financial condition, and cash flows. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread of the virus, the severity of the disease, the duration of the outbreak and the type and duration of actions that may be taken by various government authorities in response to the outbreak and the impact on the United States and the global economy. Any of these developments, individually or in aggregate, could materially impact our business and our financial results and conditions.
Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and may adversely impact our ability to access capital, at all or on reasonable terms. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described herein.
There are a limited number of hospitals in our target market. Saturation or consolidation in the healthcare industry could result in the loss of existing clients, a reduction in our potential client base and downward pressure on the prices of our products and services.
The limited number of hospitals with fewer than 200 acute care beds in our general target market for our acute care product and service offerings has resulted in an ever narrowing market for new system installations and add-on sales which could materially and adversely impact our business, financial condition and operating results.
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Our primary objectives are to increase the market share of our RCM services, aggressively pursue competitive and vulnerable EHR replacement opportunities, and differentiate our products and services on a client experience basis that enables us to sell a broader set of services into a loyal base of clients that are our advocates. Although we have formulated strategic responses for capitalizing on each of the identified opportunities, there is no guarantee that such responses will ultimately prove successful. Additionally, to the extent that these opportunities fail to develop or develop more slowly than expected, our business, financial condition and operating results could be materially and adversely impacted.
Furthermore, many healthcare providers have consolidated to create larger healthcare delivery enterprises with greater market power. If this consolidation continues, we could lose existing clients and could experience a decrease in the number of potential purchasers of our products and services. The loss of existing and potential clients due to industry consolidation could cause our revenue growth rate to decline.
Economic, market and other factors may cause a decline in spending for information technology and services by our current and prospective clients which may result in less demand for our products, lower prices and, consequently, lower revenues and a lower revenue growth rate.
The purchase of our information system involves a significant financial commitment by our clients. At the same time, the healthcare industry fac es significant financial pressures that could adversely affect overall spending on healthcare information technology and services. To the extent spending for healthcare information technology and services declines or increases slower than we anticipate, demand for our products and services, as well as the prices we charge, could be adversely affected. Accordingly, we cannot assure you that we will be able to increase or maintain our revenues or our revenue growth rate.
There is significant uncertainty in the healthcare industry, both as a result of recently enacted legislation and changing government regulation, which may have a material adverse impact on the businesses of our hospital clients and ultimately on our business, financial condition and results of operations.
The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities, including our hospital clients. During the past decade, the healthcare industry has been subject to increased legislation and regulation of, among other things, reimbursement rates, payment programs, information technology programs and certain capital expenditures (collectively, the "Health Reform Laws").
The Health Reform Laws contain various provisions which impact us and our clients. Some of these provisions have a positive impact, by expanding the use of electronic health records in certain federal programs, for example, while others, such as reductions in reimbursement for certain types of providers, have a negative impact due to fewer available resources. The continued increase in fraud and abuse penalties is expected to adversely affect participants in the healthcare sector, including us.
Among other things, the Health Reform Laws provide for the expansion of Medicaid eligibility, mandate material changes to the delivery of healthcare services and reduce the reimbursement paid for such services in order to generate savings in the Medicare program. The Health Reform Laws also modify certain payment systems to encourage more cost-effective, quality-based care and a reduction of inefficiencies and waste, including through various tools to address fraud and abuse.
The Health Reform Laws will continue to affect hospitals differently depending upon the populations they serve and their payor mix. Our target market of community hospitals typically serve higher uninsured populations than larger urban hospitals and rely more heavily on Medicare and Medicaid for reimbursement. It remains to be seen whether the increase in the insured population for community hospitals will be sufficient to offset actual and proposed additional cuts in Medicare and Medicaid reimbursements contained in the Health Reform Laws.
The Health Reform Laws are leading to significant changes in the healthcare system, but the full impact of the legislation and of further statutory and regulatory actions to reform healthcare on our business is unknown. As a result, there can be no assurances that the legislation will not adversely impact either our operational results or the manner in which we operate our business. We believe some healthcare industry participants have reduced their investments or postponed investment decisions, including investments in our solutions and services.
Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduced allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. Although the Biden administration promises to prioritize public health by fortifying and expanding implementation of such laws and legislation, we cannot predict what effect, if any, such additional proposals or healthcare reforms might have on our business, financial condition and results of operations.
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As existing regulations mature and become better defined, we anticipate that these regulations will continue to directly affect certain of our products and services, but we cannot fully predict the effect at this time. We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with the regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.
The healthcare industry is heavily regulated at the local, state and federal levels. Our failure to comply with regulatory requirements could create liability for us, result in adverse publicity and negatively affect our business.
The healthcare industry is heavily regulated and is constantly evolving due to the changing political, legislative and regulatory landscapes. In some instances, the impact of these regulations on our business is direct to the extent that we are subject to these laws and regulations ourselves. However, these regulations also impact our business indirectly as, in a number of circumstances, our solutions, devices and services must be capable of being used by our clients in a way that complies with those laws and regulations, even though we may not be directly regulated by the specific healthcare laws and regulations. There is a significant number of wide-ranging regulations, including regulations in the areas of healthcare fraud, e-prescribing, claims processing and transmission, medical devices, the security and privacy of patient data, the ARRA meaningful use program, patient access rights and interoperability standards, that may be directly or indirectly applicable to our operations and relationships or the business practices of our clients. Specific areas that are subject to increased regulation include, but are not limited to, the following:
Healthcare Fraud. Federal and state governments continue to enhance regulation of and increase their scrutiny over practices potentially involving healthcare fraud, waste and abuse by healthcare providers whose services are reimbursed by Medicare, Medicaid and other government healthcare programs. Our healthcare provider clients are subject to laws and regulations regarding fraud and abuse that, among other things, prohibit the direct or indirect payment or receipt of any remuneration for patient referrals, or arranging for or recommending referrals or other business paid for in whole or in part by these federal or state healthcare programs. Federal enforcement personnel have substantial funding, powers and remedies to pursue suspected or perceived fraud and abuse. The effect of this government regulation on our clients is difficult to predict. Many of the regulations applicable to our clients and that may be applicable to us, including those relating to marketing incentives offered in connection with medical device sales may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could broaden their applicability to us or require our clients to make changes in their operations or the way in which they deal with us. If such laws and regulations are determined to be applicable to us and if we fail to comply with any applicable laws and regulations, we could be subject to civil and criminal penalties, sanctions or other liabilities, including exclusion from government healthcare programs, which could have a material adverse effect on our business, results of operations and financial condition. Even an unsuccessful challenge by a regulatory or prosecutorial authority of our activities could result in adverse publicity, could require a costly response from us and could adversely affect our business, results of operations and financial condition.
E-Prescribing. The use of our solutions by physicians for electronic prescribing and electronic routing of prescriptions via the Surescripts network to pharmacies is governed by federal and state laws. States have differing regulations that govern the electronic transmission of certain prescriptions and prescription requirements. Standards adopted by the National Council for Prescription Drug Programs and regulations adopted by the Centers for Medicare and Medicaid Services ("CMS") related to "EPrescribing and the Prescription Drug Program" set forth implementation standards for the transmission of electronic prescriptions. These standards are detailed and broad, and cover not only routing transactions between prescribers and pharmacies, but also electronic eligibility, formulary and benefits inquiries. In general, regulations in this area can be burdensome and evolve regularly, meaning that any potential benefits to our clients from utilizing such solutions and services may be superseded by a newly-promulgated regulation that adversely affects our business model. Our efforts to provide solutions that enable our clients to comply with these regulations could be time consuming and expensive.
Claims Processing and Transmission. Our system electronically transmits medical claims by physicians to patients’ payors for immediate approval and reimbursement. In addition, we offer business management services that include the manual and electronic processing and submission of medical claims by healthcare providers to patients’ payors for approval and reimbursement. Federal and state laws provide that it is a violation for any person to submit, or cause to be submitted, a claim to any payor, including, without limitation, Medicare, Medicaid and all private health plans and managed care plans, seeking payment for any service or product that overbills or bills for items that have not been provided to the patient. We have in place policies and procedures that we believe assure that all claims that are transmitted by our system and through our services are accurate and complete, provided that the information given to us by our clients is also accurate and complete. If, however, we do not follow those procedures and policies, or they are not sufficient to prevent inaccurate claims from being submitted, we could be subject to substantial liability including, but not limited to, civil and criminal liability. Additionally, any such failure of
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our billing and collection services to comply with these laws and regulations could adversely affect demand for our services and could force us to expend significant capital, research and development, and other resources to address the failure.
Where we are permitted to do so, we calculate charges for our billing and collection services based on a percentage of the collections that our clients receive as a result of our services. To the extent that violations or liability for violations of these laws and regulations require intent, it may be alleged that this percentage calculation provides us or our employees with incentive to commit or overlook fraud or abuse in connection with submission and payment of reimbursement claims. CMS has stated that it is concerned that percentage-based billing services may encourage billing companies to commit or to overlook fraudulent or abusive practices.
A portion of our business involves billing Medicare claims on behalf of our clients. In an effort to combat fraudulent Medicare claims, the federal government offers rewards for reporting of Medicare fraud which could encourage others to subject us to a charge of fraudulent claims, including charges that are ultimately proved to be without merit.
As discussed below, the HIPAA security and privacy standards also affect our claims transmission services, since those services must be structured and provided in a way that supports our clients’ HIPAA compliance obligations.
Regulation of Medical Devices. The United States Food and Drug Administration (the "FDA") has determined that certain of our solutions, such as our ImageLink® and Blood Administration® products, are medical devices that are actively regulated under the Federal Food, Drug and Cosmetic Act, as amended. If other of our solutions are deemed to be actively regulated medical devices by the FDA, we could be subject to extensive requirements governing pre- and post-marketing activities including registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping and manufacturing standards, application of the medical device excise tax, and FDA approval or clearance prior to marketing. Complying with these medical device regulations is time consuming and expensive, and our marketing and other sales activities could be subject to unanticipated and significant delays. Further, it is possible that the FDA may become more active in regulating software and medical devices that are used in the healthcare industry. If we are unable to obtain the required regulatory approvals for any such software or medical devices, our short- to long-term business plans for these solutions or medical devices could be delayed or canceled and we could face FDA refusal to grant pre-market clearance or approval of products; withdrawal of existing clearances and approvals; fines, injunctions or civil penalties; recalls or product corrections; production suspensions; and criminal prosecution. FDA regulation of our products could increase our operating costs, delay or prevent the marketing of new or existing products, and adversely affect our revenue growth.
Security and Privacy of Patient Information. Federal, state and local laws regulate the privacy and security of patient records and the circumstances under which those records may be released. These regulations govern both the disclosure and use of confidential patient medical record information and require the users of such information to implement specified security and privacy measures. United States regulations currently in place governing electronic health data transmissions continue to evolve and are often unclear and difficult to apply.
In the United States, HIPAA regulations require national standards for some types of electronic health information transactions and the data elements used in those transactions, security standards to ensure the integrity and confidentiality of health information, and standards to protect the privacy of individually identifiable health information. Covered entities under HIPAA, which include healthcare organizations such as our clients, and our claims processing, transmission and submission services, are required to comply with the privacy standards, transaction regulations and security regulations. Moreover, HITECH and associated regulatory requirements extend many of the HIPAA obligations, formerly imposed only upon covered entities, to business associates as well. As a business associate of our clients who are covered entities, we are in most instances already contractually required to ensure compliance with the HIPAA regulations as they pertain to the handling of covered client data. However, the extension of these HIPAA obligations to business associates by law has created a direct liability risk related to the privacy and security of individually identifiable health information.
Evolving HIPAA and HITECH-related laws or regulations could restrict the ability of our clients to obtain, use or disseminate patient information. This could adversely affect demand for our solutions and devices if they are not re-designed in a timely manner in order to meet the requirements of any new interpretations or regulations that seek to protect the privacy and security of patient data or enable our clients to execute new or modified healthcare transactions. We may need to expend additional capital and software development and other resources to modify our solutions to address these evolving data security and privacy issues. Furthermore, our failure to maintain the confidentiality of sensitive personal information in accordance with the applicable regulatory requirements could damage our reputation and expose us to claims, fines and penalties.
Federal and state statutes and regulations have granted broad enforcement powers to regulatory agencies to investigate and enforce compliance with these privacy and security laws and regulations. Federal and state enforcement personnel have
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substantial funding, powers and remedies to pursue suspected or perceived violations. If we fail to comply with any applicable laws or regulations, we could be subject to civil penalties, sanctions or other liability. Enforcement investigations, even if meritless, could have a negative impact on our reputation, cause us to lose existing clients or limit our ability to attract new clients.
ARRA Meaningful Use Program. The ARRA initially required "meaningful use of certified electronic health record technology" by healthcare providers by 2015 in order to receive limited incentive payments and to avoid related reduced reimbursement rates for Medicare claims. Related standards and specifications are subject to interpretation by the entities designated to certify such technology. While a combination of our solutions has been certified as meeting stage one, stage two, and stage three standards for certified electronic health record technology, the regulatory standards to achieve certification will continue to evolve over time. We may incur increased development costs and delays in delivering solutions if we need to upgrade our software or healthcare devices to be in compliance with these varying and evolving standards. In addition, further delays in interpreting these standards may result in postponement or cancellation of our clients’ decisions to purchase our software solutions. If our software solutions are not compliant with these evolving standards, our market position and sales could be impaired and we may have to invest significantly in changes to our software solutions.
Interoperability Standards. Our clients are concerned with and often require that our software and systems be interoperable with other third party healthcare information technology systems. Market forces or governmental or regulatory authorities could create software interoperability standards that would apply to our software and systems, and if our software and systems are not consistent with those standards, we could be forced to incur substantial additional development costs. For example, the HITECH Act contains interoperability standards that healthcare providers are required to adhere to in order to receive stimulus funds from the federal government under the ARRA. Compliance with these and related standards is becoming a competitive requirement and, although a combination of our solutions has been certified as meeting all such required interoperability standards to date, maintaining such compliance with these varying and evolving rules may result in increased development costs and delays in upgrading our client software and systems. To the extent these rules are narrowly construed, subsequently changed or supplemented, or that we are delayed in achieving certification under these evolving rules for applicable products, our clients may postpone or cancel their decisions to purchase or implement our software and systems.
As it relates specifically to interoperability, we are a member of CommonWell Health Alliance ("CommonWell"), a not-for-profit trade association comprised of healthcare information technology vendors devoted to the notion that patient data should be safely, securely and immediately available to patients and healthcare providers to support better care delivery, regardless of where that care occurs. CommonWell is committed to fostering standards that make this possible, and to having healthcare information technology companies embed these capabilities natively and cost effectively into their EHR systems. Despite our membership in CommonWell, there is no guarantee that we will successfully manage the interoperability of our software and systems with third-party health IT providers.
Patient Access Rights. In March 2020, the Office of National Coordinator for Health Information Technology ("ONC") of the U.S. Department of Health and Human Services ("HHS") released the "21st Century Cures Act: Interoperablity, Information Blocking, and the ONC Health IT Certification Program, Final Rule." The rule implements several of the key interoperability provisions included in the 21st Century Cures Act. Specifically, it calls on developers of certified EHRs and health IT products to adopt standardized APIs, which will help allow individuals to securely and easily access structured and unstructured EHI formats using smartphones and other mobile devices. This provision and others included in the final rule create a potentially lengthy list of certification and maintenance of certification requirements that developers of EHRs and other health IT products have to meet in order to maintain approved federal government certification status. Meeting and maintaining this certification status could require additional development costs.
The ONC rule also implements the information blocking provisions of the 21st Century Cures Act, including identifying reasonable and necessary activities that do not constitute information blocking. Under the 21st Century Cures Act, the HHS has the regulatory authority to investigate and assess civil monetary penalties of up to $1,000,000 against health IT developers and/or providers found to be guilty of "information blocking." This new oversight and authority to investigate claims of information blocking creates significant risks for us and our clients and could potentially create substantial new compliance costs.
Standards for Submission of Healthcare Claims. Effective October 2015, CMS mandated the use of new patient codes for reporting medical diagnosis and inpatient procedures, referred to as the ICD-10 codes. CMS requires all providers, payors, clearinghouses and billing services to utilize these ICD-10 codes when submitting claims for payment. ICD-10 codes affect medical diagnosis and inpatient procedure coding for everyone covered by HIPAA, not just those who submit Medicare or Medicaid claims. Claims for services must use ICD-10 codes for medical diagnosis and inpatient procedures or they will not be paid. While we have successfully implemented the use of ICD-10 codes within our products and services, the possibility exists for similar future mandates by CMS. If our products and services do not accommodate CMS mandates at any future date,
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clients may cease to use those products and services that are not compliant and may choose alternative vendors and products that are compliant. This could adversely impact future revenues.
RISKS RELATED TO OUR BUSINESS
Our strategy to transition to a subscription-based recurring revenue model and continued modernization of our technology may adversely affect our near-term revenue growth and results of operations.
As we transition more of our offerings to leverage cloud technologies, we may incur disruption and be less competitive as we transition existing clients to new product offerings, which could impact revenue and profitability. We believe we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position, and oftentimes, successful investments require several years before generating significant revenue. We expect our ongoing shift from a software license model to a subscription-based services revenue model to create a recurring revenue stream that is more predictable. The transition, however, creates changes related to the timing of revenue recognition compared to historical patterns. We also incur certain expenses associated with the infrastructures of our cloud-based offerings in advance of our ability to recognize the revenues associated with these offerings, which may adversely affect our near-term reported revenues, results of operations, and cash flows. A decline in renewals of recurring revenue offerings in any period may not be immediately reflected in our results for that period but may result in a decline in our revenue and results of operations in future periods.
Competition with companies that have greater financial, technical and marketing resources than we have could result in a loss of clients and/or a lowering of prices for our products, causing a decrease in our revenues and/or market share.
Our principal competitors in the business management, consulting and managed IT services market are Resolution Health, Inc., The Outsource Group Inc., Patient Focus, Inc., Xtend Healthcare Inc., Ensemble Health Partners, and nThrive, Inc. All of these companies provide one or more of the services we offer, with their primary focus being on providing business management services to the healthcare market. The services they offer are comparable in scope to the competing services we offer. Secondary competitors include ARx LLC, Citadel Outsource Group LLC, Patient Matters, LLC, KIWI-TEK, LLC, and Aviacode Inc. Our principal competitors for RCM solutions include RelayHealth Corp, SSI Group, LLC, Quadax Inc., Change Healthcare Holdings, Inc., Availity, LLC, and Navicure, Inc. TruCode's primary competitors include 3M, Nuance and Optum.
Our principal competitors in the acute EHR market are Cerner Corporation, Medical Information Technology, Inc. ("Meditech"), and MEDHOST, Inc. These companies compete with us directly in our target market of small and midsize hospitals. They offer products and systems that are comparable to our solutions and address the needs of hospitals in the markets we serve.
Our secondary competitors in the acute care EHR market include N. Harris Computer Corporation and Epic Systems Corporation. These companies are significantly larger than we are, and they typically sell their products and services to larger hospitals outside of our target market. However, they will sometimes compete with us directly or, more commonly, a larger health system who uses a system provided by one of these competitors will offer it to a smaller hospital as part of a merger or alliance.
We also face competition from providers of practice management systems, general decision support and database systems, and other segment-specific applications. Any of these companies, as well as other technology or healthcare companies could decide at any time to specifically target hospitals within our target market.
Our principal competitors in the post-acute care EHR market are PointClickCare Corporation and MatrixCare, Inc. These companies compete with us directly in our target market of long-term post-acute care facilities. They offer products and systems that are comparable to our system and address the needs of long-term care providers.
Our principal competitors in the patient engagement market include Relay Health, Get Well Network/Healthloop, Apollo Care Connect, Bridge Patient Portal, eClinicalWorks Patient Portal, Influence Health, and InteliChart.
A number of existing and potential competitors are more established than we are and have greater name recognition and financial, technical and marketing resources. Products of our competitors may have better performance, lower prices and broader market acceptance than our products. We expect increased competition that could cause us to lose clients, lower our prices to remain competitive and, consequently, experience lower revenues, revenue growth and profit margins.
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We recently completed the acquisitions of TruCode and HRG, and we may engage in future acquisitions. Such strategic acquisitions may be expensive, time consuming, and subject to other inherent risks which may jeopardize our ability to realize anticipated benefits.
We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products are likely to serve our strategic goals. Acquisitions have inherent risks, which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to the following:
•significant acquisition and integration costs;
•failure to achieve projected synergies and performance targets;
•potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets with indefinite useful lives, which could adversely affect our results of operations and financial condition;
•using cash as acquisition currency may adversely affect interest or investment income, which may in turn adversely affect our earnings and/or earnings per share;
•difficulty in fully or effectively integrating the acquired technologies, software products, services, business practices or personnel, which would prevent us from realizing the intended benefits of the acquisition;
•failure to maintain uniform standard controls, policies and procedures across acquired businesses;
•difficulty in predicting and responding to issues related to product transition such as development, distribution and client support;
•the possible adverse effect of such acquisitions on existing relationships with third party partners and suppliers of technologies and services;
•the possibility that staff or clients of the acquired companies might not accept new ownership and may transition to different technologies or attempt to renegotiate contract terms or relationships, including maintenance or support agreements;
•the assumption of known and unknown liabilities;
•the possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product architecture, product development, intellectual property issues, key personnel issues or legal and financial contingencies, including any deficiencies in internal controls and procedures and the costs associated with remedying such deficiencies;
•difficulty in entering geographic and/or business markets in which we have no or limited prior experience;
•diversion of management’s attention from other business concerns; and
•the possibility that acquired assets become impaired, requiring us to take a charge to earnings which could be significant.
A failure to successfully integrate acquired businesses or technology in a timely manner could, for any of these reasons, have an adverse effect on our financial condition and results of operations. As a result, we may not be able to realize the expected benefits that we seek to achieve from the acquisitions, which could also affect our ability to service our debt obligations. In addition, we may be required to spend additional time or money on integration that otherwise would be spent on the development and expansion of our business.
If we are unable to attract and retain qualified personnel, our business and operating results will suffer.
Our client service and support is a key component of our business. Most of our hospital clients have small information technology staffs, and they depend on us to service and support their systems. Future difficulty in attracting, training and retaining capable client service and support personnel could cause a decrease in the overall quality of our client service and support. That decrease would have a negative effect on client satisfaction which could cause us to lose existing clients and could have an adverse effect on our new client sales. The loss of clients due to inadequate client service and support would negatively impact our ability to continue to grow our business.
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We periodically have restructured our sales force, which can be disruptive.
We continue to rely heavily on our direct sales force. Periodically, we have restructured or made other adjustments to our sales force in response to factors such as product changes, geographical coverage and other internal considerations. Change in the structures of the sales force and sales force management can result in temporary lack of focus and reduced productivity that may affect revenues in one or more quarters. Future restructuring of our sales force could occur, and if so we may again experience the adverse transition issues associated with such restructuring.
If we are unable to manage our growth in the new markets we may enter, our business and financial results could suffer.
Our future financial results will depend in part on our ability to profitably manage our business in new markets that we may enter. We are engaging in the strategic identification of, and competition for, growth and expansion opportunities in new markets or offerings. In order to successfully execute on these future initiatives, we will need to, among other things, manage changing business conditions and develop expertise in areas outside of our business's traditional core competencies. Difficulties in managing future growth in new markets could have a significant negative impact on our business, financial condition and results of operations.
Our international business activities and processes expose us to numerous and often conflicting laws, regulations, policies, standards or other requirements, and to risks that could harm our business, financial condition and results of operations.
Our subsidiary, Get Real Health, sells patient engagement technology to hospital systems and government agencies in Canada, Australia, England, the United Arab Emirates and the Netherlands, directly and through resellers, and Evident has had limited sales of EHR software to government agencies in Canada and the Caribbean. Our business in these countries is subject to numerous risks inherent in international business operations. Among others, these risks include:
•data protection and privacy regulations regarding access by government authorities to customer, partner, or employee data;
•data residency requirements (the requirement to store certain data only in and, in some cases, also to access such data only from within a certain jurisdiction);
•conflict and overlap among tax regimes;
•possible tax constraints impeding business operations in certain countries;
•expenses associated with the localization of our products and compliance with local regulatory requirements;
•discriminatory or conflicting fiscal policies;
•operational difficulties in countries with a high corruption perception index;
•difficulties enforcing intellectual property and contractual rights in certain jurisdictions;
•country-specific software certification requirements;
•compliance with various industry standards; and
•market volatilities or workforce restrictions due to changing laws and regulations resulting from political decisions (e.g. Brexit, government elections).
As we expand into new countries and markets, these risks could intensify. The application of the respective local laws and regulations to our business is sometimes unclear, subject to change over time, and often conflicting among jurisdictions. Additionally, these laws and government approaches to enforcement are continuing to change and evolve, just as our products and services continually evolve. Compliance with these varying laws and regulations could involve significant costs or require changes in products or business practices. Non-compliance could result in the imposition of penalties or cessation of orders due to alleged non-compliant activity. We do not believe we have engaged in any activities sanctionable under these laws and regulations, but governmental authorities could use considerable discretion in applying these statutes and any imposition of sanctions against us could be material. One or more of these factors could have an adverse effect on our operations globally or in one or more countries or regions, which could have an adverse effect on our business, financial condition and results of operations.
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We face the risks and uncertainties that are associated with investigations and litigation against us, which may adversely impact our marketing, distract management and have a negative impact upon our business, results of operations and financial condition.
We face the risks associated with litigation concerning the operation of our business. For example, companies in our industry, including many of our competitors, have been subject to litigation based on allegations of patent infringement or other violations of intellectual property rights. In particular, patent holding companies often engage in litigation to seek to monetize patents that they have obtained. As the number of competitors, patents and patent holding companies in our industry increases, the functionality of our products and services expands, and we enter into new geographies and markets, the number of intellectual property rights-related actions against us is likely to continue to increase. The uncertainty associated with substantial unresolved litigation may have an adverse effect on our business. In particular, such litigation could impair our relationships with existing clients and our ability to obtain new clients. Defending such litigation may result in a diversion of management's time and attention away from business operations, which could have an adverse effect on our business, results of operations and financial condition. Such litigation may also have the effect of discouraging potential acquirers from bidding for us or reducing the consideration such acquirers would otherwise be willing to pay in connection with an acquisition.
There can be no assurance that such litigation will not result in liability in excess of our insurance coverage, that our insurance will cover such claims or that appropriate insurance will continue to be available to us in the future at commercially reasonable rates.
Investigations may lead to future requests for information and ultimately the assertion of claims or the commencement of legal proceedings against us, which themselves may lead to material fines, penalties or other material liabilities. In addition, our responses to these and any future requests require time and effort, which can result in additional cost to us. Given the highly-regulated nature of our industry, we have been and may, from time to time, be subject to subpoenas, requests for information, or investigations from various government agencies.
We use offshore third-party partners in India, Panama, the Philippines and Kenya that expose us to risks that could have a material adverse effect on our operating costs.
Our reliance on an international workforce exposes us to business disruptions caused by the political and economic environment in those regions. Terrorist attacks and acts of violence or war may directly affect our workforce or contribute to general instability. Our global business services operations require us to comply with local laws and regulatory requirements, which are complex and of which we may not always be aware, and expose us to foreign currency exchange rate risk. Our global business services operations may also subject us to trade restrictions, reduced or inadequate protection for intellectual property rights, security breaches, and public health events, including the COVID-19 pandemic and other factors which may adversely affect our business. Negative developments in any of these areas could increase our operating costs or otherwise harm our business. In addition, local laws and customs in countries in which we contract with third-party partners may differ from those in the U.S. For example, it may be a local custom for businesses to engage in practices that are prohibited by our internal policies and procedures or U.S. laws and regulations applicable to us, such as the Foreign Corrupt Practices Act ("FCPA"). The FCPA generally prohibits U.S. companies from giving or offering money, gifts, or anything of value to a foreign official to obtain or retain business and requires businesses to make and keep accurate books and records and a system of internal accounting controls. We cannot guarantee that our employees, contractors, and agents will comply with all of our FCPA compliance policies and procedures. If we or our employees, contractors, or agents fail to comply with the requirements of the FCPA or similar legislation, government authorities in the U.S. and elsewhere could seek to impose civil or criminal fines and penalties which could have a material adverse effect on our business, operating results, and financial condition.
RISKS RELATED TO OUR PRODUCTS AND SERVICES
Our failure to develop new products or enhance current products in response to market demands could adversely impact our competitive position and require substantial capital resources to correct.
The needs of hospitals in our target market are subject to rapid change due to government regulation, trends in clinical care practices and technological advancements. As a result of these changes, our products may quickly become obsolete or less competitive. New product introductions and enhancements by our competitors that more effectively or timely respond to changing industry needs may weaken our competitive position.
We continually redesign and enhance our products to incorporate new technologies and adapt our products to ever-changing hardware and software platforms. Often we face difficult choices regarding which new technologies to adopt. If we fail to anticipate or respond adequately to technological advancements, or experience significant delays in product development or introduction, our competitive position could be negatively affected. Moreover, our failure to offer products acceptable to our
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target market could require us to make significant capital investments and incur higher operating costs to redesign our products, which could negatively affect our financial condition and operating results.
Our products assist clinical decision-making and related care by capturing, maintaining and reporting relevant patient data. If our products fail to provide accurate and timely information, our clients could assert claims against us that could result in substantial cost to us, harm our reputation in the industry and cause demand for our products to decline.
We provide products that assist clinical decision-making and related care by capturing, maintaining and reporting relevant patient data. Our products could fail or produce inaccurate results due to a variety of reasons, including unexpected service disruptions, mechanical error, product flaws, faulty installation and/or human error during the initial data conversion. If our products fail to provide accurate and timely information, clients and/or patients could sue us to hold us responsible for losses they incur from these errors. These lawsuits, regardless of merit or outcome, could result in substantial cost to us, divert management’s attention from operations and decrease market acceptance of our products. We attempt to limit by contract our liability for damages arising from negligence, errors or mistakes. Despite this precaution, such contract provisions may not be enforceable or may not otherwise protect us from liability for damages. We maintain general liability insurance coverage, including coverage for errors or omissions. However, this coverage may not be sufficient to cover one or more large claims against us or otherwise continue to be available on terms acceptable to us. In addition, the insurer could disclaim coverage as to any future claim.
Breaches of security and viruses in our systems could result in client claims against us and harm to our reputation causing us to incur expenses and/or lose clients.
In the course of our business operations, we compile and transmit confidential information, including patient health information. We have included security features in our systems that are intended to protect the privacy and integrity of this information. Despite the existence of these security features, our system may experience break-ins and similar disruptive problems that could jeopardize the security of information stored in and transmitted through the information technology networks of our clients. In addition, the other systems with which we may interface, such as the Internet and related systems, may be vulnerable to security breaches, viruses, programming errors or similar disruptive problems. Based on the size of our company, the industry in which we operate, and the overall percentage of impacted companies in the same or similar industry, it is probable there will be attempts to breach our security. Healthcare information has become a prime target for attackers based on the value of the information and, therefore, has the potential to increase the risk of us experiencing a cyber attack.
Our systems have experienced various immaterial breaches in the past, including ransomware, denial-of-service, malware, and phishing. Also, our business partners have experienced security breaches, which is disruptive for our customers. While these events have not had an adverse impact on our business or financial condition, security breaches such as these could have a material adverse effect on our financial condition, as, (a) clients could sue us for breaches of security involving our system due to the sensitivity of the medical information we compile and transmit; (b) actual or perceived security breaches in our system could harm the market perception of our products which could cause us to lose existing and prospective clients; and (c) the effect of security breaches and related issues could disrupt our ability to perform certain key business functions and could potentially reduce demand for our products and services. Accordingly, we have expended significant resources toward establishing and enhancing the security of our related infrastructures and we have enhanced our cybersecurity risk management program and disclosure controls and procedures, as discussed under "Business - Our Products and Services." However, no assurance can be given that these efforts will be sufficient to protect against a breach or other cybersecurity incident. Also, maintaining and enhancing our infrastructure security may require us to expend significant capital in the future.
Our networks have been, and likely will continue to be, subject to Distributed Denial of Service ("DDoS") attacks. Recent industry experience has demonstrated that DDoS attacks continue to grow in size and sophistication and have the ability to widely disrupt services. In recent years, the size of DDoS attacks has grown rapidly. While we have adopted mitigation techniques, procedures and strategies to defend against DDoS attacks, there can be no assurance that we will be able to defend against every attack, especially as the attacks increase in size and sophistication. Any attack, even if only partially successful, could disrupt our networks, increase response time, negatively impact our ability to meet our service level obligations, and generally impede our ability to provide reliable service to our customers and the broader internet community.
New products that we introduce or enhancements to our existing products may contain undetected errors or problems that could affect client satisfaction and cause a decrease in revenues.
Highly complex software products such as ours sometimes contain undetected errors or failures when first introduced or when updates and new versions are released. Tests of our products may not detect bugs or errors because it is difficult to simulate our clients’ wide variety of computing environments. Despite extensive testing, from time to time we have discovered defects or errors in our products. Defects or errors discovered in our products could cause delays in product introductions and shipments
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and unexpected service disruptions, result in increased costs and diversion of development resources, require design modifications, decrease market acceptance or client satisfaction with our products, cause a loss of revenue, result in legal actions by our clients and cause increased insurance costs.
We may not be successful in convincing customers to migrate to current or future releases of our products, which may lead to reduced services and maintenance revenues and less future business from existing customers.
Our customers may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to our loss of services and maintenance revenues and future business from customers that continue to operate prior versions of our products or choose to no longer use our products.
Failure to maintain our margins and service rates for implementation services could have a material adverse effect on our operating performance and financial condition.
A significant portion of our revenues is derived from implementation services. If we fail to scope our implementation projects correctly, our services margins may suffer. We bill for implementation services predominately on an hourly or daily basis (time and materials) and sometimes under fixed price contracts, and we generally recognize revenue from those services as we perform the work. If we are not able to maintain the current service rates for our time and materials implementation services, without corresponding cost reductions, or if the percentage of fixed price contracts increases and we underestimate the costs of our fixed price contracts, our operating performance may suffer. The rates we charge for our implementation services depend on a number of factors, including the following:
•perceptions of our ability to add value through our implementation services;
•complexity of services performed;
•competition;
•pricing policies of our competitors and of systems integrators;
•the use of globally sourced, lower-cost service delivery capabilities within our industry; and
•economic, political and market conditions.
Services revenues carry lower gross margins than license revenues and an overall increase in services revenues as a percentage of total revenues could have an adverse impact on our business.
Because our service revenues have lower gross margins than do our license revenues, an increase in the percentage of total revenues represented by service revenues could have a detrimental impact on our overall gross margins and could adversely affect operating results.
We may be subject to liability in the event we provide inaccurate claims data to payors.
We offer electronic claims submission services as part of our business management services. While we have implemented certain product features designed to maximize the accuracy and completeness of claims submissions, these features may not be sufficient to prevent inaccurate claims data from being submitted to payors. Should inaccurate claims data be submitted to payors, we may be subject to liability claims.
We may experience liability claims arising out of the licensing of our software and provision of services.
Our agreements normally contain provisions designed to limit our exposure to potential liability claims and generally exclude consequential and other forms of extraordinary damages. However, these provisions could be rendered ineffective, invalid or unenforceable by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances. For example, we may not be able to avoid or limit liability for disputes relating to product performance or the provision of services. If a claim against us were to be successful, we may be required to incur significant expense and pay substantial damages, including consequential or punitive damages, which could have a material adverse effect on our business, operating results and financial condition. Even if we prevail in contesting such a claim, the accompanying publicity could adversely affect the demand for our products and services.
We also rely on certain technology that we license from third parties, including software that is integrated with our internally developed software. Although these third parties generally indemnify us against claims that their technology infringes on the proprietary rights of others, such indemnification is not always available for all types of intellectual property. Often such third-
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party indemnifiers are not well capitalized and may not be able to indemnify us in the event that their technology infringes on the proprietary rights of others. As a result, we may face substantial exposure if technology we license from a third party infringes on another party’s proprietary rights. Defending such infringement claims, regardless of their validity, could result in significant cost and diversion of resources.
We are dependent on our licenses of rights, products and services from third parties, disruptions of which may cause us to discontinue, delay or reduce product shipments.
We are increasingly dependent upon licenses for some of the technology used in our products as well as other products and services from third-party vendors, and the costs of these licenses have increased in recent years. Most of these arrangements can be continued/renewed only by mutual consent and may be terminated for any number of reasons. We may not be able to continue using the technology, products or services made available to us under these arrangements on commercially reasonable terms or at all. As a result, we may have to discontinue, delay or reduce product shipments or services provided until we can obtain equivalent technology or services. Most of our third-party licenses are non-exclusive. Our competitors may obtain the right to use any of the business elements covered by these arrangements and use these elements to compete directly with us. In addition, if our vendors choose to discontinue providing their technology, products or services in the future or are unsuccessful in their continued research and development efforts, we may not be able to modify or adapt our own products. The operation of our products would be impaired if errors occur in third party technology or content that we incorporate, and we may incur additional costs to repair or replace the defective technology or content. It may be difficult for us to correct any errors in third party products because the products are not within our control.
Because we believe that proprietary rights are material to our success, misappropriation of these rights could limit our ability to compete effectively and adversely affect our financial condition.
We are heavily dependent on the maintenance and protection of our intellectual property and we rely largely on a combination of confidentiality provisions in our client agreements, employee nondisclosure agreements, trademark and trade secret laws and other measures to protect our intellectual property. Additionally, our software is not patented or copyrighted. Although we attempt to control access to our intellectual property, unauthorized persons may attempt to copy or otherwise use our intellectual property. There can be no assurance that the legal protections and precautions we take will be adequate to prevent misappropriation of our technology or that competitors will not independently develop technologies equivalent or superior to ours. Monitoring unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent unauthorized use. If our competitors gain access to our intellectual property, our competitive position in the industry could be damaged. An inability to compete effectively could cause us to lose existing and potential clients and experience lower revenues, revenue growth and profit margins. Third parties could obtain patents that may require us to negotiate licenses to conduct our business, and the required licenses may not be available on reasonable terms or at all. We also rely on nondisclosure agreements with certain employees, and we cannot be certain that these agreements will not be breached or that we will have adequate remedies for any breach.
If we are deemed to infringe on the intellectual property rights of third parties, we could incur unanticipated expense and be prevented from providing our products and services if we cannot obtain licenses to these rights on commercially acceptable terms.
We do not believe that our operations or products infringe on the intellectual property rights of others. However, there can be no assurance that others will not assert infringement or trade secret claims against us with respect to our current or future products. Many participants in the technology industry have an increasing number of patents and patent applications and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property infringement. Further, as the number and functionality of our products increase, we believe we may become increasingly subject to the risk of infringement claims. If infringement claims are brought against us, these assertions could distract management. We may have to spend a significant amount of money and time to defend or settle those claims. In addition, claims against third parties from which we purchase software could adversely affect our ability to access third-party software for our systems.
If we were found to infringe on the intellectual property rights of others, we could be forced to pay significant license fees or damages for infringement. If we were unable to obtain licenses to these rights on commercially acceptable terms, we would be required to discontinue the sale of our products that contain the infringing technology. Our clients would also be required to discontinue the use of those products. We are unable to insure against this risk on an economically feasible basis. Even if we were to prevail in an infringement lawsuit, the accompanying publicity could adversely impact the demand for our products. Under some circumstances, we agree to indemnify our clients for some types of infringement claims that may arise from the use of our products.
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Interruptions in our power supply and/or telecommunications capabilities could disrupt our operations, cause us to lose revenues and/or increase our expenses.
We currently have backup generators to be used as alternative sources of power in the event of a loss of power to our facilities. If these generators were to fail during any power outage, we would be temporarily unable to continue operations at our facilities. This would have adverse consequences for our clients who depend on us for system support, business management, and managed IT and professional services. Any such interruption in operations at our facilities could damage our reputation, harm our ability to retain existing clients and obtain new clients, and result in lost revenue and increased insurance and other operating costs.
We also have clients for whom we store and maintain computer servers containing critical patient and administrative data. Those clients access this data remotely through telecommunications lines. If our power generators fail during any power outage or if our telecommunications lines are severed or impaired for any reason, those clients would be unable to access their mission critical data causing an interruption in their operations. In such event our remote access clients and/or their patients could seek to hold us responsible for any losses. We would also potentially lose those clients, and our reputation could be harmed.
RISKS RELATED TO OUR INDEBTEDNESS
Volatility in and disruption to the global capital and credit markets and tightened lending standards may adversely affect our ability to access credit in the future, the cost of any credit obtained in the future, and the financial soundness of our clients and our business.
Domestic and international events have frequently resulted in volatility and disruption to the global capital and credit markets, often adversely affecting the availability, terms and cost of credit. Although we believe that our operating cash flow and financial assets will give us the ability to meet our financing needs for the foreseeable future, there can be no assurance that the volatility and disruption in the global capital and credit markets will not impair our liquidity or increase the costs of any future borrowing.
Our business could also be negatively impacted to the extent that our hospital clients continue to face tight capital and credit markets and other disruptions resulting from the COVID-related economic recession or cuts in Medicare and Medicaid funding. Hospitals may modify, delay or cancel plans to purchase our software systems or services. Additionally, if hospitals’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, they may not be able to pay, or may delay payment of, accounts receivable owed to us. Any inability of clients to pay us for our products and services may adversely affect our earnings and cash flow.
Tightened lending standards and the absence of third-party credit has resulted in many of our hospital clients seeking financing arrangements from us to purchase our software systems and services. These financing arrangements impact our short-term operating cash flow and cash available. Should the requests for these financing arrangements continue or increase, our business could be negatively impacted by our inability to finance these arrangements. In addition, the absence of credit could negatively impact our existing financing receivables should our clients with financing arrangements be unable to meet their obligations.
Our substantial indebtedness may adversely affect our available cash flow and our ability to operate our business, remain in compliance with debt covenants and make payments on our indebtedness.
As of December 31, 2022, we had approximately $141.1 million in principal amount of indebtedness, which includes $67.4 million under our term loan facility and $73.7 million borrowed under our revolving credit facility. We also had $86.3 million of unused commitments under our revolving credit facility as of December 31, 2022.
Our substantial indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences. For example, it could:
•make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under such instruments;
•make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
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•require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
•place us at a competitive disadvantage compared to our competitors that are less highly leveraged and therefore able to take advantage of opportunities that our indebtedness prevents us from exploiting; and
•limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes.
Any of the above listed factors could have a material adverse effect on our business, prospects, results of operations and financial condition. Furthermore, our interest expense could increase if interest rates increase because our debt bears interest at floating rates, which could adversely affect our cash flows. If we do not have sufficient earnings to service our debt, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do.
In addition, the credit agreement governing our term loan facility and revolving credit facility contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. See "The terms of the credit agreement governing our term loan facility and revolving credit facility may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions."
Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future, including secured indebtedness. Although the credit agreement governing our term loan facility and revolving credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. If new debt is added to our or our subsidiaries’ current debt levels, the related risks that we face would be increased.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could have a material adverse effect on our business, prospects, results of operations and financial condition.
Our ability to pay interest on and principal of our debt obligations principally depends upon our operating performance. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.
If we do not generate sufficient cash flow from operations to satisfy our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets, reducing or delaying capital investments or capital expenditures or seeking to raise additional capital. Our ability to restructure or refinance our debt, if at all, will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt instruments may restrict us from adopting some of these alternatives. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance our obligations at all or on commercially reasonable terms, could affect our ability to satisfy our debt obligations and have a material adverse effect on our business, prospects, results of operations and financial condition.
The terms of the credit agreement governing our term loan facility and revolving credit facility may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.
Our term loan facility and revolving credit facility contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests.
The credit agreement governing our term loan facility and revolving credit facility includes covenants restricting, among other things, our ability to:
•incur additional debt;
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•incur liens and encumbrances;
•pay dividends on our equity securities or payments to redeem, repurchase or retire our equity securities;
•enter into 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 our affiliates; and
•materially alter the business we conduct.
The operating restrictions and covenants in these debt agreements and any future financing agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. The credit agreement requires compliance with a consolidated net leverage ratio test and a fixed charge coverage ratio test. On March 10, 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. Any failure by us to comply with this or another covenant in the future may result in an event of default. There can be no assurance that we will be able to continue to comply with this covenant or obtain amendments to avoid future covenant violations, or that such amendments will be available on commercially acceptable terms.
The credit agreement requires us to mandatorily prepay the term loan facility and amounts borrowed under the revolving credit facility with net cash proceeds from certain financing and other transactions. Our ability to comply with these covenants may be affected by events beyond our control, and any material deviations from our forecasts could require us to seek waivers or amendments of covenants, alternative sources of financing or reductions in expenditures. In addition, the outstanding indebtedness under our term loan facility and revolving credit facility is, subject to certain exceptions, secured by security interests in substantially all of our and the subsidiary guarantors’ tangible and intangible assets (subject to certain exceptions). A breach of any of the restrictive covenants in the credit agreement governing our term loan facility and revolving credit facility would result in a default, and our lenders may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, or enforce and foreclose on their security interest and liquidate some or all of such pledged assets. The lenders under our term loan facility and revolving credit facility also have the right in these circumstances to terminate any commitments they have to provide further borrowings.
RISKS RELATED TO OUR COMMON STOCK AND OTHER GENERAL RISKS
We are subject to changes in and interpretations of financial accounting matters that govern the measurement of our performance, one or more of which could adversely affect our business, financial condition, cash flows, revenue and results of operations.
Based on our reading and interpretations of relevant guidance, principles or concepts issued by, among other authorities, the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and the Securities and Exchange Commission, we believe revenue received pursuant to our current sales and licensing contract terms and business arrangements have been properly recognized. However, there continue to be issued interpretations and guidance for applying the relevant standards to a wide range of sales and licensing contract terms and business arrangements that are prevalent in the software industry. Future interpretations or changes by the regulators of existing accounting standards, including Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, or changes in our business practices could result in changes in our revenue recognition and/or other accounting policies and practices that could adversely affect our business, financial condition, cash flows, revenue and results of operations.
We may be required to record a significant charge to earnings if our goodwill or intangible assets become impaired.
We are required under U.S. generally accepted accounting principles ("U.S. GAAP") to test our goodwill for impairment annually or more frequently if indicators for potential impairment exist. Indicators that are considered include significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry, or economic trends, or a significant decline in the Company's stock price and/or market capitalization for a sustained
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period of time. In addition, we periodically review our intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our intangible assets may not be recoverable include slower growth rates, the loss of significant clients, or divestiture of a business or asset for less than its carrying value. We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or intangible assets is determined. For example, we recorded a goodwill impairment charge of $28.0 million in the fourth quarter of 2017 relating to our Post-acute Care EHR reporting unit, which consists soley of AHT, which we acquired in January 2016 as part of our acquisition of HHI. This impairment charge had a significant negative effect on our consolidated net income for the year ended December 31, 2017.
Any future impairment charges could have a material adverse impact on our results of operations. There are inherent uncertainties in management's estimates, judgments and assumptions used in assessing recoverability of goodwill and intangible assets. Any changes in key assumptions, including failure to meet business plans, a deterioration in the market, or other unanticipated events and circumstances, may affect the accuracy or validity of such estimates and could potentially result in an impairment charge.
The unpredictability of our quarterly operating results may cause us to fail to meet revenues or earnings expectations which could cause the price of our common stock to fluctuate or decline.
There is no assurance that consistent quarterly growth in our business will occur. Our quarterly revenues may fluctuate and may be difficult to forecast for a variety of reasons. For example, prospective clients often take significant time evaluating our system and related services before making a purchase decision. Moreover, a prospective client who has placed an order for our system could decide to cancel that order or postpone installation of the ordered system. If a prospective client delays or cancels a scheduled system installation during any quarter, we may not be able to schedule a substitute system installation during that quarter. The amount of revenues that would have been generated from that installation will be postponed or lost. The possibility of delays or cancellations of scheduled system installations could cause our quarterly revenues to fluctuate.
The following factors may also affect demand for our products and services and cause our quarterly revenues to fluctuate:
•changes in client budgets and purchasing priorities;
•the ability of our clients to obtain financing for the purchase of our products;
•the financial stability of our clients;
•the specific mix of software, hardware and services in orders from clients;
•the timing of new product announcements and product introductions by us and our competitors;
•market acceptance of new products, product enhancements and services from us and our competitors;
•product and price competition;
•our success in expanding our sales and marketing programs;
•the availability and cost of system components;
•delay of revenue recognition to future quarters due to an increase in the sales of our remote access SaaS services;
•the length of sales cycles and installation processes;
•changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board or other rulemaking bodies;
•accounting policies concerning the timing of recognition of revenue;
•personnel changes; and
•general market and economic factors.
Variations in our quarterly revenues may adversely affect our operating results. In each fiscal quarter, our expense levels, operating costs and hiring plans are based on projections of future revenues and are relatively fixed. Because a significant
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percentage of our expenses are relatively fixed, a variation in the timing of systems sales, implementations and installations can cause significant variations in operating results from quarter to quarter. As a result, we believe that interim period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. Further, our historical operating results are not necessarily indicative of future performance for any particular period.
Due to all of the foregoing factors, it is possible that our operating results may be below the expectations of securities analysts and investors. In such event, the price of our common stock would likely be adversely affected.
Our common stock price has periodically experienced significant volatility, which could result in substantial losses for investors purchasing shares of our common stock and in litigation against us.
Volatility may be caused by a number of factors including but not limited to:
•actual or anticipated quarterly variations in operating results;
•rumors about our performance, software solutions, or merger and acquisition activity;
•changes in expectations of future financial performance or changes in estimates of securities analysts;
•governmental regulatory action;
•healthcare reform measures;
•client relationship developments;
•purchases or sales of Company stock;
•changes occurring in the markets in general;
•macroeconomic conditions, both nationally and internationally; and
•other factors, many of which are beyond our control.
Furthermore, the stock market in general, and the market for software, healthcare and high technology companies in particular, has experienced significant volatility in recent years that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of actual operating performance.
Moreover, in the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.
If we fail to maintain effective internal control over financial reporting, this may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are required under Section 404 of the Sarbanes-Oxley Act to furnish a report by management on the effectiveness of our internal control over financial reporting and to include a report by our independent auditors attesting to such effectiveness. Any failure by us to maintain effective internal control over financial reporting could adversely affect our ability to report accurately our financial condition or results of operations.
If we are unable to maintain effective internal control over financial reporting, or if our independent auditors determine that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, also could restrict our future access to the capital markets.
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We do not have employment or non-competition agreements with most of our key personnel, and their departure could harm our future success.
Our future success depends to a significant extent on the leadership and performance of our chief executive officer and other executive officers. Other than Mr. Fowler, we do not have employment or non-competition agreements with any of our executive officers. Therefore, they may terminate their employment with us at any time and may compete against us. The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition and results of operations.
As a result of the inherent limitations in our internal control over financial reporting, misstatements due to error or fraud may occur and not be detected.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports we file with or submit to the SEC under the Securities Exchange Act of 1934 (“Exchange Act”) is accumulated and communicated to management and recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls.
Most of our facilities are located in an area vulnerable to hurricanes and tropical storms, and the occurrence of a severe hurricane, similar storm or other natural disaster could cause damage to our facilities and equipment, which could require us to cease or limit our operations.
A significant portion of our facilities and employees are located within 30 miles of the coast of the Gulf of Mexico. Our facilities are vulnerable to significant damage or destruction from hurricanes and tropical storms. Such disasters may become more frequent and/or severe as the result of climate change. We are also vulnerable to damage from other types of disasters, including tornadoes, fires, floods and similar events. If any disaster were to occur, our ability to conduct business at our facilities could be seriously impaired or completely destroyed. This would have adverse consequences for our clients who depend on us for system support or business management, consulting and managed IT services. Also, the servers of clients who use our remote access services could be damaged or destroyed in any such disaster. This would have potentially devastating consequences to those clients. Although we have an emergency recovery plan, including back-up systems in remote locations, there can be no assurance that this plan will effectively prevent the interruption of our business due to a natural disaster. Furthermore, the insurance we maintain may not be adequate to cover our losses resulting from any natural disaster or other business interruption. Moreover, we could be affected by climate change and other environmental issues to the extent such issues adversely affect the general economy, adversely impact our supply chain or increase the costs of supplies needed for our operations, or otherwise result in disruptions impacting the communities in which our facilities are located.
We are exposed to market risk related to interest rate changes.
We are exposed to market risk related to changes in interest rates as a result of the floating interest rates applicable to the outstanding debt under our term loan facility and revolving credit facility. The interest rate for the outstanding debt under our term loan facility and revolving credit facility as of December 31, 2022 was 6.39%. 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 Secured Overnight Financing Rate ("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 for SOFR loans and the letter of credit fee ranges from 1.8% to 3.0%. The applicable margin for base rate loans ranges from 0.8% to 2.0%, in each case based on the Company's consolidated net leverage ratio. A one hundred basis point change in interest rate on our borrowings outstanding as of December 31, 2022 would result in a change in interest expense of approximately $1.4 million annually.
Macroeconomic conditions could have a materially adverse impact on our business, financial condition, or results of operations.
In recent months, record levels of inflation have resulted in significant volatility and disruptions in the global economy. In response to rising inflation, central banks, including the United States Federal Reserve, have tightened their monetary policies and raised interest rates, and such measures may continue if there is a period of sustained heightened inflation. Higher interest rates and volatility in financial markets could lead to additional economic uncertainty or recession. Increased inflation rates
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have increased our and our suppliers’ operating costs, including labor costs. There is no assurance that we will be able to promptly increase our pricing to offset our increased costs in a higher inflationary environment, or that our operations will not be materially impacted by rising inflation and its broader effect on the markets in which we operate in the future. Impacts from inflationary pressures could be more pronounced and materially adversely impact aspects of our business where revenue streams and costs commitments are linked to contractual agreements that extend into the future, as we may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures. We are unable to predict the impact of efforts by central banks and federal, state, and local governments to combat elevated levels of inflation. If their efforts to create downward pressure on inflation are too aggressive, they may lead to a recession. Alternatively, if they are insufficient or are not sustained long enough to bring inflation to lower, more acceptable levels, our customers’ ability or willingness to spend on healthcare information technology may be impacted for a prolonged period of time. If a recession occurs, economies weaken, or inflationary trends continue, our business and operating results could be materially adversely affected.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS

None.

ITEM 2. | PROPERTIES

On April 5, 2021, the Company relocated its principal executive office pursuant to a sublease for 20,093 square feet of office space in downtown Mobile, Alabama. Our corporate campus is located on approximately 16.5 acres in Mobile, Alabama and includes approximately 135,500 square feet of office space. Our main campus building consists of approximately 66,000 square feet of office and warehouse space. We also have eleven additional smaller campus buildings consisting of approximately 6,000 square feet of office space each and an additional campus building consisting of approximately 3,500 square feet. The Company also owns 11.3 acres of undeveloped real property adjacent to our corporate campus.
We lease the remainder of our facilities in various locations in the United States, including: Mobile, Alabama; Pottsville, Pennsylvania; Glenwood, Minnesota; Plymouth, Minnesota; Ridgeland, Mississippi; Spokane, Washington and Rockville, Maryland. The terms of the se leases generally range in length from one to twelve years, and all of the leases contain options to incrementally extend the lease period. During 2021, we had one lease which expired and the Company did not renew: Monroe, Louisiana. Additionally, on July 28, 2021, the Company terminated its lease agreement for approximately 45,000 square feet of office space in Fairhope, Alabama. During 2022, we had one lease in Pottsville, Pennsylvania which expired and the Company extended for a three-year term. We also had one lease in Marshall, Minnesota that expired in normal course during 2022.

ITEM 3. | LEGAL PROCEEDINGS

From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation or legal proceedings that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows. See Note 16 – Commitments and Contingencies included in the notes to our audited financial statements included elsewhere in the Annual Report on Form 10-K.
On November 2, 2022, the Company received a subpoena from the U.S. Securities and Exchange Commission (the “SEC”) primarily relating to certain accounting matters, including, but not limited to those relating to revenue recognition and impairment testing of goodwill, during the period from May 1, 2019 to the date of the subpoena. The Company is cooperating in providing documents and information to the SEC in connection with the subpoena and intends to continue to do so. The Company cannot predict the timing or outcome of this investigation.

ITEM 4. | MINE SAFETY DISCLOSURES

Not applicable.
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PART II

ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for CPSI Common Stock
As of March 9, 2023, there were approximately 103 registere d holders of our common stock, as provided to us by our transfer agent. This number does not include the number of beneficial owners whose shares are held in "street" names by broker-dealers and other institutions who hold shares on behalf of their clients. As of March 9, 2023, there were 14,530,201 shares of common stock outstanding.
CPSI’s common stock is listed on the NASDAQ Global Select Market under the symbol "CPSI."
Dividends
On November 2, 2017, the Company announced that our Board of Directors adopted a fixed dividend policy for the payment of quarterly dividends, and on September 4, 2020, our Board of Directors opted to indefinitely suspend all quarterly dividends. The indefinite suspension of quarterly dividends was concurrent with the authorization of a stock repurchase program, aligning with the Company's capital allocation strategy that prioritizes flexibility to allow for more opportunistic uses of capital. Our Board of Directors will take into account such matters as general business conditions, capital needs, our financial results, available liquidity and such other factors as our Board of Directors may deem relevant in future dividend declarations. Additionally, the terms of our Credit Agreement restrict our ability to pay dividends. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources-Credit Agreement” included herein.
Purchases of Equity Securities
The following table summarizes our repurchase of equity securities during the three months ended December 31, 2022:

Period |  | Total Number of Shares Purchased |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) |  | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a)
October 1, 2022 - October 31, 2022 |  | 42,000 |  |  | $ | 29.27 |  |  | 42,000 |  |  | $ | 20,332,714 |
November 1, 2022 - November 30, 2022 |  | 42,345 |  |  | $ | 28.79 |  |  | 42,345 |  |  | $ | 19,113,761 |
December 1, 2022 - December 31, 2022 |  | 44,037 |  |  | $ | 27.83 |  |  | 44,037 |  |  | $ | 17,888,286 |
Total |  | 128,382 |  |  | $ | 28.62 |  |  | 128,382 |  |  |

(a)On September 4, 2020, our Board of Directors approved a stock repurchase program under which we may repurchase up to $30.0 million of our common stock through September 3, 2022. On July 27, 2022, the Board of Directors extended the expiration date of the stock repurchase program to September 4, 2024. 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.
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ITEM 6. | [Reserved]

ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the "Selected Financial Data" and our financial statements and the related notes included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under "Risk Factors" and elsewhere in this Annual Report.
Background
CPSI is a leading provider of healthcare solutions and services for community hospitals, their clinics and other healthcare systems. Founded in 1979, CPSI is the parent of six companies – Evident, LLC ("Evident"), American HealthTech, Inc. ("AHT"), TruBridge, LLC ("TruBridge"), iNetXperts, Corp. d/b/a Get Real Health ("Get Real Health"), TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc. ("HRG"). Our combined companies are focused on helping improve the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our customers. Evident provides comprehensive acute care electronic healthcare record ("EHR") solutions for community hospitals and their affiliated clinics. AHT is one of the nation’s largest providers of post-acute care EHR solutions and services for post-acute care facilities. TruBridge focuses on providing business, consulting and managed IT services, along with its complete revenue cycle management ("RCM") solution, for all care settings. Get Real Health focuses on solutions aimed at improving patient engagement for individuals and healthcare providers. TruCode provides medical coding software that enables complete and accurate code assignment for optimal reimbursement. HRG provides specialized RCM solutions for facilities of all sizes.
Commencing with the fourth quarter of 2022, the Company operates its business in three operating segments, which are also our reportable segments: RCM, EHR, and Patient Engagement. The individual companies align with the reporting segments and contribute towards the combined focus of improving the health of the communities we serve as follows:
•The RCM reporting segment includes TruBridge, HRG, and TruCode, and focuses on providing business management, consulting, and managed IT services along with its complete RCM solution for all care settings, regardless of their primary healthcare information solutions provider.
•The EHR segment includes Evident and AHT, and provides comprehensive acute and post-acute care EHR solutions and related services for community hospitals, their physician clinics, and skilled nursing and assisted living facilities.
•The Patient Engagement segment offers comprehensive patient engagement and empowerment technology solutions through Get Real Health to improve patient outcomes and engagement strategies with care providers.
Our companies currently support community hospitals and other healthcare systems with a geographically diverse patient mix within the domestic community healthcare market. Our target market for our RCM, EHR, and Patient Engagement solutions includes community hospitals with fewer than 400 acute care beds and their clinics, as well as independent or small to medium sized chains of skilled nursing facilities. 98% of our acute care hospital EHR customer base is comprised of hospitals with fewer than 100 beds. The target market for our post-acute care solutions consists of approximately 15,500 skilled nursing facilities that are either independently owned or part of a larger management group with multiple facilities.
See Note 18 to the consolidated financial statements included herein for additional information on our three reportable segments.
Management Overview
Strategy
Our core strategy is to achieve meaningful long-term revenue growth by cross-selling RCM services into our existing EHR customer base, expanding RCM market share with sales to new community hospitals and larger health systems, and pursuing competitive EHR takeaway opportunities in the acute and post-acute markets. During 2020, we engaged a top-tier international consulting firm to assess our core growth strategy, with the outcome of this eight-week engagement being the confirmation of our current core strategy and the identification of other innovative potential growth opportunities. We may also seek to grow
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through acquisitions of businesses, technologies or products if we determine that such acquisitions are likely to help us meet our strategic goals.
The opportunity to cross-sell RCM services is greatest within our Acute Care EHR customer base. As such, retention of existing Acute Care EHR customers is a key component of our long-term growth strategy by protecting this base of potential RCM customers, while at the same time serving as a leading indicator of our market position and stability of revenues and cash flows.
We determine retention rates by reference to the amount of beginning-of-period Acute Care EHR recurring revenues that have not been lost due to customer attrition from our production environment customer base. Production environment customers are those that are using our applications to document live patient encounters, as opposed to legacy environment customers that have view-only access to historical patient records. Since 2019, these retention rates have consistently remained in the mid-to-high 90th percentile ranges and did not materially deviate from this range during 2022. We have increased customer retention efforts by enhancing support services, investing in tooling and instrumentation to proactively monitor for potential disruptions, and deploying in-application experience software that delivers application specific insights while using our products.
As we pursue meaningful long-term revenue growth by leveraging RCM as a growth agent, we are placing ever-increasing value in further developing our already significant recurring revenue base to further stabilize our revenues and cash flows. As such, maintaining and growing recurring revenues are key components of our long-term growth strategy, aided by the aforementioned focus on customer retention. This includes a renewed focus on driving demand for subscriptions for our existing technology solutions and expanding the footprint for RCM services beyond our EHR customer base.
While the combination of revenue growth and operating leverage results in increased margin realization, we also look to increase margins through specific cost containment measures where appropriate as we continue to leverage opportunities for greater operating efficiencies. However, in the immediate future, we anticipate incremental margin pressure from the continued client transition from perpetual license arrangements to “Software as a Service” ("SaaS") arrangements as described below.
Industry Dynamics
Turbulence in the U.S. and worldwide economies and financial markets impacts almost all industries. While the healthcare industry is not immune to economic cycles, we believe it is more significantly affected by U.S. regulatory and national health initiatives. In recent years, there have been significant changes to provider reimbursement by the U.S. federal government, followed by commercial payers and state governments. There is increasing pressure on healthcare organizations to reduce costs and increase quality while replacing the fee-for-service reimbursement model in part by enrolling in an advanced payment model that incentivizes high-quality, cost effective-care via value-based reimbursement. This pressure could further encourage adoption of healthcare IT and increase demand for business management, consulting, and managed IT services, as the future success of these healthcare providers is greatly dependent upon their ability to engage patient populations and to coordinate patient care across a multitude of settings, while optimizing operating efficiency along the way.
Additionally, healthcare organizations with a large dependency on Medicare and Medicaid populations, such as community hospitals, have been affected by the challenging financial condition of the federal government and many state governments and government programs. Accordingly, we recognize that prospective hospital clients often do not have the necessary capital to make investments in information technology while those with the necessary capital have become more selective in their investments. Despite these challenges, we believe healthcare IT will be an area of continued investment due to its unique potential to improve safety and efficiency and reduce costs while meeting current and future regulatory, compliance and government reimbursement requirements.
EHR License Model Preferences
Much of the variability in our periodic revenues and profitability has been and will continue to be due to changing demand for different license models for our technology solutions, with variability in operating cash flows further impacted by the financing decisions within those license models. Our technology solutions are generally deployed in one of two license models: (1) perpetual licenses, for which the related revenue is recognized effectively upon installation, and (2) “Software as a Service” or “SaaS” arrangements, including our Cloud Electronic Health Record (“Cloud EHR”) offering, which generally result in revenue being recognized monthly as the services are provided over the term of the arrangement.
The overwhelming majority of our historical EHR installations have been under a perpetual license model, but new customer demand has dramatically shifted towards a SaaS license model in the past several years. SaaS license models made up only 12% of annual new acute care EHR installations in 2018, increasing to 63% during 2021 and 100% during 2022. These SaaS offerings are becoming increasingly attractive to our clients because this configuration allows them to obtain access to advanced
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software products without a significant initial capital outlay. We expect this trend to continue for the foreseeable future, with the resulting impact on the Company’s financial statements being reduced EHR revenues in the period of installation in exchange for increased recurring periodic revenues (reflected in EHR revenues) over the term of the SaaS arrangement. This naturally places downward pressure on short-term revenue growth and profitability metrics, but benefits long-term revenue growth and profitability which, in our view, is consistent with our goal of delivering long-term shareholder value.
For customers electing to purchase our technology solutions under a traditional perpetual license, we have historically made financing arrangements available on a case-by-case basis, depending on the various aspects of the proposed contract and customer attributes. These financing arrangements have comprised the majority of our perpetual license installations over the past several years, and include short-term payment plans and longer-term lease financing through us or third-party financing companies. The aforementioned shift in customer preference towards SaaS arrangements has significantly reduced the frequency of new financing arrangements for customer purchases under a perpetual license. When combined with scheduled payments on existing financing arrangements, the reduced frequency of new financing arrangements has resulted in a substantial reduction in financing receivables during 2022.
For those perpetual license clients not seeking a financing arrangement, the payment schedule of the typical contract is structured to provide for a scheduling deposit due at contract signing, with the remainder of the contracted fees due at various stages of the installation process (delivery of hardware, installation of software and commencement of training, and satisfactory completion of a monthly accounting cycle or end-of-month operation by each respective application, as applicable).
Margin Optimization Efforts
Our core growth strategy includes an element geared towards margin optimization by identifying opportunities to further improve our cost structure by executing against initiatives related to organizational realignment, expanded use of offshore partnerships and the use of automation to increase the efficiency and value of our associates' efforts.
Regarding the organizational realignment, on February 1, 2021, we committed to a reduction in force that resulted in the termination of approximately 1.0% of our workforce (21 employees). The reduction in force was a component of a broader strategic review of the Company's operations that was intended to more effectively align our resources with business priorities. Substantially all of the employees impacted by the reduction in force exited the Company in the first quarter of 2021, with the last of the impacted employees exiting in the third quarter of 2021. The Company incurred expenses of approximately $2.7 million related to the reduction in force. These expenses consisted of one-time termination benefits to the affected employees, including but not limited to severance payments, healthcare benefits, and payments for accrued vacation time. As a result of the reduction in force, the Company realized approximately $3.9 million in annual savings beginning in 2021 compared to prior expense levels.
The remaining margin optimization initiatives of enhanced leveraging of offshore partnerships and automation have commenced and, to date, have provided meaningful efficiencies to our operations, particularly within RCM. As a service organization, RCM's cost structure is heavily dependent upon human capital, subjecting it to the complexities and risks associated with this resource. Chief among these complexities and risks is the ever-present pressure of wage inflation, which has recently become a reality as national and international economies recover from the economic downturn caused by the COVID-19 pandemic and has compelled the Company to make compensation adjustments that are outside of historical norms. We believe that our efforts towards margin optimization are well-timed, enabling a rapid response to actual or expected wage inflation in order to preserve RCM gross margins, but we cannot guarantee that these efforts will fully eliminate any related margin deterioration.
In addition to wage inflation, we are a party to contracts with certain third-party suppliers and vendors that allow for annual price adjustments indexed to inflation. While we continually seek to proactively manage controllable expenses, inflationary pressure on costs could lead to erosion of margins.
Labor Capitalization
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 requiring capitalization under ASC 350-40, Internal Use of 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
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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 $8.8 million of software development costs during 2021. We estimate that the effect of this change was to increase capitalized amounts by approximately $4.6 million during 2021 with a corresponding decrease to product development costs that were expensed. The additional capitalized amounts will be amortized over an average of five years, leading to increased amortization expense in future years.
COVID-19
The impact of the COVID-19 pandemic on our operations was broad-sweeping, most notably causing severe deterioration in United States community hospital patient volumes that negatively impacted the revenues, gross margins, and income of our RCM service offerings. While patient volumes have continued to recover and are largely in line with pre-COVID-19 levels, we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted, including as a result of macro-economic impacts to the global supply chain, labor shortages, and inflationary pressures. However, we continue to assess its impact on our business and continue to actively manage our response. For further details on the potential impact of COVID-19 on our business, refer to "Risk Factors," in Part I, Item 1A.
2022 Financial Overview
In the fourth quarter of 2022, the Company made a number of changes to its organizational structure and management system to align the Company's operating model to its strategic initiatives. With these changes the Company revised its reportable segments to RCM, EHR, and Patient Engagement, but this realignment of the Company's reportable segments did not impact its consolidated financial statements. Throughout this discussion, prior-year results have been recast to conform with the change in reportable segments noted above.
We generated revenues of $326.6 million from the sale of our products and services during 2022, compared to $280.6 million during 2021, an increase of 16% that is due to the combination of inorganic growth through our recent acquisitions of TruCode and HRG and organic growth as RCM solutions continue to gain traction in the domestic healthcare landscape. Despite this increase in revenues, net income decreased by $2.6 million to $15.9 million during 2022, compared to $18.4 million during 2021, as investments in operational capacity combined with increased interest expense and amortization of acquisition-related intangibles more than offset annual revenue gains. Corresponding to this decreased profitability, net cash provided by operating activities decreased by $15.3 million, from $47.7 million provided by operations during 2021 to $32.4 million provided by operations for 2022, as the aforementioned increase in revenue coupled with delayed client cash collections resulted in a significant expansion of accounts receivable.
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Results of Operations
The following table sets forth certain items included in our results of operations for each of the three years in the period ended December 31, 2022, expressed as a percentage of our total revenues for these periods:

| Year ended December 31,
| 2022 |  | 2021 |  | 2020
(In thousands) | Amount |  | % Sales |  | Amount |  | % Sales |  | Amount |  | % Sales
INCOME DATA: |  |  |  |  |  |  |  |  |  |  |
Sales revenues: |  |  |  |  |  |  |  |  |  |  |
RCM | $ | 179,870 |  |  | 55.1 | % |  | $ | 131,242 |  |  | 46.8 | % |  | $ | 107,431 |  |  | 38.3 | %
EHR | 139,823 |  |  | 42.8 | % |  | 143,109 |  |  | 51.0 | % |  | 152,954 |  |  | 54.5 | %
Patient engagement | 6,955 |  |  | 2.1 | % |  | 6,278 |  |  | 2.2 | % |  | 4,103 |  |  | 1.6 | %
Total sales revenues | 326,648 |  |  | 100.0 | % |  | 280,629 |  |  | 100.0 | % |  | 264,488 |  |  | 100.0 | %
Costs of sales: |  |  |  |  |  |  |  |  |  |  |
RCM | 97,010 |  |  | 29.7 | % |  | 66,015 |  |  | 23.5 | % |  | 57,461 |  |  | 21.7 | %
EHR | 71,347 |  |  | 21.8 | % |  | 70,664 |  |  | 25.2 | % |  | 69,361 |  |  | 26.2 | %
Patient engagement | 3,856 |  |  | 1.2 | % |  | 3,068 |  |  | 1.1 | % |  | 1,420 |  |  | 0.5 | %
Total costs of sales | 172,213 |  |  | 52.7 | % |  | 139,747 |  |  | 49.8 | % |  | 128,242 |  |  | 48.5 | %
Gross profit | 154,435 |  |  | 47.3 | % |  | 140,882 |  |  | 50.2 | % |  | 136,246 |  |  | 51.5 | %
Operating expenses: |  |  |  |  |  |  |  |  |  |  |
Product development | 30,926 |  |  | 9.5 | % |  | 30,389 |  |  | 10.8 | % |  | 33,457 |  |  | 12.6 | %
Sales and marketing | 27,131 |  |  | 8.3 | % |  | 21,978 |  |  | 7.8 | % |  | 22,835 |  |  | 8.6 | %
General and administrative | 56,192 |  |  | 17.2 | % |  | 50,022 |  |  | 17.8 | % |  | 47,479 |  |  | 18.0 | %
Amortization of acquisition-related intangibles | 17,403 |  |  | 5.3 | % |  | 13,786 |  |  | 4.9 | % |  | 11,421 |  |  | 4.3 | %
Total operating expenses | 131,652 |  |  | 40.3 | % |  | 116,175 |  |  | 41.4 | % |  | 115,192 |  |  | 43.6 | %
Operating income | 22,783 |  |  | 7.0 | % |  | 24,707 |  |  | 8.8 | % |  | 21,054 |  |  | 8.0 | %
Other income (expense): |  |  |  |  |  |  |  |  |  |  |
Other income | 1,178 |  |  | 0.4 | % |  | 1,529 |  |  | 0.5 | % |  | 1,494 |  |  | 0.6 | %
Gain on contingent consideration | 565 |  |  | 0.2 | % |  | — |  |  | — | % |  | — |  |  | — | %
Loss on extinguishment of debt | (125) |  |  | — | % |  | — |  |  | — | % |  | (202) |  |  | (0.1) | %
Interest expense | (6,320) |  |  | (1.9) | % |  | (3,160) |  |  | (1.1) | % |  | (3,562) |  |  | (1.3) | %
Total other income (expense) | (4,702) |  |  | (1.4) | % |  | (1,631) |  |  | (0.6) | % |  | (2,270) |  |  | (0.9) | %
Income before taxes | 18,081 |  |  | 5.5 | % |  | 23,076 |  |  | 8.2 | % |  | 18,784 |  |  | 7.1 | %
Provision for income taxes | 2,214 |  |  | 0.7 | % |  | 4,646 |  |  | 1.7 | % |  | 4,538 |  |  | 1.7 | %
Net income | $ | 15,867 |  |  | 4.9 | % |  | $ | 18,430 |  |  | 6.6 | % |  | $ | 14,246 |  |  | 5.4 | %

2022 Compared to 2021
Revenues
Total revenues for the year ended December 31, 2022 increased by $46.0 million, or 16%, compared to the year ended December 31, 2021.
RCM revenues increased by $48.6 million, or 37%, compared to 2021 due to acquisition-fueled growth and organic growth of our revenue cycle service offerings. TruCode, acquired in May 2021, contributed $13.8 million of revenue during 2022, compared to only $7.4 million during 2021, which reflected only eight months of activity. Our acquisition of HRG in March 2022 provided further inorganic growth, contributing an estimated $34.1 million of revenue during 2022. Organic revenue growth has materialized as our hospital clients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions. This increasing demand for services, coupled with the positive impact of improving hospital patient volumes on RCM revenues, resulted in organic revenue growth of $8.1 million, or 7%.
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EHR revenues decreased by $3.3 million, or 2%, from the year ended December 31, 2021, and were comprised of the following for the years ended December 31, 2022 and 2021:

| Year ended December 31,
(In thousands) | 2022 |  | 2021
Recurring EHR revenues (1) |  |  |
Acute Care EHR | $ | 109,340 |  |  | $ | 108,440 |
Post-acute Care EHR | 15,384 |  |  | 16,472 |
Total recurring EHR revenues | 124,724 |  |  | 124,912 |
Non-recurring EHR revenues (2) |  |  |
Acute Care EHR | 13,138 |  |  | 16,939 |
Post-acute Care EHR | 1,961 |  |  | 1,258 |
Total non-recurring EHR revenues | 15,099 |  |  | 18,197 |
Total EHR revenue | $ | 139,823 |  |  | $ | 143,109 |
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.

Recurring EHR revenues remained flat with a $0.2 million, or 0.2%, decrease in 2022 compared to 2021. Acute Care EHR recurring revenues increased by $0.9 million, or 1%, as recent efforts to emphasize SaaS arrangements have led to the accumulation of significant sources of recurring revenue, albeit at the expense of non-recurring revenue. Post-acute Care EHR recurring revenues decreased by $1.1 million, or 7%, primarily due to the loss of certain significant customers during early 2022.
Non-recurring EHR revenues decreased by $3.1 million, or 17%, compared to 2021. Acute Care EHR non-recurring revenues decreased by $3.8 million, or 22%, compared to 2021, due mostly to a decrease in the number of perpetual license installations of our Acute Care EHR solutions. We installed our Acute Care EHR solutions at nineteen new hospital clients during 2022 (all of which were under a SaaS arrangements resulting in revenue being recognized ratably over the contract term) compared to seventeen new hospital clients during 2021 (ten under a SaaS arrangement). Post-acute EHR non-recurring revenues increased by $0.7 million, or 56%, compared to 2021 due to a temporarily beneficial shift in license mix.
Patient Engagement revenues increased by $0.7 million, or 11%, compared to 2021 as escalating demand for patient engagement solutions continues to propel organic growth for Get Real Health's products and services.
Costs of Sales
Total costs of sales increased by $32.5 million compared to 2021. As a percentage of total revenues, costs of sales increased to 53% of revenues during 2022 from 50% during 2021.
Our costs associated with RCM sales and support increased by $31.0 million, or 47%, in 2022, primarily driven by our recent acquisitions of TruCode and HRG. The remaining cost increases for RCM are organic in nature, caused by resource expansion necessitated by the growing customer base and improved patient volumes. The gross margin on these services decreased to 46% in 2022, compared to 50% during 2021, due to the addition of HRG, which is comprised of mostly lower margin services.
Costs of EHR system sales and support increased by $0.7 million, or 1%, compared to 2021, primarily driven by increased labor and travel costs. The increase in EHR costs of sales coupled with the aforementioned decrease in non-recurring revenues resulted in a decrease in the related gross margins to 49% in 2022 compared to 51% in 2021.
Costs of Patient Engagement sales and support increased by $0.8 million, or 26%, compared to 2021. Increased labor costs related to investments aimed at aggressively addressing increasing demand for patient engagement solutions comprised the majority of the increase. The increase in costs of sales outpaced the increase in revenues in 2022 as we continue to invest in this nascent business, resulting in the compression of gross margins to 45% in 2022 compared to 51% in 2021.
Product Development
Product development expenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs increased by $0.5 million, or 2%, compared to 2021. A $5.6 million, or 64%, increase in product
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development labor capitalization pursuant to the aforementioned change in our method of estimating the labor costs incurred in developing software assets requiring capitalization under ASC 350-40, Internal Use Software was offset by increased amortization of the related assets and increased costs associated related to our strategy to migrate to a public cloud environment. In addition, our recent acquisitions of TruCode and HRG resulted in a combined $1.9 million of product development expenses during 2022 compared to only $0.8 million in 2021.
Sales a nd Marketing
Sales and marketing costs increased by $5.2 million, or 23%, compared to 2021. 2022 marked the return of our in-person National Client Conference, which had migrated to virtual-only since the onset of the COVID-19 pandemic, resulting in incremental expense of $1.1 million. Resource expansion resulted in a $1.3 million increase in payroll costs and an improved sales environment resulted in a $0.6 million increase in commission expenses. Similarly, travel costs have increased by $0.3 million as travel patterns return to pre-COVID levels. Marketing program costs increased by $0.7 million due to more aggressive marketing of our solutions and services combined with specific campaigns to increase brand awareness for our portfolio of companies. In addition, our recent acquisitions of TruCode and HRG resulted in a combined increase in sales and marketing expense of $1.5 million in 2022, compared to only $0.4 million of additional sales and marketing expenses during 2021.
General and Administrative
General and administrative expenses increased by $6.2 million, or 12%, compared to 2021, mostly due to volatility in employee health claims coupled with an expanding employee base that resulted in a $4.1 million increase in employee benefits cost. In addition, our commitment to improving the employee experience and becoming an employer of choice resulted in a $1.9 million increase in human resources cost. Lastly, our recent acquisitions of TruCode and HRG resulted in a combined increase in general and administrative expenses of $2.9 million in 2022, compared to only $1.1 million of additional general and administrative expenses during 2021. Partially offsetting this aggregate $7.8 million increase in employee benefits, human resources, and acquisition-related costs was a $1.6 million decrease in bad debt expense due to generally improved collections experience and the lack of any severe collectability determinations for customers with large receivables balances.
Amortization of Acquisition-Related Intangibles
Amortization expense associated with acquisition-related intangible assets increased by $3.6 million, or 26%, primarily due to amortization of intangibles acquired in the TruCode and HRG acquisitions.
Total Operating Expenses
As a percentage of total revenues, total operating expenses decreased to 40% in 2022 compared to 41% in 2021.
Total Other Income (Expense)
Total other income (expense) increased to expense of $4.7 million during 2022 compared to expense of $1.6 million during 2021. A rising interest rate environment and a higher level of funded debt caused a $3.2 million increase in interest expense, which was partially offset by a $0.6 million gain on contingent consideration. During 2022, $0.6 million of the original $2.5 million contingent consideration estimated in determining the TruCode purchase price was reversed as TruCode's earnings over the earnout period were less than estimated on the date of acquisition.
Income Before Taxes
As a result of the foregoing factors, income before taxes decreased to $18.1 million in 2022, compared to $23.1 million in 2021.
Provision for Income Taxes
Our effective income tax rates for 2022 and 2021 were 12% and 20%, respectively. Lowered provision-to-return adjustments resulted in an incremental 3.5% decrease in our effective tax rate for 2022 compared to 2021, while the tax-free gain on contingent consideration and increased Work Opportunity Tax Credits resulted in incremental decreases in our effective tax rate of 2.2% and 1.2%, respectively, for 2022 compared to 2021.
Net Income
Net income for 2022 decreased by $2.6 million to $15.9 million, or $1.08 per basic and diluted share, compared with $18.4 million, or $1.26 per basic and diluted share, for 2021.
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Supplemental Segment Information
Our reportable segments have been determined in accordance with ASC 280 - Segment Reporting. We have three reportable operating segments: RCM, EHR, and Patient Engagement. We evaluate each of our three operating segments based on segment revenues and segment adjusted EBITDA.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. The segment measurements provided to and evaluated by the chief operating decision makers ("CODM") are described in Note 18 to the consolidated financial statements. These results should be considered in addition to, and not as a substitute for, results reported in accordance with GAAP.
The following table presents a summary of the revenues and adjusted EBITDA of our three operating segments for the years ended December 31, 2022 and 2021.

| Year Ended December 31, |  | Change |  |  |  |
| 2022 |  | 2021 |  | $ |  | % |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues by segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RCM | $ | 179,870 |  |  | $ | 131,242 |  |  | $ | 48,628 |  |  | 37 | % |  |  |  |  |  |  |  |
EHR | 139,823 |  |  | 143,109 |  |  | (3,286) |  |  | (2) | % |  |  |  |  |  |  |  |
Patient engagement | 6,955 |  |  | 6,278 |  |  | 677 |  |  | 11 | % |  |  |  |  |  |  |  |
Adjusted EBITDA by segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RCM | $ | 36,242 |  |  | $ | 30,211 |  |  | $ | 6,031 |  |  | 20 | % |  |  |  |  |  |  |  |
EHR | 19,091 |  |  | 23,061 |  |  | (3,970) |  |  | (17) | % |  |  |  |  |  |  |  |
Patient engagement | 566 |  |  | (595) |  |  | 1,161 |  |  | 195 | % |  |  |  |  |  |  |  |

Segment Revenues
Refer to the corresponding discussion of revenues for each of our reportable segments previously provided under the Revenues heading of this Management's Discussion and Analysis. There are no intersegment revenues to be eliminated in computing segment revenue.
Segment Adjusted EBITDA - Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
RCM adjusted EBITDA increased by $6.0 million, or 20%, compared to 2021. Revenue growth of of 37% was partially offset by a 360 basis point decrease in gross margins, as growth materialized from lower-margin, resource-intensive service lines. This decrease in gross margins combined with expanded operating expenses to limit adjusted EBITDA growth despite this dramatic increase in revenues.
EHR adjusted EBITDA decreased by $4.0 million, or 17%. The aforementioned decrease in revenues combined with an increase in cost of sales caused a $4.0 million decrease in gross profit, which was partially offset by improved operating expenses resulting from increased product development labor capitalization rates.
Patient Engagement adjusted EBITDA increased by $1.2 million, or 195%. Although gross profit decreased by $0.1 million as the increase in cost of sales outpaced the increase in revenue, this was more than offset by a marked increase in capitalizable product development work resulting in significantly reduced operating expenses.
2021 Compared to 2020
Revenues
Total revenues for the year ended December 31, 2021 increased by $16.1 million, or 6%, compared to the year ended December 31, 2020.
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RCM revenues increased by $23.8 million, or 22%, compared to 2020. Our hospital clients operate in an environment typified by rising costs and increased complexity and are increasingly seeking to alleviate themselves of the ever-increasing administrative burden of operating their own business office functions. This increasing demand for services, coupled with the aforementioned impact of improving hospital patient volumes on RCM revenues, resulted in revenue increases of $8.6 million, or 21%, for our accounts receivable management services; $5.7 million, or 18%, for our insurance services division; and $1.4 million, or 16%, for our medical coding services. Lastly, the acquisition of TruCode in May 2021 resulted in an additional $7.4 million of revenue during 2021.
EHR revenues decreased by $9.8 million, or 6%, from the year ended December 31, 2020, and were comprised of the following for the years ended December 31, 2021 and 2020:

| Year ended December 31,
(In thousands) | 2021 |  | 2020
Recurring EHR revenues (1) |  |  |
Acute Care EHR | $ | 108,440 |  |  | $ | 105,597 |
Post-acute Care EHR | 16,472 |  |  | 16,272 |
Total recurring EHR revenues | 124,912 |  |  | 121,869 |
Non-recurring EHR revenues (2) |  |  |
Acute Care EHR | 16,939 |  |  | 29,173 |
Post-acute Care EHR | 1,258 |  |  | 1,912 |
Total non-recurring EHR revenues | 18,197 |  |  | 31,085 |
Total EHR revenue | $ | 143,109 |  |  | $ | 152,954 |
(1) Mostly comprised of support and maintenance, third-party subscriptions, and SaaS revenues.
(2) Mostly comprised of installation revenues from the sale of our acute and post-acute care EHR solutions and related applications under a perpetual (non-subscription) licensing model.

Recurring EHR revenues increased by $3.0 million, or 2%, during 2021. Acute Care EHR recurring revenues increased by $2.8 million, or 3%, as attrition from the Thrive and Centriq customer base has normalized to more historical levels and our SaaS customer base has continued to grow, strengthening recurring revenues. Post-acute Care EHR recurring revenues increased by $0.2 million, or 1%, as attrition has stabilized as we continue to make technological improvements to the AHT product line.
Non-recurring EHR revenues decreased by $12.9 million, or 41%, mostly driven by a $12.2 million, or 42%, decrease in Acute Care EHR non-recurring revenues. We installed our Acute Care EHR solutions at seventeen new hospital clients during 2021 (ten of which were under a SaaS arrangement, resulting in revenue being recognized ratably over the contract term; comparatively, revenues related to perpetual license arrangements are recognized when the related installation is complete) compared to twenty-five new hospital clients during 2020 (seventeen of which were under a SaaS arrangement). In addition to the decrease in the number of non-SaaS new customer implementations, the related non-recurring revenues decreased as 2020 benefited from a high volume of late-installing applications for non-SaaS implementations that went live in prior periods. Comparatively, the continued shift in customer preferences towards SaaS arrangements and the continuing impacts of COVID-19 on client purchasing and implementation plans have decreased the opportunities for such follow-on revenue activities for recent implementations and decreased demand for add-on applications within our existing Acute Care EHR customer base.
Patient Engagement revenues increased by $2.2 million, or 53%, as a result of increasing demand for Get Real Health's patient engagement solutions and services.
Costs of Sales
Total costs of sales increased by $11.5 million compared to 2020. As a percentage of total revenues, costs of sales increased to 50% of revenues during 2021 from 48% during 2020.
Our costs associated with RCM sales and support increased by $8.6 million, or 15%, in 2021, primarily driven by resource expansion necessitated by the growing customer base and improved patient volumes. The acquisition of TruCode in May 2021 resulted in an additional $1.7 million of costs of sales during 2021. The gross margin on these services increased to 50% in 2021, compared to 47% during 2020, as the growing recurring revenue base worked in tandem with operational efficiencies to increase margins.
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Costs of EHR system and sales support increased by $1.3 million, or 2%, in 2021. Costs of Acute Care EHR revenues increased by $1.2 million, or 2%, compared to 2020, as our increased usage of vendor partnerships to fulfill customer needs increased the related costs of third-party software by $3.6 million. This increase was partially offset by a $2.1 million decrease in hardware costs associated with the decrease in non-recurring revenues. Costs of Post-acute Care EHR revenues increased slightly to $4.9 million in 2021 from $4.8 million in 2020. The gross margin on EHR system sales and support decreased to 51% in 2021 from 55% in 2020, as the increase in costs of sales worked in tandem with decreased non-recurring revenues to decrease margins.
Costs of Patient Engagement sales and support increased by $1.6 million, or 116%, compared to 2020, primarily due to increased labor and vendor costs. The rate of increase in costs of sales outpaced the increase in revenues in 2021 as we continue to invest in this nascent business, resulting in the compression of gross margins to 51% in 2021 compared to 65% in 2020.
Product Development
Product development expenses consist primarily of compensation and other employee-related costs (including stock-based compensation) and infrastructure costs incurred, but not capitalized, for new product development and product enhancements. Product development costs decreased by $3.1 million, or 9%, compared to 2020, with the primary driver being a $5.5 million, or 165%, increase in product development labor capitalization pursuant to the aforementioned change in our method of estimating the labor costs incurred in developing software assets requiring capitalization under ASC 350-40, Internal Use Software. This increased capitalization rate was partially offset by increased amortization of the related assets and increased payroll costs associated with expanding resources. The acquisition of TruCode in May 2021 resulted in $0.8 million of additional product development expenses during 2021.
Sales a nd Marketing
Sales and marketing costs decreased by $0.9 million, or 4%, compared to 2020. The aforementioned reduction-in-force combined with reduced non-recurring revenues resulted in decreased payroll and commission expenses. The acquisition of TruCode in May 2021 resulted in $0.4 million of additional sales and marketing expenses during 2021.
General and Administrative
General and administrative expenses increased by $2.5 million, or 5%, compared to 2020, mostly due to $2.5 million in severance costs associated with our 2021 reduction-in-force, an increase of $0.8 million in employee health claims, and the acquisition of TruCode in May 2021, which resulted in $1.1 million of additional general and administrative expenses during 2021 (exclusive of non-recurring transaction-related costs). Partially offsetting this aggregate $4.4 million increase in severance, employee health claims, and TruCode-related costs was a $1.8 million decrease in bad debt expense due to generally improved collections experience and the lack of any severe collectability determinations for customers with large receivables balances.
Amortization of Acquisition-Related Intangibles
Amortization expense associated with acquisition-related intangible assets increased by $2.4 million, or 21%, due to changes in estimates regarding the remaining useful lives of certain of our acquired intangible assets combined with the amortization of intangibles acquired in the TruCode acquisition.
Total Operating Expenses
As a percentage of total revenues, total operating expenses decreased to 41% in 2021 compared to 44% in 2020.
Total Other Income (Expense)
Total other income (expense) improved to expense of $1.6 million during 2021 compared to expense of $2.3 million during 2020. This improvement was mostly attributable to a decreasing interest rate environment and lowered average amounts outstanding under our long-term debt facilities, resulting in a $0.4 million decrease in related interest expense.
Income Before Taxes
As a result of the foregoing factors, income before taxes increased to $23.1 million in 2021, compared to $18.8 million in 2020.
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Provision for Income Taxes
Our effective income tax rates for 2021 and 2020 were 20% and 24%, respectively. Lowered provision-to-return adjustments resulted in an incremental 2.6% decrease in our effective tax rate for 2021 compared to 2020, while decreased tax shortfalls related to stock-based compensation arrangements resulted in an incremental 1.9% decrease in our effective tax rate for 2021 compared to 2020.
Net Income
Net income for 2021 increased by $4.2 million to $18.4 million, or $1.26 per basic and diluted share, compared with $14.2 million, or $0.98 per basic and diluted share, for 2020.
Supplemental Segment Information
Our reportable segments have been determined in accordance with ASC 280 - Segment Reporting. We have three reportable operating segments: RCM, EHR, and Patient Engagement. We evaluate each of our three operating segments based on segment revenues and segment adjusted EBITDA.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. The segment measurements provided to and evaluated by the CODM are described in Note 18 to the consolidated financial statements. These results should be considered in addition to, and not as a substitute for, results reported in accordance with GAAP.
The following table present a summary of the revenues and adjusted EBITDA of our three operating segments for the years ended December 31, 2021 and 2020.

| Year Ended December 31, |  | Change |  |  |  |
| 2021 |  | 2020 |  | $ |  | % |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenues by segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RCM | $ | 131,242 |  |  | $ | 107,431 |  |  | $ | 23,811 |  |  | 22 | % |  |  |  |  |  |  |  |
EHR | 143,109 |  |  | 152,954 |  |  | (9,845) |  |  | (6) | % |  |  |  |  |  |  |  |
Patient engagement | 6,278 |  |  | 4,103 |  |  | 2,175 |  |  | 53 | % |  |  |  |  |  |  |  |
Adjusted EBITDA by segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RCM | $ | 30,211 |  |  | $ | 22,780 |  |  | $ | 7,431 |  |  | 33 | % |  |  |  |  |  |  |  |
EHR | 23,061 |  |  | 21,488 |  |  | 1,573 |  |  | 7 | % |  |  |  |  |  |  |  |
Patient engagement | (595) |  |  | (881) |  |  | 286 |  |  | 32 | % |  |  |  |  |  |  |  |

Segment Revenues
Refer to the corresponding discussion of revenues for each of our reportable segments previously provided under the Revenues heading of this Management's Discussion and Analysis. There are no intersegment revenues to be eliminated in computing segment revenue.
Segment Adjusted EBITDA - Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
RCM adjusted EBITDA increased by $7.4 million, or 33%, compared to 2020. The acquisition of TruCode resulted in an incremental $3.9 million of adjusted EBITDA, with the remaining $3.5 million of adjusted EBITDA growth resulting from the business unit's 15% organic revenue growth.
EHR adjusted EBITDA increased by $1.6 million, or 7%. The aforementioned decrease in revenues combined with an increase in cost of sales to cause an $11.1 million decrease in gross profit, which was wholly offset by improved operating expenses resulting primarily from increased product development labor capitalization rates and reduced sales and marketing costs.
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Patient engagement adjusted EBITDA increased by $0.3 million, or 32% as significant revenue gains led to improved profitability metrics for this nascent business unit.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $7.0 million and our remaining borrowing capacity under the revolving credit facility of $86.3 million, compared to $11.4 million of cash and cash equivalents and $79.0 million of remaining borrowing capacity under the revolving credit facility as of December 31, 2021. In January 2016, we entered into a syndicated credit agreement 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 included a $75 million term loan facility and a $110 million revolving credit facility. On May 2, 2022, we entered into a First Amendment to the Amended Restated Credit Agreement that further increased the aggregate principal amount of our credit facilities to $230 million, which included a $70 million term loan facility and a $160 million revolving credit facility.
As of December 31, 2022, we had $141.1 million in principal amount of indebtedness outstanding under the credit facilities. We believe that our cash and cash equivalents of $7.0 million as of December 31, 2022, the future operating cash flows of the combined entity, and our remaining borrowing capacity under the revolving credit facility of $86.3 million as of December 31, 2022, taken together, provide adequate resources to fund ongoing cash requirements for the next twelve months and beyond. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of filing of this Annual Report on Form 10-K. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms. Aside from normal operating cash requirements, obligations under our Credit Agreement (as discussed below) and operating leases (see Note 15 to the consolidated financial statements included herein for further information), and opportunistic uses of capital in share repurchases and business acquisition transactions, we do not have any material cash commitments or planned cash commitments. Although the Company currently has no obligations related to planned acquisitions, the Company's strategy includes the potential for future acquisitions, which may be funded thorough draws on the credit facilities or the use of the other sources of liquidity described above.
Operating Cash Flow Activities
Net cash provided by operating activities decreased by $15.4 million, from $47.7 million for 2021 to $32.4 million for 2022, primarily due to disadvantageous changes in working capital, most notably as it relates to expansion in accounts receivable. During 2021, accounts receivable expanded by $2.0 million, or 6%, driven by a corresponding 6% increase in annual revenue with days sales outstanding ("DSO") remaining unchanged from the previous year at 45 days. During 2022, accounts receivable expanded by $16.9 million, or 49%, driven by a 16% increase in annual revenues while integration-related delays associated with our recent acquisition of HRG and the now higher proportion of revenues billed in arrears, resulted in a significant increase in DSO from 45 to 58 days. The resulting impact to operating cash flows was a $3.2 million decrease during 2021 compared to a $12.4 million decrease in 2022. In addition, under the Tax Cuts and Jobs Act, Internal Revenue Code ("IRC") Section 174 amended the federal tax treatment of research or experimental expenditures paid or incurred during the tax year, which allowed for expensing of such costs in the year incurred for federal income tax purposes. Effective for the 2022 tax year, taxpayers are required to capitalize and amortize specified research or experimental expenditures over a five-year period. As a result of the change to IRC Section 174, a deferred tax asset of $9.8 million was recorded for the tax year ended December 31, 2022, with the resulting impact of deferred taxes to operating cash flows being a $6.7 million decrease during 2022 compared to a $3.5 million increase during 2021.
Investing Cash Flow Activities
Net cash used in investing activities decreased from $69.9 million during 2021 to $62.7 million during 2022. Most notably, we completed our $43.4 million acquisition of HRG during the first quarter of 2022. We completed our $59.6 million acquisition of TruCode during the second quarter of 2021. In addition, cash outflows related to capitalized internal software development efforts increased from $9.4 million in 2021 to $19.1 million in 2022 due to the aforementioned change in methodology for estimating labor costs eligible for capitalization and a favorable shift in workload mix away from support functions towards capitalizable projects.
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Financing Cash Flow Activities
During 2022, our financing activities were a net source of cash in the amount of $25.9 million, as $48.0 million in borrowings from our revolving line of credit, used to fund our acquisition of HRG, were partially offset by long-term debt principal payments of $8.9 million and $11.9 million used to repurchase shares of our common stock, which are treated as treasury stock. During 2021, our financing activities were a net source of cash in the amount of $20.9 million, as $61.0 million in borrowings from our revolving line of credit were partially offset by long-term debt principal payments of $38.8 million and $1.3 million used to repurchase shares of our common stock.
On September 4, 2020, our Board of Directors approved a stock repurchase program to repurchase up to $30.0 million in aggregate amount of the Company's outstanding shares of common stock through open market purchases, privately-negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. On July 27, 2022, our Board of Directors extended the expiration of the stock repurchase program to September 4, 2024. These shares may be purchased from time to time throughout the duration of the stock repurchase program depending upon market conditions. Our ability to repurchase shares is subject to compliance with the terms of our Amended and Restated Credit Agreement. Concurrent with the authorization of this stock repurchase program, the Board of Directors opted to indefinitely suspend all quarterly dividends.
Credit Agreement
As of December 31, 2022, we had $67.4 million in principal amount outstanding under the term loan facility and $73.7 million in principal amount outstanding under the 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 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 for SOFR loans and the letter of credit fee ranges from 1.8% to 3.0%. The applicable margin 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.
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 incremental facility. The Amended and Restated Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default. We
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believe that we were in compliance with the covenants contained in such agreement as of December 31, 2022. On March 10, 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. Any failure by us to comply with this or another covenant in the future may result in an event of default. There can be no assurance that we will be able to continue to comply with this covenant or obtain amendments to avoid future covenant violations, or that such amendments will be available on commercially acceptable terms.
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.
Bookings
Bookings is a key operational metric used by management to assess the relative success of our sales generation efforts, and were as follows for the years ended December 31, 2022 and 2021, respectively:

(In thousands) | 2022 | 2021
RCM(1) | $ | 48,065 |  | $ | 20,333 |
EHR(2) | 38,152 |  | 40,873 |
Patient engagement (1) | 3,188 |  | 9,007 |
Total Bookings | $ | 89,405 |  | $ | 70,213 |
(1) Generally calculated as the total contract price (for non-recurring, project-related amounts) and annualized contract value (for recurring amounts).
(2) Generally calculated as the total contract price (for system sales) including annualized contract value (for support) for perpetual license system sales and total contract price for SaaS sales.

RCM bookings during 2022 increased by $27.7 million, or 136%, compared to 2021 as we experienced strength in our core markets for RCM services, particularly as it relates to bookings from our existing EHR customer base. Sales activities and bookings during 2021 suffered from a number of incremental headwinds, chief among them being (a) COVID-19 related distractions, including increased infection rates for certain geographies and widespread focus on eventual vaccine rollouts, (b) reorganization transitions related to our February 2021 reduction-in-force, and (c) lower-value regulatory purchases required by the Centers for Medicare and Medicaid Services' Hospital Price Transparency mandate requiring hospitals to provide clear, accessible pricing information online. These topics disproportionately dominated sales discussions and resources, with the related headwinds beginning to dissipate during the third quarter of 2021 and having little to no effect on 2022. Conversely, 2022 bookings benefited from growing demand for outsourced RCM services, with bookings from within our EHR customers base increasing by $17.7 million, or 138%. Our recent acquisition of HRG enhanced our core competencies in generating sales momentum outside of our EHR customer base, with these "net new" bookings increasing by $10 million, or 135%.
EHR bookings during 2022 decreased by $2.7 million, or 7%, compared to 2021, primarily due to a $3.6 million decrease in Acute Care EHR bookings resulting from a challenging decision environment for new Acute Care EHR system sales arrangements.This decrease was partially offset by a $0.9 million increase in Post-acute Care EHR bookings as an improved sales environment worked in tandem with recent product innovations designed to improve the competitive position of our AHT products.
Patient engagement bookings decreased by $5.8 million, or 65%, compared to 2021. 2021 bookings were propelled by large international client wins for Get Real Health's patient engagement solutions, while 2022 lacked any such large international client wins.
Bookings represent our sales activity during the periods reported above. The amount and volume of pending contracts at the end of the period is described under “Business – Backlog.” Some of the contracts in our backlog are subject to modification or cancellation at the convenience of the customer, or for default in the event that we are unable to perform under the contract. There can be no assurance that our bookings or backlog will result in actual revenue in any particular period, or at all, or that any contract included in backlog will be profitable.
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Critical Accounting Policies and Estimates
General
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We are required to make some estimates and judgments that affect the preparation of these financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, but actual results may differ from these estimates under different assumptions or conditions.
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. Refer to Note 2 to the consolidated financial statements included herein for further discussion regarding our revenue recognition policies and significant judgments involved in our application of ASC 606. Although we believe that our approach to estimates and judgements regarding revenue recognition is reasonable, actual results could differ and we may be exposed to increases or decreases in revenue that could be material.
Allowance for Credit Losses
Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The collectability of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns, resulting in the establishment of general reserves. Additionally, if it is determined that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material event impacting its business, a specific allowance for credit losses may be recorded to reduce the related receivable to the amount expected to be recovered. Refer to Note 11 of the consolidated financial statements included herein for a detailed discussion about our credit loss accounting policy related to trade accounts receivable.
The Company has sold information and patient care systems to certain healthcare providers under short-term payment plans and sales-type leases. The Company establishes an allowance for credit losses for these financing receivables based on the historical level of customer defaults under such financing arrangements. Additionally, if it is determined that a customer will be unable to meet its financial obligation, such as in the case of a bankruptcy filing or other material event impacting its business, a specific allowances may be recorded to reduce the related receivable to the amount expected to be recovered.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted the new standard as of January 1, 2020. Adoption of this standard did not have a material impact on our consolidated financial statements. Although we believe that that our approach to estimates and judgments regarding our allowance for credit losses is reasonable, actual results could differ and we may be exposed to increases or decreases in required allowances that could be material.
Estimates
The Company uses estimates to record certain transactions and liabilities. These estimates are generally based on management’s best judgment, past experience, and utilization of third party services such as actuarial and other expert services. Because these estimates are subjective and variable, actual results could differ significantly from these estimates. Significant estimates included in our financial statements include those for self-insurance reserves under our health insurance plan, reserves for uncertain tax positions, bad debt and credit allowances, legal liability exposure or lack thereof, and accrued expenses.
Business Combinations, including Purchased Intangible Assets
The Company accounts for business combinations at fair value. Acquisition costs are expensed as incurred and recorded in general and administrative expenses. Measurement period adjustments relate to adjustments to the fair value of assets acquired
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and liabilities assumed based on information that we should have known at the time of acquisition. All changes to purchase accounting that do not qualify as measurement period adjustments are included in current period earnings.
The fair value amount assigned to an intangible asset is based on an exit price from a market participant’s viewpoint, and utilizes data such as discounted cash flow analysis and replacement cost models. We review acquired intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is evaluated for impairment annually or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. We test annually for impairment as of October 1.
As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment assessment which compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds that reporting unit's fair value. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered to be impaired.
Critical estimates in valuing certain intangible assets and the fair value of the reporting unit during goodwill impairment tests include, but are not limited to, identifying reporting units, historical and projected customer retention rates, anticipated growth in revenue from the acquired customers, and expected future cash outflows.
Significant judgments in testing goodwill for impairment also include assigning assets and liabilities to the reporting unit and determining the fair value of each reporting unit based on management’s best estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.
Management’s best estimates and assumptions are employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.
Future business and economic conditions, as well as differences actually related to any of the assumptions, could materially affect the financial statements through impairment of goodwill or intangible assets, and acceleration of the amortization period of the purchased intangible assets, which are finite-lived assets.
As of October 1, 2022, the date of our most recent impairment test, our TruBridge reporting unit had a fair value that was substantially in excess of its carrying value, at 154% . The calculated fair value of our Post-acute EHR and Acute Care EHR reporting units exceeded the reporting units' carrying values by 24% and 13%, respectively, and as such, pose a heightened risk of impairment if the reporting unit’s operating results were to decline in future periods. During the three months ended December 31, 2022, there were no identified indicators of impairment that required the Company to complete an interim quantitative assessment related to any of the Company’s reporting units or indefinitely-lived intangible assets.
Software Development Costs
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 features are placed in service. Refer to Note 5 to the consolidated financial statements included herein for further discussion of software development.
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Quantitative and Qualitative Disclosures about Market and Interest Rate Risk
Our exposure to market risk relates primarily to the potential fluctuations in the Secured Overnight Financing Rate ("SOFR") which replaced the British Bankers Association London Interbank Offered Rate ("LIBOR") as the new benchmark interest rate for our credit facilities. We had $141.1 million of outstanding borrowings under our credit facilities with Regions Bank at December 31, 2022. The term loan facility and revolving credit facility 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 0.5%, (2) an alternate base rate determined by reference to the greatest 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). Accordingly, we are exposed to fluctuations in interest rates on borrowings under our credit facilities. A one hundred basis point change in interest rate on our borrowings outstanding as of December 31, 2022 would result in a change in interest expense of approximately $1.4 million annually.
We did not have investments as of December 31, 2022. We do not currently utilize derivative financial instruments to manage our interest rate risks.
Recent Accounting Pronouncements
There were no new accounting standards required to be adopted in 2022 that had a material impact on our consolidated financial statements, and we do not believe that any recently issued but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.

ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained in Item 7 herein under the heading "Quantitative and Qualitative Disclosures about Market and Interest Rate Risk."
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

| Page
Management’s Report on Internal Control Over Financial Reporting | 62
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm, (PCAOB ID Number 248) on Internal Control Over Financial Reporting | 63
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements | 64
Consolidated Balance Sheets — December 31, 202 2 and 20 21 | 66
Consolidated Statements of Operations — Years ended December 31, 202 2, 202 1 and 20 20 | 67
Consolidated Statements of Stockholders’ Equity — Years ended December 31, 202 2, 202 1 and 20 20 | 68
Consolidated Statements of Cash Flows — Years ended December 31, 202 2, 202 1 and 20 20 | 69
Notes to Consolidated Financial Statements | 71
Index to Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts | 97
All other schedules to the financial statements required by Article 9 of Regulation S-X are not applicable and therefore have been omitted. |

61

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Computer Programs and Systems, Inc.’s ("CPSI") internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. CPSI’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of CPSI;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of CPSI are being made only in accordance with authorizations of management and directors of CPSI; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of CPSI’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of CPSI’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment and those criteria, management believes that CPSI maintained effective control over financial reporting as of December 31, 2022.
We excluded Healthcare Resource Group, Inc. ("HRG"), which was included in our consolidated financial statements, from our assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination on March 1, 2022. The acquired business of HRG excluded from our assessment represented approximately 10% of the Company's total assets as of December 31, 2022 and approximately 10% of the Company's consolidated total revenues for the year ended December 31, 2022.
The independent registered public accounting firm, Grant Thornton LLP, has audited the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and has also issued its report on the effectiveness of the Company’s internal control over financial reporting included in this report on page 63.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and Stockholders
Computer Programs and Systems, Inc.:
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Computer Programs and Systems, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 16, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting ("Management's Report"). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company's internal control over financial reporting does not include the internal control over financial reporting of Healthcare Resource Group, Inc. ("HRG"), a wholly-owned subsidiary whose financial statements reflect total assets and revenues each constituting 10% of the related consolidated financial statement amounts as of and for the year ended December 31, 2022. As indicated in Management's Report, HRG was acquired during 2022. Management's assertion on the effectiveness of the Company's internal control over financial reporting excluded internal control over financial reporting of HRG.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 16, 2023

63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS
Board of Directors and Stockholders
Computer Programs and Systems, Inc.:
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Computer Programs and Systems, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule included under item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matter communicated below is a matter arising from the current period audit or the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment
As described further in Notes 2 and 12 to the consolidated financial statements, management evaluates goodwill for impairment on an annual basis as of October 1, or more frequently if impairment indicators exist, at the reporting unit level. Management estimated the fair values of its reporting units using a combination of the income and market approaches. The determination of the fair value of the reporting units requires management to make significant estimates and assumptions related to forecasts of future revenues and operating expenses and discount rates. We identified the goodwill impairment assessment of the acute reporting unit as a critical audit matter.
The principal considerations for our determination that the goodwill impairment assessment of the acute reporting unit is a critical audit matter is that changes in the assumptions related to forecasts of future revenues, operating expenses and discount rates could materially affect the determination of the fair value of the reporting unit, the amount of any goodwill impairment charge, or both. Management utilized significant judgment when estimating the fair value and carrying value of the reporting unit. In turn, auditing management’s judgments regarding forecasts of future revenues, operating expenses and the discount rates applied, involved a high degree of subjectivity due to the estimation uncertainty of management’s significant judgments.
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Our audit procedures related to the goodwill impairment assessment of the acute reporting unit included the following, among others:
•We evaluated the design and tested the operating effectiveness of controls relating to the goodwill impairment assessment of the acute reporting unit, including the determination of the fair value of the reporting unit.
•We tested management's process for determining the fair value and carrying value of the acute reporting unit. This included evaluating the appropriateness of the valuation methods, testing the completeness, accuracy, and relevance of data used by management, and evaluating the reasonableness of management's significant assumptions, which included forecasted revenues and operating expenses. We tested whether these forecasts were reasonable and consistent with historical performance, third-party market data, and other evidence obtained in other areas of the audit.
•We tested the Company's discounted cash flow models for the acute reporting unit with the assistance of valuation specialists, including the reasonableness of the utilized discount rate.
•We tested the Company's use of the market approach with the assistance of valuation specialists, including the reasonableness of selected multiples.

/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2004.
Atlanta, Georgia
March 16, 2023

65

COMPUTER PROGRAMS AND SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

| December 31, 2022 |  | December 31, 2021
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 6,951 |  |  | $ | 11,431 |
Accounts receivable, net of allowance for credit losses of $2,854 and $1,826, respectively | 51,311 |  |  | 34,431 |
Financing receivables, current portion, net | 4,474 |  |  | 6,488 |
Inventories | 784 |  |  | 855 |
Prepaid income taxes | 701 |  |  | 4,599 |
Prepaid expenses and other | 10,338 |  |  | 11,194 |
Total current assets | 74,559 |  |  | 68,998 |
Property and equipment, net | 9,884 |  |  | 11,590 |
Software development costs, net | 27,257 |  |  | 11,644 |
Operating lease assets | 7,567 |  |  | 7,097 |
Financing receivables, net of current portion | 3,312 |  |  | 7,231 |
Other assets, net of current portion | 8,131 |  |  | 3,874 |
Intangible assets, net | 102,000 |  |  | 95,203 |
Goodwill | 198,253 |  |  | 177,713 |
Total assets | $ | 430,963 |  |  | $ | 383,350 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 7,035 |  |  | $ | 8,079 |
Current portion of long-term debt | 3,141 |  |  | 4,394 |
Deferred revenue | 11,590 |  |  | 11,529 |
Accrued vacation | 6,214 |  |  | 5,262 |
Other accrued liabilities | 16,475 |  |  | 17,163 |
Total current liabilities | 44,455 |  |  | 46,427 |
Long-term debt, net of current portion | 136,388 |  |  | 94,966 |
Operating lease liabilities | 5,651 |  |  | 5,505 |
Deferred tax liabilities | 12,758 |  |  | 13,880 |
Total liabilities | 199,252 |  |  | 160,778 |
Stockholders’ equity: |  |  |
Common stock, $0.001 par value per share; 30,000 shares authorized; 14,913 shares issued at December 31, 2022 and 14,734 shares issued at December 31, 2021 | 15 |  |  | 15 |
Additional paid-in capital | 192,275 |  |  | 187,079 |
Retained earnings | 53,921 |  |  | 38,054 |
Treasury stock, 483 shares at December 31, 2022 and 89 shares at December 31, 2021 | (14,500) |  |  | (2,576) |
Total stockholders’ equity | 231,711 |  |  | 222,572 |
Total liabilities and stockholders’ equity | $ | 430,963 |  |  | $ | 383,350 |

The accompanying notes are an integral part of these consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Sales revenues: |  |  |  |  |
RCM | $ | 179,870 |  |  | $ | 131,242 |  |  | $ | 107,431 |
EHR | 139,823 |  |  | 143,109 |  |  | 152,954 |
Patient engagement | 6,955 |  |  | 6,278 |  |  | 4,103 |
Total sales revenues | 326,648 |  |  | 280,629 |  |  | 264,488 |
Costs of sales (exclusive of amortization shown separately below): |  |  |  |  |
RCM | 97,010 |  |  | 66,015 |  |  | 57,461 |
EHR | 71,347 |  |  | 70,664 |  |  | 69,361 |
Patient engagement | 3,856 |  |  | 3,068 |  |  | 1,420 |
Total costs of sales | 172,213 |  |  | 139,747 |  |  | 128,242 |
Gross profit | 154,435 |  |  | 140,882 |  |  | 136,246 |
Operating expenses: |  |  |  |  |
Product development | 30,926 |  |  | 30,389 |  |  | 33,457 |
Sales and marketing | 27,131 |  |  | 21,978 |  |  | 22,835 |
General and administrative | 56,192 |  |  | 50,022 |  |  | 47,479 |
Amortization of acquisition-related intangibles | 17,403 |  |  | 13,786 |  |  | 11,421 |
Total operating expenses | 131,652 |  |  | 116,175 |  |  | 115,192 |
Operating income | 22,783 |  |  | 24,707 |  |  | 21,054 |
Other income (expense): |  |  |  |  |
Other income | 1,178 |  |  | 1,529 |  |  | 1,494 |
Gain on contingent consideration | 565 |  |  | — |  |  | — |
Loss on extinguishment of debt | (125) |  |  | — |  |  | (202) |
Interest expense | (6,320) |  |  | (3,160) |  |  | (3,562) |
Total other income (expense) | (4,702) |  |  | (1,631) |  |  | (2,270) |
Income before taxes | 18,081 |  |  | 23,076 |  |  | 18,784 |
Provision for income taxes | 2,214 |  |  | 4,646 |  |  | 4,538 |
Net income | $ | 15,867 |  |  | $ | 18,430 |  |  | $ | 14,246 |
Net income per share - basic | $ | 1.08 |  |  | $ | 1.26 |  |  | $ | .98 |
Net income per share - diluted | $ | 1.08 |  |  | $ | 1.26 |  |  | $ | .98 |
Weighted average shares outstanding used in per common share computations: |  |  |  |  |
Basic | 14,356 |  |  | 14,290 |  |  | 14,038 |
Diluted | 14,356 |  |  | 14,318 |  |  | 14,038 |

The accompanying notes are an integral part of these consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

| Common Shares |  | Common Stock |  | Additional Paid-in Capital |  |  |  | Retained Earnings |  | Treasury Stock |  | Total Stockholders’ Equity
Balance at December 31, 2019 | 14,356 |  |  | $ | 14 |  |  | $ | 174,618 |  |  |  |  | $ | 9,715 |  |  | — |  |  | $ | 184,347 |
Net income | — |  |  | — |  |  | — |  |  |  |  | 14,246 |  |  | — |  |  | 14,246 |
Issuance of restricted stock | 156 |  | 1 |  |  | (1) |  |  |  |  | — |  |  | — |  |  | — |
Forfeiture of restricted stock | (1) |  |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 7,005 |  |  |  |  | — |  |  | — |  |  | 7,005 |
Treasury stock purchases | — |  |  | — |  |  | — |  |  |  |  | — |  |  | (1,261) |  |  | (1,261) |
Dividends | — |  |  | — |  |  | — |  |  |  |  | (4,337) |  |  | — |  |  | (4,337) |
Balance at December 31, 2020 | 14,511 |  |  | $ | 15 |  |  | $ | 181,622 |  |  |  |  | $ | 19,624 |  |  | $ | (1,261) |  |  | $ | 200,000 |
Net income | — |  |  | — |  |  | — |  |  |  |  | 18,430 |  |  | — |  |  | 18,430 |
Issuance of restricted stock | 229 |  |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Forfeiture of restricted stock | (6) |  |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 5,457 |  |  |  |  | — |  |  | — |  |  | 5,457 |
Treasury stock purchases | — |  |  | — |  |  | — |  |  |  |  | — |  |  | (1,315) |  |  | (1,315) |
Balance at December 31, 2021 | 14,734 |  |  | $ | 15 |  |  | $ | 187,079 |  |  |  |  | $ | 38,054 |  |  | $ | (2,576) |  |  | $ | 222,572 |
Net income | — |  |  | — |  |  | — |  |  |  |  | 15,867 |  |  | — |  |  | 15,867 |
Exercise of stock option | 4 |  |  | — |  |  | 23 |  |  |  |  | — |  |  | — |  |  | 23 |
Issuance of restricted stock | 189 |  |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Forfeiture of restricted stock | (14) |  |  | — |  |  | — |  |  |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 5,173 |  |  |  |  | — |  |  | — |  |  | 5,173 |
Treasury stock purchases | — |  |  | — |  |  | — |  |  |  |  | — |  |  | (11,924) |  |  | (11,924) |
Balance at December 31, 2022 | 14,913 |  |  | $ | 15 |  |  | $ | 192,275 |  |  |  |  | $ | 53,921 |  |  | $ | (14,500) |  |  | $ | 231,711 |

The accompanying notes are an integral part of these consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Operating Activities |  |  |  |  |
Net income | $ | 15,867 |  |  | $ | 18,430 |  |  | $ | 14,246 |
Adjustments to net income: |  |  |  |  |
Provision for bad debt | 992 |  |  | 2,592 |  |  | 4,370 |
Deferred taxes | (6,688) |  |  | 3,502 |  |  | 2,755 |
Stock based compensation | 5,173 |  |  | 5,457 |  |  | 7,005 |
Depreciation | 2,443 |  |  | 2,156 |  |  | 1,790 |
Amortization of acquisition-related intangibles | 17,403 |  |  | 13,786 |  |  | 11,421 |
Amortization of software development costs | 3,484 |  |  | 931 |  |  | 118 |
Amortization of deferred finance costs | 332 |  |  | 293 |  |  | 317 |
Gain on contingent consideration | (565) |  |  | — |  |  | — |
Loss on extinguishment of debt | 125 |  |  | — |  |  | 202 |
Loss on disposal of property and equipment | — |  |  | 313 |  |  | — |
Changes in operating assets and liabilities (net of acquired assets and liabilities): |  |  |  |  |
Accounts receivable | (12,428) |  |  | (3,204) |  |  | 3,667 |
Financing receivables | 6,144 |  |  | 8,098 |  |  | 6,369 |
Inventories | 71 |  |  | 229 |  |  | 342 |
Prepaid expenses and other | (2,930) |  |  | (3,914) |  |  | (3,519) |
Accounts payable | (1,429) |  |  | (615) |  |  | (1,088) |
Deferred revenue | 61 |  |  | 2,099 |  |  | (498) |
Other liabilities | 422 |  |  | 401 |  |  | 2,097 |
Prepaid income taxes/income taxes payable | 3,898 |  |  | (2,810) |  |  | (452) |
Net cash provided by operating activities | 32,375 |  |  | 47,744 |  |  | 49,142 |
Investing Activities |  |  |  |  |
Purchases of property and equipment | (270) |  |  | (920) |  |  | (3,336) |
Purchase of business, net of cash received | (43,364) |  |  | (59,634) |  |  | — |
Investment in software development | (19,097) |  |  | (9,365) |  |  | (3,328) |
Net cash used in investing activities | (62,731) |  |  | (69,919) |  |  | (6,664) |
Financing Activities |  |  |  |  |
Dividends paid | — |  |  | — |  |  | (4,337) |
Proceeds from long-term debt | 575 |  |  | — |  |  | 64 |
Payments of long-term debt principal | (3,563) |  |  | (3,750) |  |  | (4,069) |
Proceeds from revolving line of credit | 48,000 |  |  | 61,000 |  |  | — |
Payments of revolving line of credit | (5,300) |  |  | (35,000) |  |  | (27,561) |
Payments of contingent consideration | (1,935) |  |  | — |  |  | — |
Proceeds from exercise of stock options | 23 |  |  | — |  |  | — |
Treasury stock purchases | (11,924) |  |  | (1,315) |  |  | (1,261) |
Net cash provided by (used in) financing activities | 25,876 |  |  | 20,935 |  |  | (37,164) |
Increase (decrease) in cash and cash equivalents | (4,480) |  |  | (1,240) |  |  | 5,314 |
Cash and cash equivalents at beginning of year | 11,431 |  |  | 12,671 |  |  | 7,357 |
Cash and cash equivalents at end of year | $ | 6,951 |  |  | $ | 11,431 |  |  | $ | 12,671 |

Continued on following page.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)

| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Supplemental disclosure of cash flow information: |  |  |  |  |
Cash paid for interest | $ | 5,863 |  |  | $ | 2,817 |  |  | $ | 3,245 |
Cash paid for income taxes, net of refund | $ | 4,765 |  |  | $ | 3,503 |  |  | $ | 2,235 |
Supplemental disclosure of non-cash flow information: |  |  |  |  |
Write-off of fully depreciated assets | $ | — |  |  | $ | — |  |  | $ | 1,618 |

The accompanying notes are an integral part of these consolidated financial statements.
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COMPUTER PROGRAMS AND SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022
1. NATURE OF OPERATIONS
Computer Programs and Systems, Inc. (“CPSI” or the “Company”) is a leading provider of healthcare solutions and services for community hospitals, their clinics and other healthcare systems. Founded in 1979, CPSI is the parent of six companies – Evident, LLC, American HealthTech, Inc. ("AHT"), TruBridge, LLC ("TruBridge"), iNetXperts, Corp. d/b/a Get Real Health, TruCode LLC ("TruCode"), and Healthcare Resource Group, Inc ("HRG"). Our combined companies are focused on helping improve the health of the communities we serve, connecting communities for a better patient care experience, and improving the financial operations of our customers. Evident provides comprehensive acute care EHR solutions for community hospitals and their affiliated clinics. AHT is one of the nation’s largest providers of post-acute care EHR solutions and services for post-acute care facilities. TruBridge focuses on providing business, consulting and managed IT services, along with its complete RCM solution, for all care settings. Get Real Health focuses on solutions aimed at improving patient engagement for individuals and healthcare providers. TruCode provides medical coding software that enables complete and accurate code assignment for optimal reimbursement. HRG provides specialized RCM solutions for facilities of all sizes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The 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.
Cash and Cash Equivalents
Cash and cash equivalents can include time deposits and certificates of deposit with original maturities of three months or less that are highly liquid and readily convertible to a known amount of cash. These assets are stated at cost, which approximates market value, due to their short duration or liquid nature.
Change in Useful Lives of Intangible Assets
In accordance with its policy, the Company reviews the estimated useful lives of its intangible assets on an ongoing basis. This review indicated that the actual lives of certain developed technology were shorter than the estimated useful lives used for amortization purposes in the Company's financial statements. As a result, effective January 1, 2021, the Company changed its estimates of the useful lives of certain developed technology to better reflect the estimated periods during which these assets will remain in service. The remaining useful life of certain developed technology that was 3.25 years at January 1, 2021 was reduced to 2 years, while the remaining useful life of certain developed technology that was 4.25 years was reduced to 3 years. The effect of this change was to increase 2021 amortization expense by approximately $1.0 million and decrease 2021 net income and basic and diluted earnings per share by $0.8 million and $0.06, respectively.
Presentation
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 Records ("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 18 - Segment Reporting for more information.
Accounts Receivable and Allowance for Credit Losses
Trade accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company establishes a general allowance for credit losses based on collections history. In the case of a bankruptcy filing or other similar event indicating the collectability of specific customer accounts is no longer probable, a specific allowance for credit losses may be recorded to reduce the related receivable to the amount expected to be recovered.
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Financing Receivables
Financing receivables are comprised of short-term payment plans and sales-type leases. Short-term payment plans are stated at the amount the Company expects to collect and do not bear interest. Sales-type leases are initially recorded at the present value of the related minimum lease payments.
An allowance for credit losses has been established for our financing receivables based on the historical level of customer defaults under such arrangements. In the case of a bankruptcy filing or other similar event indicating the collectability of specific customer accounts is no longer probable, a specific reserve may be recorded to reduce the related receivable to the amount expected to be recovered. Customer payments are considered past due if a scheduled payment is not received within contractually agreed upon terms, with amounts reclassified to accounts receivable when they become due. As a result, we evaluate the credit quality of our financing receivables on an ongoing basis utilizing an aging of receivables and write-offs, customer collection experience, the customer’s financial condition and known risk characteristics impacting the respective customer base, as well as existing economic conditions, to determine if any further allowance is necessary. Amounts are specifically charged off once all available means of collection have been exhausted.
Inventories
Inventories are stated at lower of cost or net realizable value using the average cost method. The Company’s inventories are comprised of computer equipment, forms and supplies.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation. Additions and improvements to property and equipment that materially increase productive capacity or extend the life of an asset are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Upon retirement or other disposition of such assets, the related costs and accumulated depreciation are removed from the respective accounts and any resulting gain or loss is included in the results of operations.
Depreciation expense is computed using the straight-line method over the asset’s useful life, which is generally 5 years for computer equipment, furniture, and fixtures and 30 years for buildings. Leasehold improvements are depreciated over the shorter of the asset’s useful life or the remaining lease term. The Company reviews for the possible impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation expense is reported in the consolidated statements of operations as a component of costs of sales and operating expenses.
Business Combinations
We apply business combination accounting when we acquire a business. Business combinations are accounted for at fair value. The associated acquisition costs are expensed as incurred and recorded in general and administrative expenses; restructuring costs associated with a business combination are expensed as incurred; contingent consideration is measured at fair value at the acquisition date, with changes in fair value after the acquisition date affecting earnings; changes in deferred tax asset valuation allowances and income tax uncertainties after the measurement period affect income tax expense; and goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired. The accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed, are based on management's estimates and assumptions, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets. The results of the acquired businesses' operations are included in the Consolidated Statements of Operations of the combined entity beginning on the date of the acquisition. We have applied this acquisition method to the transactions described in Note 3 - Business Combinations.
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is evaluated for
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impairment annually or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. We test annually for impairment as of October 1.
As part of our annual goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment assessment, which compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the total amount of goodwill allocated to that reporting unit. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered to be impaired. We determined there was no impairment to goodwill for any of the years ended December 31, 2022, 2021 or 2020.
Purchased Intangible Assets
Purchased intangible assets are acquired in connection with a business acquisition, and are amortized over their estimated useful lives based on the pattern of economic benefit expected from each asset. We concluded for certain purchased intangible assets that the pattern of economic benefit approximated the straight-line method, and therefore, the use of the straight-line method was appropriate, as the majority of the cash flows will be recognized ratably over the estimated useful lives and there is no degradation of the cash flows over time.
We assess the recoverability of intangible assets whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount is not recoverable if it exceeds the undiscounted sum of cash flows expected to result from the use and eventual disposition of the asset. If the asset is not recoverable, the impairment loss is measured by the excess of the asset's carrying amount over its fair value. We determined there was no impairment to purchased intangible assets as of December 31, 2022, 2021 or 2020.
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 Accounting Standards Codification 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”).
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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 18 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.
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•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 18 of the 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 years ended December 31, 2022 and 2021, included in the consolidated balance sheets:

| For years ended December 31,
(In thousands) | 2022 |  | 2021
Beginning balance | $ | 11,529 |  |  | $ | 8,130 |
Deferred revenue recorded | 25,579 |  |  | 23,393 |
Deferred revenue acquired | — |  |  | 1,300 |
Less deferred revenue recognized as revenue | (25,518) |  |  | (21,294) |
Ending balance | $ | 11,590 |  |  | $ | 11,529 |

The deferred revenue recorded for the years ended December 31, 2022 and 2021 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 acquired resulted from the May 2021 acquisition of TruCode. The deferred revenue recognized as revenue during the years ended December 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 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 sales and marketing expenses in the accompanying consolidated statements of operations.
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 "Electronic health record - Cost of sales" in the accompanying consolidated statements of operations.
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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 consolidated balance sheets.
The following table details costs to obtain and fulfill contracts with customers for the years ended December 31, 2022 and 2021, included in the consolidated balance sheets:

| For years ended December 31, |  |
(In thousands) | 2022 |  | 2021 |  |
Beginning balance | $ | 7,312 |  |  | $ | 5,992 |  |  |
Costs to obtain and fulfill contracts capitalized | 11,361 |  |  | 7,256 |  |  |
Less costs to obtain and fulfill contracts recognized as expense | (7,096) |  |  | (5,936) |  |  |
Ending balance | $ | 11,577 |  |  | $ | 7,312 |  |  |

•Significant Judgments
Our contracts with clients often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Judgment is required to determine SSP for each distinct performance obligation. We use observable SSP for items that are sold on a stand-alone basis to similarly situated clients at unit prices within a sufficiently narrow range. For performance obligations that are sold to different clients for a broad range of amounts, or for performance obligations that are never sold on a stand-alone basis, the residual method in determining SSP is applied and requires significant judgment.
Allocating the transaction price, including estimating SSP of promised goods and services for contracts with discounts or variable consideration, may require significant judgment. Due to the short time frame of the implementation cycle, discount allocation is immaterial as revenue is recognized net of discounts within the same reporting period. In scenarios where the Company enters into a contract that includes both a software license and BPS or other services that are charged based on volume of services rendered, the Company allocates variable amounts entirely to a distinct good or service. The terms of the variable payment relate specifically to the entity’s efforts to satisfy that performance obligation.
Significant judgment is required in determining the expected life of a customer relationship, which is the amortization period for costs to obtain and fulfill a contract that have been capitalized. The Company determined that the expected life of the customer relationship is not materially different from the initial contract term based on the characteristics of the SaaS offering.
•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.
Although we believe that our approach to estimates and judgments regarding revenue recognition is reasonable, actual results could differ, and we may be exposed to increases or decreases in revenue that could be material.
Stock-Based Compensation
The Company accounts for stock-based compensation according to the provisions of ASC 718, Compensation – Stock Compensation, which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost 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.
Software Development Costs
Our software solutions are offered to our clients through traditional perpetual licenses, term licenses and SaaS delivery models. Development costs associated with the solutions offered exclusively through a SaaS model are accounted for in
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accordance with ASC 350-40, Internal Use Software. All other client solution development costs are accounted for in accordance with ASC 985-20, Costs of Software to be Sold, Leased, or Marketed.
Under ASC 985-20, software development costs incurred in creating computer software solutions are expensed until technological feasibility has been established upon completion of a detailed program design or, in the absence of a detailed program design, upon completion of a product design and working model of the software product. Thereafter, all software development costs incurred through the software’s general release date are capitalized and subsequently recorded at the lower of amortized cost or net realizable value. Capitalized costs are amortized based on the current and expected future revenue for each software solution with minimum annual amortization equal to the straight-line amortization over the estimated economic life of the solution, which is estimated to be five years.
Under ASC 350-40, software development costs related to preliminary project activities and post-implementation and maintenance activities are expensed as incurred. We capitalize direct costs related to application development activities that are probable to result in additional functionality. Capitalized costs are amortized on a straight-line basis over five years. We test for impairment whenever events or changes in circumstances that could impact recoverability occur.
See Note 5 to the consolidated financial statements for further information relating to our software development costs.
Income Taxes
We account for income taxes in accordance with ASC 740, Accounting for Income Taxes. Under this topic, deferred income taxes are determined utilizing the asset and liability approach. This method gives consideration to the future tax consequences associated with differences between financial accounting and tax bases of assets and liabilities. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize interest and penalties accrued related to unrecognized tax benefits in the consolidated statements of operations as a component of the provision for income taxes.
We also make a provision for uncertain income tax positions in accordance with the ASC 740, Accounting for Income Taxes. These provisions require that a tax position taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. The topic also requires that changes in judgment that result in subsequent recognition, derecognition, or change in a measurement date of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the interim period in which the change occurs.
Valuation allowances are recorded when, in the opinion of management, it is more likely than not that all or a portion of the deferred tax assets will not be realized. These valuation allowances can be impacted by changes in tax laws, changes to statutory tax rates, and future taxable income, and are based on our judgment, estimates, and assumptions.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is evaluated by the chief operating decision maker, which we refer to as the "CODM", or decision-making group in assessing performance and making decisions regarding resource allocation. The Company has prepared operating segment information based on the manner in which management disaggregates the Company's operations for making internal operating decisions. For more information, see Note 18 - Segment Reporting.
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.
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New Accounting Standards Yet to be Adopted
We do not believe that any recently issued but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
3. BUSINESS COMBINATIONS
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 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 $43.9 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 operations.
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. The amortization is included in amortization of acquisition-related intangibles in our consolidated statements of operations.
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 17 - 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 consolidated statement of operations for the year ended December 31, 2022 includes revenues of approximately $34.1 million attributed to the acquired business since the March 1, 2022 acquisition date. However, due to the rapid pace of integration of HRG’s operations into the existing operations of our RCM business unit, the related costs are sufficiently commingled such that it is impracticable to distinguish those costs associated with HRG from those associated with the
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remainder of our RCM business unit. As such, the disclosure of earnings associated with this acquisition during the year ended December 31, 2022 has been omitted.
The following unaudited pro forma revenue, net income and earnings per share amounts for the years ended December 31, 2022 and 2021 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.

| Year Ended December 31,
(In thousands, except per share data, unaudited) | 2022 |  | 2021
Pro forma revenues | $ | 332,988 |  |  | $ | 314,474 |
Pro forma net income | $ | 16,629 |  |  | $ | 16,572 |
Pro forma diluted earnings per share | $ | 1.13 |  |  | $ | 1.13 |

Pro forma net income was calculated by adjusting the results for the applicable period to reflect (i) the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2021 and (ii) the pro forma adjustment to interest expense as a result of utilizing revolver debt to finance the acquisition.
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 is 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 seller's 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. During 2022, the related contingent earnout payment was finalized and paid to the former sharholders of TruCode in the amount of $1.9 million. 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 operations.
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 was based on management's judgment after evaluating several factors, including a valuation assessment.
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The allocation of the purchase price paid for TruCode was as follows:

(In thousands) | Purchase Price Allocation
Acquired cash | $ | 4,249 |
Accounts receivable | 924 |
Prepaid expenses | 2 |
Intangible assets | 37,300 |
Goodwill | 27,287 |
Accounts payable and accrued liabilities | (1,840) |
Contingent consideration | (2,500) |
Deferred revenue | (1,300) |
Net assets acquired | $ | 64,122 |

The intangible assets in the table above are being amortized on a straight-line basis over their estimated useful lives. The amortization is included in amortization of acquisition-related intangibles in our consolidated statements of operations.
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 17 - 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.
4. PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following at December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Land | $ | 2,848 |  |  | $ | 2,848 |
Buildings and improvements | 8,320 |  |  | 8,269 |
Computer equipment | 8,228 |  |  | 7,868 |
Leasehold improvements | 783 |  |  | 783 |
Office furniture and fixtures | 1,008 |  |  | 682 |
Automobiles | 18 |  |  | 18 |
| 21,205 |  |  | 20,468 |
Less: accumulated depreciation | (11,321) |  |  | (8,878) |
Property and equipment, net | $ | 9,884 |  |  | $ | 11,590 |

5. 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 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 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
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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, net was comprised of the following at December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Software development costs | $ | 31,789 |  |  | $ | 12,693 |
Less: accumulated amortization | (4,532) |  |  | (1,049) |
Software development costs, net | $ | 27,257 |  |  | $ | 11,644 |

6. OTHER ACCRUED LIABILITIES
Other accrued liabilities were comprised of the following at December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Salaries and benefits | $ | 8,430 |  |  | $ | 8,482 |
Severance | 2,504 |  |  | 236 |
Commissions | 1,280 |  |  | 1,158 |
Self-insurance reserves | 1,358 |  |  | 1,409 |
Contingent consideration | — |  |  | 2,500 |
Other | 840 |  |  | 1,786 |
Operating lease liabilities, current portion | 2,063 |  |  | 1,592 |
Other accrued liabilities | $ | 16,475 |  |  | $ | 17,163 |

7. 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 9) 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.
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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 for the years ended December 31, 2022, 2021, and 2020:

(In thousands, except for per share data) | 2022 |  | 2021 |  | 2020
Basic EPS |  |  |  |  |
Numerator |  |  |  |  |
Net income | $ | 15,867 |  |  | $ | 18,430 |  |  | $ | 14,246 |
Less: Net income attributable to participating securities | (311) |  |  | (409) |  |  | (429) |
Net income attributable to common stockholders | $ | 15,556 |  |  | $ | 18,021 |  |  | $ | 13,817 |
Denominator |  |  |  |  |
Weighted average shares outstanding used in basic per common share computations | 14,356 |  |  | 14,290 |  |  | 14,038 |
Basic EPS | $ | 1.08 |  |  | $ | 1.26 |  |  | $ | 0.98 |
Diluted EPS |  |  |  |  |
Numerator |  |  |  |  |
Net income attributable to common stockholders for diluted EPS | $ | 15,556 |  |  | $ | 18,021 |  |  | $ | 13,817 |
Denominator |  |  |  |  |
Weighted average shares outstanding used in basic per common share computations | 14,356 |  |  | 14,290 |  |  | 14,038 |
Weighted average effect of dilutive securities: |  |  |  |  |
Performance share awards | — |  |  | 28 |  |  | — |
Weighted average shares outstanding used in diluted per common share computations | 14,356 |  |  | 14,318 |  |  | 14,038 |
Diluted EPS | $ | 1.08 |  |  | $ | 1.26 |  |  | $ | 0.98 |

8. INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes. These provisions require a company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. The Company did not have any unrecognized tax positions as of December 31, 2022 and 2021.
The federal returns for tax years 2019 through 2021 remain open to examination, and the tax years 2018 through 2021 remain open to examination by certain other taxing jurisdictions to which the Company is subject. Additional years may be open to the extent attributes are being carried forward to an open year.
Deferred income taxes arise from the temporary differences in the recognition of income and expenses for tax purposes. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized.
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Deferred tax assets and liabilities were comprised of the following at December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Deferred tax assets: |  |  |
Accounts receivable and financing receivables | $ | 877 |  |  | $ | 625 |
Accrued vacation | 907 |  |  | 678 |
Stock-based compensation | 1,909 |  |  | 1,905 |
Deferred revenue | 1,002 |  |  | 988 |
Research expenditures | 9,779 |  |  | — |
Accrued severance | 490 |  |  | 44 |
Right of use asset | 1,848 |  |  | 1,740 |
Credits | — |  |  | 2,472 |
Other | (93) |  |  | 15 |
Net operating loss | 3,738 |  |  | 3,560 |
Deferred tax assets | 20,457 |  |  | 12,027 |
Less: Valuation allowance | 604 |  |  | 622 |
Total deferred tax assets | $ | 19,853 |  |  | $ | 11,405 |
Deferred tax liabilities: |  |  |
Intangible assets | $ | 20,941 |  |  | $ | 18,002 |
Accrued liabilities and other | 9,259 |  |  | 4,668 |
Fixed assets | 527 |  |  | 875 |
Right of use liability | 1,884 |  |  | $ | 1,740 |
Total deferred tax liabilities | $ | 32,611 |  |  | $ | 25,285 |
Total net deferred tax liability | $ | (12,758) |  |  | $ | (13,880) |

Under the Tax Cuts and Jobs Act, Internal Revenue Code ("IRC") Section 174 amended the federal tax treatment of research or experimental expenditures paid or incurred during the tax year, which allowed for expensing of such costs in the year incurred for federal income tax purposes. Effective for the 2022 tax year, taxpayers are required to capitalize and amortize specified research or experimental expenditures over a five-year period. As a result of the change to IRC Section 174, a deferred tax asset of $9.8 million was recorded for the tax year ended December 31, 2022.
Significant components of the income tax provision for the years ended December 31, 2022, 2021 and 2020 were as follows:

(In thousands) | 2022 |  | 2021 |  | 2020
Current provision: |  |  |  |  |
Federal | $ | 6,482 |  |  | $ | 731 |  |  | $ | 244 |
State | 2,420 |  |  | 413 |  |  | 1,539 |
Deferred provision: |  |  |  |  |
Federal | (4,769) |  |  | 3,331 |  |  | 2,766 |
State | (1,919) |  |  | 171 |  |  | (11) |
Total income tax provision | $ | 2,214 |  |  | $ | 4,646 |  |  | $ | 4,538 |

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The difference between income taxes at the U.S. federal statutory income tax rate of 21% for the years ended December 31, 2022, 2021 and 2020, and those reported in the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020 are as follows:

(In thousands) | 2022 |  | 2021 |  | 2020
Income taxes at U.S. federal statutory rate | $ | 3,797 |  |  | $ | 4,846 |  |  | $ | 3,945 |
Provision-to-return adjustments | (539) |  |  | 117 |  |  | 455 |
State income tax, net of federal tax effect | 428 |  |  | 509 |  |  | 908 |
Tax credits | (1,254) |  |  | (1,274) |  |  | (958) |
Contingent consideration | (406) |  |  | — |  |  | — |
Stock-based compensation | (112) |  |  | (74) |  |  | 255 |
Non-deductible compensation - 162(m) | 306 |  |  | 510 |  |  | — |
Other | (6) |  |  | 12 |  |  | (67) |
Total income tax provision | $ | 2,214 |  |  | $ | 4,646 |  |  | $ | 4,538 |

Our effective tax rates for the years ended December 31, 2022, 2021 and 2020 were 12%, 20% and 24% respectively. Our effective tax rate for 2022 was impacted by the non-taxable nature of our recorded gain on contingent consideration, which served to reduce the year's effective tax rate by 2.2%, while lowered provision-to-return adjustments resulted in an incremental 3.5% decrease in our effective tax rate for 2022 compared to 2021.
We have federal net operating loss carryforwards related to the acquisition of HHI and Get Real Health of $5.9 million, $7.9 million and $12.2 million for the years ending December 31, 2022, 2021, and 2020, respectively, which expire at various dates from 2026 to 2035. We have state net operating loss carryforwards related to the acquisition of HHI and Get Real Health of $39.8 million, $29.9 million and $34.4 million for the years ending December 31, 2022, 2021, and 2020, respectively, which expire at various dates from 2023 to 2036.
Realization of deferred tax assets associated with the state net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. We believe it is more likely than not that the benefit from certain state NOL carryforwards associated with the acquisition of Get Real Health will not be realized. In recognition of this risk, we have provided a valuation allowance on the deferred tax assets related to these state NOL carryforwards of $0.6 million after both December 31, 2022 and 2021, respectively.
9. STOCK-BASED COMPENSATION AND EQUITY
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"). Stock-based compensation cost 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. As of December 31, 2022, there was a total o f 1,168,382 sh ar es of common stock reserved under the Plan for issuance under future share-based payment arrangements.
The following table details total stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020, included in the consolidated statements of operations:

(In thousands) | 2022 |  | 2021 |  | 2020
Costs of sales | $ | 809 |  |  | $ | 990 |  |  | $ | 1,474 |
Operating expenses | 4,364 |  |  | 4,467 |  |  | 5,531 |
Pre-tax stock-based compensation expense | 5,173 |  |  | 5,457 |  |  | 7,005 |
Less: income tax effect | (1,086) |  |  | (1,146) |  |  | (1,471) |
Net (after tax) stock-based compensation expense | $ | 4,087 |  |  | $ | 4,311 |  |  | $ | 5,534 |

As of December 31, 2022, there was $6.0 million of unrecognized compensation cost related to unvested or unearned, as applicable, stock-based compensation arrangements granted under the Plan, which is expected to be recognized over a weighted-average period of 1.9 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
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ranges from one to three years. The Company records expenses for these grants on a straight-line basis over the applicable vesting periods. Shares of restricted stock have also been issued pursuant to the settlement of performance share awards with one-year performance periods, for which the Company records expenses in the manner described in the "Performance Share Awards" section below. Although no such one-year performance share awards were granted during 2022, shares issued pursuant to past one-year performance share awards are still subject to vesting.
A summary of restricted stock activity (including shares of restricted stock issued pursuant to the settlement of performance share awards) under the Plan during the years ended December 31, 2022, 2021 and 2020 is as follows:

| Shares |  | Weighted-Average Grant-Date Fair Value
Unvested stock outstanding at January 1, 2020 | 525,859 |  |  | $ | 30.51 |
Granted | 136,771 |  |  | 26.16 |
Performance share awards converted to restricted stock | 19,678 |  |  | 30.15 |
Vested | (268,067) |  |  | 30.80 |
Forfeited | (1,274) |  |  | 26.16 |
Unvested stock outstanding at December 31, 2020 | 412,967 |  |  | $ | 28.87 |
Granted | 153,700 |  |  | 31.22 |
Vested | (245,455) |  |  | 29.16 |
Forfeited | (6,329) |  |  | 29.10 |
Unvested stock outstanding at December 31, 2021 | 314,883 |  |  | $ | 29.79 |
Granted | 161,375 |  |  | 34.22 |
Vested | (181,405) |  |  | 29.79 |
Forfeited | (13,692) |  |  | 31.66 |
Unvested stock outstanding at December 31, 2022 | 281,161 |  |  | $ | 32.24 |

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 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.
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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 for the years ended December 31, 2022, 2021 and 2020, is as follows, based on the target award amounts set forth in the performance share award agreements:

| Shares |  | Weighted-Average Grant-Date Fair Value
Performance share awards outstanding at January 1, 2020 | 200,709 |  |  | $ | 30.75 |
Granted | 107,298 |  |  | 26.96 |
Forfeited or unearned | (35,477) |  |  | 30.15 |
Performance share awards converted to restricted stock | (19,678) |  |  | 30.15 |
Performance share awards outstanding at December 31, 2020 | 252,852 |  |  | $ | 29.27 |
Granted | 93,444 |  |  | 31.26 |
Forfeited or unearned | (20,373) |  |  | 29.92 |
Performance share awards converted to restricted stock | (75,971) |  |  | 30.50 |
Performance share awards outstanding at December 31, 2021 | 249,952 |  |  | $ | 29.59 |
Granted | 101,799 |  |  | 37.98 |
Forfeited or unearned | (72,059) |  |  | 32.74 |
Vested and issued | (27,317) |  |  | 31.75 |
Performance share awards outstanding at December 31, 2022 | 252,375 |  |  | $ | 31.84 |

Stock Repurchases
On September 4, 2020, our Board of Directors approved a stock repurchase program under which we may repurchase up to $30.0 million of our common stock through September 3, 2022. On July 27, 2022, the Board of Directors extended the expiration date of the stock repurchase program to September 4, 2024. During 2022, we repurchased 340,732 shares. The approximate value of shares that may yet be repurchased under the stock repurchase program was $17.9 million as of December 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.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of temporary cash investments and trade receivables (including financing receivables). The Company places its temporary cash investments with credit-worthy, high-quality financial institutions.
The Company’s customer base is concentrated in the healthcare industry. Customers are primarily located throughout the United States. The Company requires no collateral or other security to support customer trade receivables. An allowance for credit losses for trade receivables and an allowance for credit losses for financing receivables have been established for potential credit losses based on historical collection experience.
The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.
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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 on December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Short-term payment plans, gross | $ | 330 |  |  | $ | 121 |
Less: allowance for credit losses | (16) |  |  | (6) |
Short-term payment plans, net | $ | 314 |  |  | $ | 115 |

Long-Term Financing Arrangements
Additionally, the Company provides financing for purchases of its information and patient care systems to certain healthcare providers under long-term financing arrangements expiring in various years through 2028. Under long-term financing arrangements, the transaction price is adjusted by a discount rate that reflects market conditions and 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 consolidated statements of operations. These receivables typically have terms from two to seven years.
The decrease in long-term financing arrangement balances during 2022 is primarily a result of the continued evolution of customer licensing preferences. Although the overwhelming majority of our historical EHR installations prior to 2019 were made under a perpetual license model, the dramatic shift in customer preferences to a SaaS license model began during 2019 with 49% of the year's new acute care EHR installations being performed in a SaaS model, compared to only 12% in 2018. The shift in customer preference toward a SaaS model has since continued, with SaaS installations representing approximately 68% of new acute care EHR installations in 2020, 63% in 2021 and 100% in 2022. Due to the nature of the revenue recognition requirements for SaaS arrangements coupled with recurring monthly payments, these arrangements do not give rise to long-term financing arrangements.
The components of these receivables were as follows on December 31, 2022 and 2021:

(In thousands) | 2022 |  | 2021
Long-term financing arrangements, gross | $ | 8,683 |  |  | $ | 15,659 |
Less: allowance for credit losses | (533) |  |  | (716) |
Less: unearned income | (678) |  |  | (1,339) |
Long-term financing arrangements, net | $ | 7,472 |  |  | $ | 13,604 |

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

(In thousands) |
2023 | $ | 4,533 |
2024 | 2,665 |
2025 | 1,309 |
2026 | 153 |
2027 | 15 |
Thereafter | 8 |
Total minimum payments to be received | 8,683 |
Less: allowance for credit losses | (533) |
Less: unearned income | (678) |
Receivables, net | $ | 7,472 |

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Credit Quality of Financing Receivables and Allowance for Credit Losses
The following table is a roll-forward of the allowance for financing credit losses for the years ended December 31, 2022 and 2021:

(In thousands) | Beginning Balance |  | Provision |  | Charge-offs |  | Recoveries |  | Ending Balance
December 31, 2022 | $ | 722 |  |  | $ | (211) |  |  | $ | 38 |  |  | $ | — |  |  | $ | 549 |
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, 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 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 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 December 31, 2022 and 2021:

(In thousands) | 1 to 90 Days Past Due |  | 91 to 180 Days Past Due |  | 181 + Days Past Due |  | Total Past Due
December 31, 2022 | $ | 1,086 |  |  | $ | 278 |  |  | $ | 283 |  |  | $ | 1,647 |
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 the financing receivables or the financing receivables, current portion, net amounts in the accompanying consolidated balance sheets.
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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), none of which are considered past due, based on the age of the oldest payment outstanding that has been reclassified to trade accounts receivable:

(In thousands) | December 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 | $ | 3,876 |  |  | $ | 9,100 |
Uninvoiced client financing receivables related to trade accounts receivable that are 91 to 180 Days Past Due | 1,369 |  |  | 329 |
Uninvoiced client financing receivables related to trade accounts receivable that are 181+Days Past Due | 1,894 |  |  | 386 |
Total uninvoiced client financing receivables balances of clients with a trade accounts receivable | $ | 7,139 |  |  | $ | 9,815 |
Total uninvoiced client financing receivables of clients with no related trade accounts receivable | 866 |  |  | 4,505 |
Total financing receivables with contractual maturities of one year or less | 330 |  |  | 121 |
Less: allowance for credit losses | (549) |  |  | (722) |
Total financing receivables | $ | 7,786 |  |  | $ | 13,719 |

12. INTANGIBLE ASSETS AND GOODWILL
Our purchased definite-lived intangible assets as of December 31, 2022 and 2021 are summarized as follows:

Total | 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 |
Weighted average remaining years of useful life | 8 |  | 13 |  | 8 |  | 4 |  | 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 |

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The following table represents the remaining amortization of definite-lived intangible assets as of December 31, 2022:

(In thousands) |
For the year ended December 31, |
2023 | $ | 16,058 |
2024 | 14,523 |
2025 | 14,208 |
2026 | 12,919 |
2027 | 9,047 |
Due thereafter | 35,245 |
Total | $ | 102,000 |

The following table sets forth the change in the carrying amount of goodwill by segment for the years ended December 31, 2022, 2021, and 2020:

(In thousands) | Revenue cycle | Electronic health record | Patient engagement | Total
Balance as of December 31, 2019 | $ | 13,784 |  | $ | 126,665 |  | $ | 9,767 |  | $ | 150,216 |
Balance as of December 31, 2020 | 13,784 |  | 126,665 |  | 9,767 |  | 150,216 |
Goodwill acquired | 27,497 |  | — |  | — |  | 27,497 |
Balance as of December 31, 2021 | 41,281 |  | 126,665 |  | 9,767 |  | 177,713 |
Goodwill acquired | 20,540 |  | — |  | — |  | 20,540 |
Balance as of December 31, 2022 | $ | 61,821 |  | $ | 126,665 |  | $ | 9,767 |  | $ | 198,253 |

We determined there was no impairment to goodwill as of December 31, 2022, 2021, or 2020.
13. LONG-TERM DEBT
Long-term debt was comprised of the following at December 31, 2022 and 2021:

(In thousands) | December 31, 2022 |  | December 31, 2021
Term loan facility | $ | 67,375 |  |  | $ | 69,375 |
Revolving credit facility | 73,700 |  |  | 31,000 |
Debt obligations | 141,075 |  |  | 100,375 |
Less: debt issuance costs | (1,546) |  |  | (1,015) |
Debt obligation, net | 139,529 |  |  | 99,360 |
Less: current portion | (3,141) |  |  | (4,394) |
Long-term debt | $ | 136,388 |  |  | $ | 94,966 |

As of December 31, 2022, the carrying value of debt approximates the fair value due to the variable interest rate which reflects market rates. The interest rate for the outstanding debt under our term loan facility and revolving credit facility as of December 31, 2022 was 6.39%.
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 included 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 included 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.
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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 for SOFR loans and the letter of credit fee ranges from 1.8% to 3.0%. The applicable margin 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 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 December 31, 2022:

(In thousands) |
2023 | $ | 3,500 |
2024 | 3,500 |
2025 | 3,500 |
2026 | 3,500 |
Thereafter | 127,075 |
| $ | 141,075 |

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 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 3.75:100 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, as amended also contains customary representations and warranties, affirmative covenants and events of default. We believe that we were in compliance with the covenants contained in the credit agreement as of December 31, 2022. 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. Any failure by us to comply with this or another covenant in the future may result in an event of default. There can be no assurance that we will be able to continue to comply with this covenant or obtain amendments to avoid future covenant violations, or that such amendments will be available on commercially acceptable terms.
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The First Amendment removed the requirement that the Company mandatorily prepay the credit facilities with excess cash flow generated during the previous fiscal year. The Company is permitted to voluntarily prepay our 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. BENEFIT PLANS
In January 1994, the Company adopted the CPSI 401(k) Retirement Plan that covers all eligible employees of the Company. The plan allows eligible employees to contribute up to 60% of their pre-tax earnings up to the statutory limit prescribed by the Internal Revenue Service. The Company matches a discretionary amount determined by the Board of Directors. The Company contributed approximately $3.5 million, $3.2 million, and $3.2 million to the plan for the years ended December 31, 2022, 2021 and 2020, respectively.
The Company provides certain health and medical benefits to eligible employees, their spouses and dependents pursuant to a benefit plan funded by the Company. Each participating employee contributes to the Company’s costs associated with such benefit plan. The Company’s obligation to fund this benefit plan and pay for these benefits is limited through the Company’s purchase of an insurance policy from a third-party insurer. The amount established as a reserve is intended to recognize the Company’s estimated obligations with respect to its payment of claims and claims incurred but not yet reported under the benefit plan. Management believes that the recorded liability for medical self-insurance at December 31, 2022 and 2021 is adequate to cover the losses and claims incurred, but these reserves are based on estimates and the amount ultimately paid may be more or less than such estimates.
15. 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 on a straight-line basis over the lease term.
On July 28, 2021, the Company terminated its lease agreement for approximately 45,000 square feet of office space in Fairhope, Alabama. Pursuant to a Termination of Lease Agreement dated July 28, 2021, the Company paid $0.9 million to the landlord as consideration for the early termination. In connection with the lease termination, the Company derecognized the assets and liabilities associated with the operating lease and recorded a $0.3 million loss on the disposal of leasehold improvements.
Supplemental balance sheet information related to operating leases is as follows:

(In thousands) | December 31, 2022 |  |
Operating lease assets: |  |  |
Operating lease assets | $ | 7,567 |  |  |
Operating lease liabilities: |  |  |
Other accrued liabilities | 2,063 |  |  |
Operating lease liabilities, net of current portion | 5,651 |  |  |
Total operating lease liabilities | $ | 7,714 |  |  |
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.
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The future minimum lease payments payable under these operating leases subsequent to December 31, 2022 are as follows:

(In thousands) |
2023 | $ | 2,063 |
2024 | 1,994 |
2025 | 1,258 |
2026 | 1,225 |
2027 | 911 |
Thereafter | 1,154 |
Total lease payments | 8,605 |
Less imputed interest | (891) |
Total | $ | 7,714 |

Total rent expense for the years ended December 31, 2022, 2021, and 2020 was $2.2 million, $1.8 million, and $1.7 million, respectively.
Total cash paid for amounts included in the measurement of lease liabilities within operating cash flows from operating leases for the year ended December 31, 2022, 2021, and 2020 was $2.2 million, $1.8 million, and $1.7 million, respectively.
16. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. Management does not believe it is reasonably possible that such matters will have a material adverse effect on the Company’s financial statements.
17. FAIR VALUE
ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The Codification topic does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. The Codification topic requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
As of December 31, 2022, we did not have any instruments that require fair value measurement.
As of December 31, 2021, we measured the fair value of contingent consideration that represents the potential earnout incentive for TruCode’s former equity holders. We estimated the fair value of the contingent consideration based on the probability of TruCode meeting EBITDA targets (subject to certain pro-forma adjustments). We did not have any other instruments that required fair value measurement as of December 31, 2021.
The following table summarizes the carrying amount and fair value of the contingent consideration at December 31, 2021:
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|  |  | Fair Value at December 31, 2021 Using
(In thousands) | Carrying Amount at 12/31/21 |  | Quoted Price in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Description |  |  |  |  |  |  |
Contingent Consideration | $ | 2,500 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,500 |
Total | $ | 2,500 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,500 |

18. SEGMENT REPORTING
Our chief operating decision makers ("CODM") previously utilized the following three operating segments, "Acute Care EHR", "Post-acute Care EHR" and "TruBridge". However, in the fourth quarter of 2022, the Company made a number of changes to its organizational structure and management system to better align the Company's operating model to its strategic initiatives. As a result of these changes, the Company revised its operating segments. The new operating and reportable segments, based on our three distinct business units with unique market dynamics and opportunities, are RCM, EHR, and "Patient Engagement". These segments represent the components of the Company for which separate financial information is available that is utilized on a regular basis by the CODM in assessing segment performance and in allocating the Company's resources. Management evaluates the performance of the segments based on revenues and adjusted EBITDA. The Company previously evaluated the performance of the segments based on segment gross profit. Management believes adjusted EBITDA is a useful measure to assess the performance and liquidity of the Company as it provides meaningful operating results by excluding the effects of expenses that are not reflective of its operating business performance. Our CODM group is comprised of the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer. Accounting policies for each of the reportable segments are the same as those used on a consolidated basis. The segment disclosures below for the years ended December 31, 2022, 2021, and 2020 have been recast to conform to the current year presentation.
Adjusted EBITDA consists of GAAP net income as reported and adjusts for (i) deferred revenue purchase accounting adjustments arising from purchase allocation adjustments related to business acquisitions; (ii) depreciation expense; (iii) amortization of software development costs; (iv) amortization of acquisition-related intangible assets; (v) stock-based compensation; (vi) severance and other non-recurring charges; (vii) interest expense and other, net; (viii) gain on contingent consideration; and (ix) the provision for income taxes. There are no intersegment revenues to be eliminated in computing segment revenue.
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The following table presents a summary of the revenues and adjusted EBITDA of our three operating segments for the years ended December 31, 2022, 2021, and 2020:

| Year Ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
Revenues: |  |  |  |  |
RCM | $ | 179,870 |  |  | $ | 131,242 |  |  | $ | 107,431 |
EHR |  |  |  |  |
Recurring revenue |  |  |  |  |
Acute Care EHR | $ | 109,340 |  |  | $ | 108,440 |  |  | $ | 105,597 |
Post-acute Care EHR | $ | 15,384 |  |  | $ | 16,472 |  |  | $ | 16,272 |
Total recurring EHR revenues | 124,724 |  |  | 124,912 |  |  | 121,869 |
Non-recurring revenue |  |  |  |  |
Acute Care EHR | $ | 13,138 |  |  | $ | 16,939 |  |  | $ | 29,173 |
Post-acute Care EHR | $ | 1,961 |  |  | $ | 1,258 |  |  | $ | 1,912 |
Total non-recurring EHR revenues | 15,099 |  |  | 18,197 |  |  | 31,085 |
Total EHR revenue | 139,823 |  |  | 143,109 |  |  | 152,954 |
Patient engagement | 6,955 |  |  | 6,278 |  |  | 4,103 |
Total revenues | $ | 326,648 |  |  | $ | 280,629 |  |  | $ | 264,488 |
Adjusted EBITDA by Segment: |  |  |  |  |
RCM | 36,242 |  |  | 30,211 |  |  | 22,780 |
EHR | 19,091 |  |  | 23,061 |  |  | 21,488 |
Patient engagement | 566 |  |  | (595) |  |  | (881) |
Total adjusted EBITDA | $ | 55,899 |  |  | $ | 52,677 |  |  | $ | 43,387 |

The following table reconciles net income to adjusted EBITDA:

| Year Ended December 31,
(In thousands) | 2022 |  | 2021 |  | 2020
Net income, as reported | $ | 15,867 |  |  | $ | 18,430 |  |  | $ | 14,246 |
Deferred revenue and other acquisition-related adjustments | 109 |  |  | 747 |  |  | — |
Depreciation expense | 2,443 |  |  | 2,156 |  |  | 1,790 |
Amortization of software development costs | 3,484 |  |  | 931 |  |  | 118 |
Amortization of acquisition-related intangibles | 17,403 |  |  | 13,786 |  |  | 11,421 |
Stock-based compensation | 5,173 |  |  | 5,457 |  |  | 7,005 |
Severance and other non-recurring charges | 4,504 |  |  | 4,892 |  |  | 1,999 |
Interest expense and other, net | 5,267 |  |  | 1,632 |  |  | 2,270 |
Gain on contingent consideration | (565) |  |  | — |  |  | — |
Provision for income taxes | 2,214 |  |  | 4,646 |  |  | 4,538 |
Total adjusted EBITDA | $ | 55,899 |  |  | $ | 52,677 |  |  | $ | 43,387 |

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19. SUBSEQUENT EVENTS
On March 10, 2023, the Company entered into an amendment to the credit agreement with Regions. 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. Any failure by us to comply with this or another covenant in the future may result in an event of default. There can be no assurance that we will be able to continue to comply with this covenant or obtain amendments to avoid future covenant violations, or that such amendments will be available on commercially acceptable terms.
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SCHEDULE II
COMPUTER PROGRAMS AND SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

Description |  |  | Balance at beginning of period |  | Additions charged to cost and expenses (1) |  | Deductions (2) |  | Balance at end of period
Allowance for credit losses deducted from accounts receivable in the balance sheet | 2020 |  | $ | 2,078 |  |  | $ | 2,825 |  |  | $ | (3,202) |  |  | $ | 1,701 |
| 2021 |  | $ | 1,701 |  |  | $ | 2,111 |  |  | $ | (1,986) |  |  | $ | 1,826 |
| 2022 |  | $ | 1,826 |  |  | $ | 1,203 |  |  | $ | (175) |  |  | $ | 2,854 |

(1) Adjustments to allowance for change in estimates.
(2) Uncollectible accounts written off, net of recoveries.

Description |  |  | Balance at beginning of period |  | Additions charged to cost and expenses (1) |  | Deductions (2) |  | Balance at end of period
Allowance for credit losses deducted from financing receivables in the balance sheet | 2020 |  | $ | 2,971 |  |  | $ | 1,632 |  |  | $ | (3,114) |  |  | $ | 1,489 |
| 2021 |  | $ | 1,489 |  |  | $ | 481 |  |  | $ | (1,248) |  |  | $ | 722 |
| 2022 |  | $ | 722 |  |  | $ | (211) |  |  | $ | 38 |  |  | $ | 549 |

(1) Adjustments to allowance for change in estimates.
(2) Uncollectible accounts written off, net of recoveries.

ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. | CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations to the effectiveness of any system of disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been prevented or detected on a timely basis. Even disclosure controls and procedures determined to be effective can only provide reasonable assurance that their objectives are achieved.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
On March 1, 2022, we acquired Healthcare Resource Group, Inc. (“HRG”), as further described in Note 3 to the consolidated financial statements. We continue to integrate policies, processes, people, technology and operations for our combined operations, and will continue to evaluate the impact of any related changes to internal controls over financial reporting during the fiscal year.
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There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
This report is included in Item 8 on page 62 and is incorporated herein by reference.
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
This report is included in Item 8 on page 63 a nd is incorporated herein by reference.

ITEM 9B. | OTHER INFORMATION.

On March 10, 2023, the Company entered into a Second Amendment (the “Second Amendment”) to that certain Amended and Restated Credit Agreement, dated as of June 16, 2020 (as amended, the “Credit Agreement”), by and among the Company; certain subsidiaries of the Company, as guarantors (collectively, the “Subsidiary Guarantors”); Regions Bank, as administrative agent and collateral agent; and various other lenders from time to time.
The Second Amendment modified the fixed charge coverage ratio requirement provided for in the Credit Agreement by excluding from the definition of Consolidated Fixed Charges any purchases of Equity Interests (as defined in the Credit Agreement) of the Company made by the Company between July 1, 2022 and September 30, 2022, in an aggregate amount of up to $4,000,000, and between October 1, 2022 and December 31, 2022, in an aggregate amount of up to $3,676,000.
The Company’s obligations under the Credit Agreement continue to be secured pursuant to the Amended and Restated Pledge and Security Agreement, dated as of June 16, 2020, by and among the parties identified as Obligors therein and Regions Bank, as collateral agent, on a first priority basis by a security interest in substantially all of the tangible and intangible personal assets (subject to certain exceptions) of the Company and the Subsidiary Guarantors, including certain registered intellectual property and the capital stock of certain of the Company’s direct and indirect subsidiaries. The Company’s obligations under the Credit Agreement also continue to be guaranteed by the Subsidiary Guarantors.
The foregoing description of the Second Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Second Amendment, a copy of which is filed as an exhibit to this Annual Report on Form 10-K and incorporated herein by reference.

ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

None.
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PART III

ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a Code of Business Conduct and Ethics applicable to all of our directors, officers (including our Chief Executive Officer and senior financial officers) and employees. We have also adopted a separate code of ethics with additional guidelines and responsibilities applicable to our Chief Executive Officer and senior financial officers, known as the Code of Ethics for CEO and Senior Financial Officers. Copies of the Code of Business Conduct and Ethics and the Code of Ethics for CEO and Senior Financial Officers are available on CPSI’s web site at www.cpsi.com in the "Corporate Information" section under "Corporate Governance."
Other information required by this Item regarding executive officers is included in Part I of this Form 10-K under the caption "Executive Officers" in accordance with Instruction 3 to Paragraph (b) of Item 401 of Regulation S-K.
Other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from CPSI’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (the "2023 Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

ITEM 11. | EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2023 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
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ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2023 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2023 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.

ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2023 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
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PART IV

ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) and (2) and (c) – Financial Statements and Financial Statement Schedules.
Financial Statements: The Financial Statements and related Financial Statements Schedule of CPSI are included herein in Part II, Item 8.
(a)(3) and (b) – Exhibits.
The exhibits listed on the Exhibit Index beginning on page 103 of this Annual Report on Form 10-K are filed herewith or are incorporated herein by reference.

ITEM 16. | FORM 10-K SUMMARY

None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this the 16th day of March, 2023.

COMPUTER PROGRAMS AND SYSTEMS, INC.
By: |  | /s/ Christopher L. Fowler
|  | Christopher L. Fowler
|  | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
101

Name |  | Title |  | Date
/s/ Christopher L. Fowler |  | President, Chief Executive Officer and Director (principal executive officer) |  | March 16, 2023
Christopher L. Fowler |  |  |
/s/ Matt J. Chambless |  | Chief Financial Officer (principal financial officer) |  | March 16, 2023
Matt J. Chambless |  |  |
/s/ David A. Dye |  | Chief Operating Officer and Director |  | March 16, 2023
David A. Dye |  |  |
/s/ James B. Britain |  | Vice President – Finance and Controller (principal accounting officer) |  | March 16, 2023
James B. Britain |  |  |
/s/ Glenn P. Tobin |  | Chairperson of the Board |  | March 16, 2023
Glenn P. Tobin |  |  |
/s/ Regina M. Benjamin |  | Director |  | March 16, 2023
Regina M. Benjamin |  |  |
/s/ Christopher T. Hjelm |  | Director |  | March 16, 2023
Christopher T. Hjelm |  |  |
/s/ Charles P. Huffman |  | Director |  | March 16, 2023
Charles P. Huffman |  |  |
/s/ Denise W. Warren |  | Director |  | March 16, 2023
Denise W. Warren |  |  |

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Exhibit Index

Exhibit Number |  | Description
2.1 |  | Agreement and Plan of Merger and Reorganization, dated as of November 25, 2015, by and among Computer Programs and Systems, Inc., HHI Merger Sub I, Inc., HHI Merger Sub II, Inc., Healthland Holding Inc. and AHR Holdings, LLC (filed as Exhibit 2.1 to the CPSI’s Current Report on Form 8-K dated December 1, 2015 and incorporated herein by reference)
2.2 |  | Amendment to Agreement and Plan of Merger and Reorganization, dated as of January 8, 2016, by and among Computer Programs and Systems, Inc., Healthland Holding, Inc. and AHR Holdings, LLC (filed as Exhibit 2.2 to the CPSI’s Current Report on Form 8-K dated January 8, 2016 and incorporated herein by reference)
2.3 |  | Stock Purchase Agreement, dated March 1, 2022, by and among Computer Programs and Systems, Inc., Healthcare Resource Group, Inc., the Sellers named therein, and the Securityholder Representative (filed as Exhibit 2.1 to CPSI's Current Report on Form 8-K dated March 2, 2022 and incorporated herein by reference)
2.4 |  | First Amendment to Stock Purchase Agreement, dated June 28, 2022, by and among Computer Programs and Systems, Inc., Healthcare Resource Group, Inc., the Sellers named therein, and the Securityholder Representative
3.1 |  | Certificate of Incorporation (filed as Exhibit 3.4 to CPSI’s Registration Statement on Form S-1 (Registration No. 333-84726) and incorporated herein by reference)
3.2 |  | Amended and Restated Bylaws (filed as Exhibit 3.1 to CPSI’s Current Report on Form 8-K dated October 2 6, 20 22 and incorporated herein by reference)
4.1 |  | Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.1 to CPSI's Annual Report on Form 10-K for the period ended December 31, 2019 and incorporated herein by reference)
10.1 |  | Form of Indemnity Agreement entered into by CPSI and each of its non-employee directors (filed as Exhibit 10.1 to CPSI’s Quarterly Report on Form 10-Q for the period ended September 30, 2002 and incorporated herein by reference)
10.2 |  | Sublease Agreement, dated February 22, 2021, between CPSI and Red Square, LLC (filed as Exhibit 10.1 to CPSI's Quarterly Report on Form 10-Q for the period ended March 31, 2021 and incorporated herein by reference)
10.3 |  | Commercial Lease Agreement, dated March 1, 2021, between CPSI and Central Optical, LLC (filed as Exhibit 10.2 to CPSI's Quarterly Report on Form 10-Q for the period ended March 31, 2021 and incorporated herein by reference)
10.4* |  | Computer Programs and Systems, Inc. Amended and Restated 2014 Incentive Plan (filed as Appendix A to CPSI's Schedule 14A dated March 31, 2017 and incorporated herein by reference)
10.5* |  | Form of Performance Share Award Agreement (Three-Year) under the 2014 Incentive Plan (filed as Exhibit 10.9 to CPSI's Annual Report on Form 10-K for the period ended December 31, 2019 and incorporated herein by reference)
10.6* |  | Form of Restricted Stock Award Agreement under the 2014 Incentive Plan (filed as Exhibit 10.4 to CPSI’s Current Report on Form 8-K dated May 16, 2014 and incorporated herein by reference)
10.7* |  | Healthland Holding Inc. (f/k/a Dairyland Healthcare Solutions Holding Corp) Stock Incentive Plan (filed as Exhibit 99.1 to CPSI’s Registration Statement on Form S-8 (Registration No. 333-208915) and incorporated herein by reference)
10.8* |  | Computer Programs and Systems, Inc. Amended and Restated 2019 Incentive Plan (filed as Exhibit 10.1 to CPSI’s Current Report on Form 8-K dated May 16, 2022 and incorporated herein by reference)
10.9* |  | Form of Performance Share Award Agreement (Three-Year) under the 2019 Incentive Plan (filed as Exhibit 10.3 to CPSI’s Current Report on Form 8-K dated May 2, 2019 and incorporated herein by reference)
10.1 0* |  | Form of Performance-Based Cash Bonus Award Agreement under the 2019 Incentive Plan (filed as Exhibit 10.4 to CPSI’s Current Report on Form 8-K dated May 2, 2019 and incorporated herein by reference)

103

10.1 1* |  | Form of Restricted Stock Award Agreement under the 2019 Incentive Plan (filed as Exhibit 10.18 to CPSI's Annual Report on Form 10-K for the period ended December 31, 2019 and incorporated herein by reference)
10.1 2* |  | Senior Vice President of Sales Compensation Plan for Troy D. Rosser (Oct. 1, 2021 - Dec. 31, 2021) (filed as Exhibit 10.1 to CPSI's Quarterly Report on Form 10-Q for the period ended September 30, 2021 and incorporated herein by reference)
10.1 3* |  | Senior Vice President of Sales Compensation Plan for Dawn M. Severance (Jan. 1, 2022 – Dec. 31, 2022)
10.1 4* |  | Transition Agreement, dated May 2, 2022, by and between Computer Programs and Systems, Inc. and J. Boyd Douglas, Jr. (filed as Exhibit 10.1 to CPSI’s Current Report on Form 8-K dated May 2, 2022 and incorporated herein by reference)
10.1 5* |  | Employment Agreement, dated July 1, 2022, by and between the Company and Christopher L. Fowler (filed as Exhibit 10.1 to CPSI’s Current Report on Form 8-K dated July 7, 2022 and incorporated herein by reference)
10.1 6* |  | Restricted Stock Award Agreement, dated July 1, 2022, by and between the Company and Christopher L. Fowler (filed as Exhibit 10.2 to CPSI’s Current Report on Form 8-K dated July 7, 2022 and incorporated herein by reference)
10.1 7* |  | Confidential General Release of Claims and Separation Agreement, dated January 11, 2023, by and between Computer Programs and Systems, Inc. and Troy D. Rosser (filed as Exhibit 10.1 to CPSI's Current Report on Form 8-K dated January 12, 2023 and incorp orated herein by reference)
10.18* |  | Agreement, dated January 11, 2023, by and between Computer Programs and Systems, Inc. and Troy D. Rosser (fi led as Exhibit 10.2 to CPSI's Current Report on Form 8-K dated January 12, 2023 and incorporated herein by reference)
10.19 |  | Amended and Restated Credit Agreement, dated as of June 16, 2020, by and among Computer Programs and Systems, Inc., certain of its subsidiaries, as guarantors, certain lenders named therein, and Regions Bank, as administrative agent and collateral agent (filed as Exhibit 10.1 to CPSI’s Current Report on Form 8-K dated June 18, 2020 and incorporated herein by reference)
10.2 0 |  | Amended and Restated Pledge and Security Agreement, dated as of June 16, 2020, by and among the parties identified as Obligors therein and Regions Bank, as collateral agent (filed as Exhibit 10.2 to CPSI’s Current Report on Form 8-K dated June 18,2020 and incorporated herein by reference)
10.2 1 |  | First Amendment, dated as of May 2, 2022, to the Amended and Restated Credit Agreement, dated as of June 16, 2020, by and among Computer Programs and Systems, Inc., certain of its subsidiaries, as guarantors, certain lenders named therein, and Regions Bank, as administrative agent and collateral agent (filed as Exhibit 10.1 to CPSI’s Current Report on 8-K dated May 3, 2022 and incorporated herein by reference)
10.22 |  | Second Amendment, dated as of March 10, 2023, to the Amended and Restated Credit Agreement, dated as of June 16, 2020, by and among Computer Programs and Systems, Inc., certain of its subsidiaries, as guarantors, certain lenders named therein, and Regions Bank, as administrative agent and collateral agent
21.1 |  | Subsidiaries of the registrant
23.1 |  | Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm
31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

104

101 |  | The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Stockholders' Equity; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* | Management compensation plan or arrangement

105