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What changed in NATIONAL RESEARCH CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NATIONAL RESEARCH CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+143 added−137 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-03)

Top changes in NATIONAL RESEARCH CORP's 2023 10-K

143 paragraphs added · 137 removed · 105 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeJona Raasch has served as our Chief Operating Officer for most of the last 31 years and as Chief Executive Officer of the Governance Institute for more than 15 years. Helen Hrdy was appointed as our Chief Growth Officer in 2020. Prior to this position Ms.
Biggest changeHelen Hrdy was appointed as our Chief Customer Officer in January 2024. Prior to this position Ms. Hrdy served as our Chief Growth Officer for three years and our Senior Vice President, Customer Success, for eight years.
Over 270 of the top 400 healthcare systems based on net patient revenue are currently using one or more of our solutions. Our client base provides a unique network effect to share best practices among existing clients and to attract new clients. Our existing client base also provides a significant organic growth opportunity to upsell and cross sell additional solutions.
Over 260 of the top 400 healthcare systems based on net patient revenue are currently using one or more of our solutions. Our client base provides a unique network effect to share best practices among existing clients and to attract new clients. Our existing client base also provides a significant organic growth opportunity to upsell and cross sell additional solutions.
Experience solutions include patient experience, workforce engagement, health risk assessments, care transition, and improvement tools. These solutions enable clients to comply with regulatory requirements and to improve their reimbursement under value-based purchasing models. More importantly, our Experience solutions provide quantitative and qualitative real-time feedback, improvement plans, and coaching insights.
Experience solutions include patient experience, employee engagement, health risk assessments, care transition, and improvement tools. These solutions enable clients to comply with regulatory requirements and to improve their reimbursement under value-based purchasing models. More importantly, our Experience solutions provide quantitative and qualitative real-time feedback, improvement plans, and coaching insights.
Using our solutions, our partners gain insights into what people think and feel about their organizations in real-time, allowing them to build on their strengths and implement service recovery with greater speed and personalization.
Using our solutions, our partners gain insights into what people think and how they feel about their organizations in real-time, allowing them to build on their strengths and implement service recovery with greater speed and personalization.
Our solutions enable our clients to both satisfy patient survey compliance requirements and design experiences to build loyalty and improve the wellbeing of the people and communities they care for. Human Capital As of December 31, 2022, we employed a total of 491 associates. None of our associates are represented by a collective bargaining unit.
Our solutions enable our clients to both satisfy patient survey compliance requirements and design experiences to build loyalty and improve the wellbeing of the people and communities they care for. Human Capital As of December 31, 2023, we employed a total of 435 associates. None of our associates are represented by a collective bargaining unit.
We believe that our current portfolio of solutions is uniquely aligned to address these healthcare market trends and related business opportunity.
We believe that our current portfolio of solutions is uniquely aligned to address these healthcare market trends and related business opportunities.
Factors that could affect actual results or outcomes include, without limitation, the following factors: ● The possibility of non-renewal of our client service contracts, reductions in services purchased or prices, and failure to retain key clients; ● Our ability to compete in our markets, which are highly competitive with new market entrants, and the possibility of increased price pressure and expenses; ● The likelihood that the COVID-19 or other pandemic will adversely affect our operations, sales, earnings, financial condition and liquidity; ● The likelihood that the ongoing Russian-Ukraine conflict will adversely affect our operations, sales, earnings, financial condition and liquidity; ● The effects of an economic downturn; ● The impact of consolidation in the healthcare industry; ● The impact of federal healthcare reform legislation or other regulatory changes; ● Our ability to attract and retain key managers and other personnel; ● The possibility that our intellectual property and other proprietary information technology could be copied or independently developed by our competitors; ● The possibility for failures or deficiencies in our information technology platform; ● The possibility that we or our third-party providers could be subject to cyber-attacks, security breaches or computer viruses; and ● The factors set forth under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.
Factors that could affect actual results or outcomes include, without limitation, the following factors: ● The possibility of non-renewal of our client service contracts, reductions in services purchased or prices, and failure to retain key clients; ● Our ability to compete in our markets, which are highly competitive with new market entrants, and the possibility of increased price pressure and expenses; ● The likelihood that a pandemic will adversely affect our operations, sales, earnings, financial condition and liquidity; ● The likelihood that global conflicts will adversely affect our operations, sales, earnings, financial condition and liquidity; ● The effects of an economic downturn; ● The impact of consolidation in the healthcare industry; ● The impact of federal healthcare reform legislation or other regulatory changes; ● Our ability to attract and retain key managers and other personnel; ● The possibility that our intellectual property and other proprietary information technology could be copied or independently developed by our competitors; ● Our ability to maintain effective internal controls; ● The possibility for failures or deficiencies in our information technology platform; ● The possibility that we or our third-party providers could be subject to cyber-attacks, security breaches or computer viruses; and ● The factors set forth under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.
In this Annual Report on Form 10-K, statements regarding the value and utility of, and market demand for, our service offerings, future opportunities for growth with respect to new and existing clients, our future ability to compete and the types of firms with which we will compete, future consolidation in the healthcare industry, future adequacy of our liquidity sources, future revenue sources, future revenue growth, future revenue estimates used to calculate recurring contract value, the expected impact of economic factors, including inflation, future capital expenditures including, without limitation, our headquarters renovation costs, and the timing, amount, and sources of cash to fund such capital expenditures, future stock repurchases and dividends, the expected impact of pending claims and contingencies, the future outcome of uncertain tax positions, our future use of owned and leased real property, the expected impact of the conflict in Ukraine, and the expected impact of the COVID-19 pandemic, among others, are forward-looking statements.
In this Annual Report on Form 10-K, statements regarding the value and utility of, and market demand for, our service offerings, future opportunities for growth with respect to new and existing clients, our future ability to compete and the types of firms with which we will compete, future consolidation in the healthcare industry, future adequacy of our liquidity sources, future revenue sources, future revenue growth, future revenue estimates used to calculate recurring contract value, the expected impact of economic factors, including interest rates and inflation, future capital expenditures including, without limitation, our headquarters renovation costs, and the timing, amount, and sources of cash to fund such capital expenditures, future stock repurchases and dividends, the expected impact of pending claims and contingencies, the future outcome of uncertain tax positions, our future use of owned and leased real property, and the expected impact of global conflicts, among others, are forward-looking statements.
The majority of our associates work remotely. We attract a passionate team of associates who care deeply about making a difference in advancing “Human Understanding” in healthcare. We consider our relationships with our associates to be good.
Most of our associates work remotely. We attract a passionate team of associates who care deeply about making a difference in advancing “Human Understanding” in healthcare. We consider our relationships with our associates to be good.
We believe that there is an opportunity to drive sales growth with both existing and new clients, across all of the market segments that we serve, through the introduction of new solutions. Pursue strategic acquisitions and investments. We have historically complemented our organic growth with strategic acquisitions, having completed eight such transactions over the past nineteen years.
We believe that there is an opportunity to drive sales growth with both existing and new clients, across all the market segments that we serve, through the introduction of new solutions. Pursue strategic acquisitions and investments. We have historically complemented our organic growth with strategic acquisitions, having completed eight such transactions since 2001.
Government Regulation According to the Centers for Medicare and Medicaid Services (“CMS”), health expenditures in the United States were approximately $4.3 trillion in 2021, or $12,914 per person. In total, health spending accounted for 18.3% of the nation’s Gross Domestic Product in 2021.
Government Regulation According to the Centers for Medicare and Medicaid Services (“CMS”), health expenditures in the United States were approximately $4.5 trillion in 2022, or $13,493 per person. In total, health spending accounted for 17% of the nation’s Gross Domestic Product in 2022.
Consequently, we rely on a combination of copyright and trade secret laws and associate nondisclosure agreements to protect our systems, survey instruments and procedures.
We have no patents for most of our intellectual property. Consequently, we rely on a combination of copyright and trade secret laws and associate nondisclosure agreements to protect our systems, survey instruments and procedures.
Our ten largest clients collectively accounted for 15%, 14%, and 14% of our total revenue in 2022, 2021 and 2020, respectively. Approximately 1%, 2% and 2% of our revenue was derived from foreign customers in 2022, 2021, and 2020, respectively.
Our ten largest clients collectively accounted for 15%, 15%, and 14% of our total revenue in 2023, 2022 and 2021, respectively.
Our digital solutions consist of three primary solution categories which can be implemented both collectively as an enterprise solution or individually to meet specific needs within the organization.
Each set of capabilities unlocks Human Understanding at the right time and place to improve care, enhance performance, and catalyze growth. Our digital solutions consist of three primary solution categories which can be implemented both collectively as an enterprise solution or individually to meet specific needs within the organization.
The end-to-end Human Understanding solutions are designed to help capture and act on what matters most to patients and their families. The Human Understanding solutions deliver the capabilities needed to turn strategic aspiration into action in critical focus areas. Each set of capabilities unlocks Human Understanding at the right time and place to improve care, enhance performance, and catalyze growth.
The end-to-end Human Understanding solutions are designed to help capture and act on what matters most to patients and their families, frontline employees, and the broader community hospitals and health systems serve. The Human Understanding solutions deliver the capabilities needed to turn strategic aspiration into action in critical focus areas.
Hrdy served as our Senior Vice President, Customer Success, for eight years. 5 Table of Contents Resources Our success depends in part upon our data collection processes, research methods, data analysis techniques and internal systems, and procedures that we have developed specifically to serve clients in the healthcare industry. We have no patents for most of our intellectual property.
They have track records of success in similar positions at leading healthcare information and technology companies such as Press Ganey, Perceptyx, Episource, PatientPop, and Practicing Excellence. 5 Table of Contents Resources Our success depends in part upon our data collection processes, research methods, data analysis techniques and internal systems, and procedures that we have developed specifically to serve clients in the healthcare industry.
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Our Chief Financial Officer, Kevin Karas, CPA, has extensive financial experience having served as CFO at two previous companies, along with healthcare experience at Rehab Designs of America, Inc. and NovaCare, Inc.
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In January 2024, Jason Hahn, Christophe Louvion, and Andy Monnich joined our management team as Chief Revenue Officer, Chief Product Technology Officer and Chief Corporate Development Officer, respectively.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTo the extent the COVID-19 pandemic or other similar outbreaks adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described in this Part I, Item 1A of this Form 10-K. We could be negatively impacted by the Russian-Ukraine conflict or similar global events.
Biggest changeWhile the risk of such similar outbreaks is unpredictable, and the extent of such risk is highly uncertain, the possibility of future outbreaks remains a risk that could have a material adverse effect on our business and it may also have the effect of heightening many of the other risks described in this Part I, Item 1A of this Form 10-K.
The market price and trading volume of our common stock has historically been and may continue to be highly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases that are in response to factors beyond our control, including, but not limited to: ● Variations in our financial performance and that of similar companies; ● Regulatory and other developments that may impact the demand for our services; ● Reaction to our press releases, public announcements and filings with the Securities and Exchange Commission; ● Client, market and industry perception of our services and performance; ● Actions of our competitors; ● Changes in earnings estimates or recommendations by analysts who follow our stock; ● Loss of key personnel; ● Investor, management team or large stockholder sales of our stock; ● Changes in accounting principles; and ● Variations in general market, economic and political conditions or financial markets.
The market price and trading volume of our common stock has historically been and may continue to be highly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases that are in response to factors beyond our control, including, but not limited to: ● Variations in our financial performance and that of similar companies; ● Regulatory and other developments that may impact the demand for our services; ● Reaction to our press releases, public announcements and filings with the Securities and Exchange Commission; ● Client, market and industry perception of our services and performance; ● Actions of our competitors; ● Changes in earnings estimates or recommendations by analysts who follow our stock; ● Loss of key personnel; ● Investor, management team or large shareholder sales of our stock; ● Changes in accounting principles; and ● Variations in general market, economic and political conditions or financial markets.
Investment in the enhancement of existing and development of new information technology processes is costly and affects our ability to successfully serve our clients. The failure or deficiency of the technology we develop could negatively impact the willingness or ability for our clients to use our services and our ability to perform our services.
Investment in the enhancement of existing and development of new information technology processes is costly and affects our ability to successfully serve our clients. The failure or deficiency of the technology we develop and implement could negatively impact the willingness or ability for our clients to use our services and our ability to perform our services.
Additionally, laws, regulations and standards relating to corporate governance and public disclosure are subject to varying interpretations and continue to develop and change. If we misinterpret or fail to comply with these rules and regulations, our legal and financial compliance costs and net income may be adversely affected. 13 Table of Contents
Additionally, laws, regulations and standards relating to corporate governance and public disclosure are subject to varying interpretations and continue to develop and change. If we misinterpret or fail to comply with these rules and regulations, our legal and financial compliance costs and net income may be adversely affected. 14 Table of Contents
These third-party providers may also experience security breaches or interruptions to their information technology hardware and software infrastructure and communications systems that could adversely impact us. Under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, implementing regulations promulgated by the U.S.
These third-party providers may also experience security breaches or interruptions to their information technology hardware and software infrastructure and communications systems that could adversely impact us. 10 Table of Contents Under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, implementing regulations promulgated by the U.S.
The effects of such influence could be to delay or prevent a change of control of the Company unless the terms are approved by the Trusts and these other entities. The market price of our common stock may be volatile and shareholders may be unable to resell shares at or above the price at which the shares were acquired .
The effects of such influence could be to delay or prevent a change of control of the Company unless the terms are approved by the Trusts and these other entities. 12 Table of Contents The market price of our common stock may be volatile and shareholders may be unable to resell shares at or above the price at which the shares were acquired .
Hays, our Chief Executive Officer and President, or one or more of our other senior managers, could have a material adverse effect, at least in the short to medium term, on most significant aspects of our business, including strategic planning, product development, and sales and customer relations.
Hays, our Chief Executive Officer and President, or one or more of our other executive officers, could have a material adverse effect, at least in the short to medium term, on most significant aspects of our business, including strategic planning, product development, and sales and customer relations.
We operate in a highly competitive market and could experience increased price pressure and expenses as a result. The healthcare information and market research services industry is highly competitive.
We operate in a highly competitive market and could experience increased price pressure and expenses as a result. The healthcare analytics and market research services industry is highly competitive.
As a result, the Trusts and these other entities have the power to indirectly control decisions such as whether to issue additional shares or declare and pay dividends and can control matters requiring shareholder approval, including the election of directors and the approval of significant corporate matters such as change of control transactions.
As a result, the Trusts and these other entities, through the trustees or special power holders, have the power to indirectly control decisions such as whether to issue additional shares or declare and pay dividends and can control matters requiring shareholder approval, including the election of directors and the approval of significant corporate matters such as change of control transactions.
Any one of the above situations could have a material adverse effect on our business, financial condition, results of operations and reputation. 9 Table of Contents If we or our third-party service providers sustain cyber-attacks or other privacy or data security incidents that result in security breaches that disrupt our operations or result in the unintended dissemination of protected personal information or proprietary or confidential information, we could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm and other serious negative consequences.
Any one of the above situations could have a material adverse effect on our business, financial condition, results of operations and reputation. 9 Table of Contents If we or our third-party service providers sustain cyber-attacks or other privacy or data security incidents that result in security breaches that disrupt our operations or result in the unintended dissemination of protected personal information or proprietary or confidential information or Artificial Intelligence ( “ AI ” ) impacts our demand for, or providing of, services, we could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm and other serious negative consequences.
We have traditionally competed with healthcare organizations’ internal marketing, market research and/or quality improvement departments that create their own performance measurement tools, and with relatively small specialty research firms that provide survey-based healthcare market research and/or performance assessment.
We have traditionally competed with healthcare organizations’ internal marketing, market research and/or quality improvement departments that create their own performance measurement tools, and with other firms that provide survey-based healthcare market research and/or performance assessment.
Negative changes in general economic conditions, in the geographic areas in which we operate may reduce our profitability. An economic downturn and inflationary pressures can reduce the demand for our services and result in termination as well as slower client payments or client defaults on receivables.
Negative changes in general economic conditions, in the geographic areas in which we operate may reduce our profitability. An economic downturn, a rise in interest rates, and inflationary pressures can reduce the demand for our services and result in terminations as well as slower client payments or client defaults on receivables.
Although we have procedures to monitor the efficacy of our information technology platforms, the procedures may not prevent failures or deficiencies in the information technology platforms we develop, we may not adapt quickly enough and may incur significant costs and delays that could harm our business. Additional costs could be incurred to further develop and improve our information technology platforms.
Although we have procedures to monitor the efficacy of our information technology platforms, the procedures may not prevent failures or deficiencies in the information technology platforms we develop and implement, we may not adapt quickly enough and may incur significant costs and delays that could harm our business.
In order to expand services or technologies to existing clients and increase our client base, we have historically, and may in the future, make strategic business acquisitions and/or investments that we believe complement our business.
Our growth strategy includes future acquisitions and/or investments which involve inherent risk. In order to expand services or technologies to existing clients and increase our client base, we have historically, and may in the future, make strategic business acquisitions and/or investments that we believe complement our business.
Cybersecurity and Infrastructure Security Agency issued a “Shields Up” alert for American organizations noting the potential for Russia’s cyber-attacks on Ukrainian government and critical infrastructure organizations to impact organizations both within and beyond the United States, particularly in the wake of sanctions imposed by the United States and its allies. These circumstances increase the likelihood of cyber-attacks and/or security breaches.
Cybersecurity and Infrastructure Security Agency issued a “Shields Up” alert for American organizations noting the potential for Russia’s cyber-attacks on Ukrainian government and critical infrastructure organizations to impact organizations both within and beyond the United States, particularly in the wake of sanctions imposed by the United States and its allies, which is still in effect.
Failure to comply with public company regulations could adversely impact our profitability. As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ and other applicable securities rules and regulations.
As a public company, we are subject to the reporting requirements of the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the listing requirements of NASDAQ and other applicable securities rules and regulations.
The Russian-Ukraine conflict, and any expansion of the Russian-Ukraine conflict, could adversely affect our business and operations. We outsource certain software development services to third parties in the Ukraine. Since the onset of the active Russian-Ukraine conflict, our contractors have been able to continue their work. However, those services could be more negatively impacted in the future.
We could be negatively impacted by the global conflicts or similar events. The aforementioned areas of conflict, and any expansion of such conflicts, could adversely affect our business and operations. We outsource certain software development services to third parties in the Ukraine. Since the onset of the active Russian-Ukraine conflict, our contractors have been able to continue their work.
Furthermore, we expect competition for qualified personnel to become more intense as competition in our industry increases. We cannot assure you that we will be able to recruit, retain and motivate a sufficient number of qualified personnel to compete successfully. Like many other companies, we experienced higher attrition rates the last two years.
Furthermore, we expect competition for qualified personnel to become more intense as competition in our industry increases. We cannot assure you that we will be able to recruit, retain and motivate a sufficient number of qualified personnel to compete successfully.
If we fail to successfully complete acquisitions or integrate acquired businesses, we may not achieve projected results and there may be a material adverse effect on our business, financial condition and results of operations. 11 Table of Contents Risks Related to our Common Stock Our principal shareholders effectively control the Company.
If we fail to successfully complete acquisitions or integrate acquired businesses, we may not achieve projected results and there may be a material adverse effect on our business, financial condition and results of operations.
The impact of these developments on the healthcare industry is difficult to predict and could have an adverse effect on our revenue and a corresponding effect on our operating and net income. We could be negatively impacted by the Coronavirus or “ COVID-19 ” pandemic or other outbreaks or pandemics.
The impact of these developments on the healthcare industry is difficult to predict and could have an adverse effect on our revenue and a corresponding effect on our operating and net income. We could be negatively impacted by outbreaks or pandemics. In May 2023, the federal government lifted its Federal Public Health Emergency Declaration related to COVID-19.
Damage to our reputation or loss of our clients’ confidence in our services for any of these, or any other reasons, could adversely impact our business, revenues, financial condition, and results of operations, as well as require additional resources to rebuild our reputation.
Damage to our reputation or loss of our clients’ confidence in our services for any of these, or any other reasons, could adversely impact our business, revenues, financial condition, and results of operations, as well as require additional resources to rebuild our reputation. 11 Table of Contents Our operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk.
These factors, among others, make it possible that in some future period our operating results may be below the expectations of securities analysts and investors which would have a material adverse effect on the market price of our common stock. 12 Table of Contents Our business and operating results could be adversely affected if we are unable to attract or retain key managers and other personnel.
These factors, among others, make it possible that in some future period our operating results may be below the expectations of securities analysts and investors which would have a material adverse effect on the market price of our common stock.
We were the target of an external cyber-attack in February 2020 (the “February incident”) which resulted in a temporary suspension of our services to clients. One of our third-party service providers was the target of an external cyber-attack in December 2022 which resulted in a temporary suspension of certain services to our clients.
These circumstances increase the likelihood of cyber-attacks and/or security breaches. We were the target of a cyber-attack in 2020, which resulted in temporary suspension of our services to clients. One of our third-party service providers was the target of a cyber-attack in December 2022, which resulted in a temporary suspension of certain services to our clients.
Such conduct, or even an allegation of misbehavior, could result in material adverse reputational harm, costly investigations, severe criminal or civil sanctions, or could disrupt our business, and could negatively affect our results of operations or financial condition. Our growth strategy includes future acquisitions and/or investments which involve inherent risk.
Such conduct, or even an allegation of misbehavior, could result in material adverse reputational harm, costly investigations, severe criminal or civil sanctions, or could disrupt our business, and could negatively affect our results of operations or financial condition. Ineffective internal controls could have a negative impact on our business, results of operations, and our reputation.
A majority of our common stock and voting power was historically owned and/or held by Michael D. Hays, our Chief Executive Officer and President. However, over the years Mr. Hays, for estate planning purposes, gifted and/or transferred almost all of his directly owned shares to trusts for the benefit of his family.
Hays, our Chief Executive Officer and President. However, over the years Mr. Hays, for estate planning purposes, gifted and/or transferred almost all of his directly owned shares to trusts for the benefit of his family. Currently, the principal holders of shares previously owned by Mr. Hays are the Common Property Trust and the Amandla MK Trust (collectively the “Trusts”).
Our operations are subject to laws and regulations that impose significant compliance costs and create reputational and legal risk. Due to the nature of the services we offer, we are subject to significant commercial, trade and privacy regulations.
Due to the nature of the services we offer, we are subject to significant commercial, trade and privacy regulations.
Our systems and those of our external service providers could be exposed to damage or interruption from fire, natural disasters, energy loss, telecommunication failure, security breach and computer viruses.
Additional costs will be incurred to further develop and improve our information technology platforms. Our systems and those of our external service providers could be exposed to damage or interruption from fire, natural disasters, which may increase in frequency and severity due to climate change, energy loss, telecommunication failure, security breach and computer viruses.
We are required through our contracts with our clients and by HIPAA to protect the privacy and security of certain health information and to make certain disclosures to our clients or to the public if this information is unlawfully accessed. 10 Table of Contents Changes in privacy and information security laws and standards may require that we incur significant expense to ensure compliance due to increased technology investment and operational procedures.
We are required through our contracts with our clients and by HIPAA to protect the privacy and security of certain health information and to make certain disclosures to our clients or to the public if this information is unlawfully accessed.
To the extent that clients fail to renew or defer their renewals, we anticipate our results may be materially adversely affected. We rely on a limited number of key clients for a substantial portion of our revenue. Our ten largest clients collectively accounted for 15%, 14%, and 14% of our total revenue in 2022, 2021 and 2020, respectively.
We rely on a limited number of key clients for a substantial portion of our revenue. Our ten largest clients collectively accounted for 15%, 15%, and 14% of our total revenue in 2023, 2022 and 2021, respectively.
Additionally, in 2022, we experienced increased costs including the costs of labor, contracted services, costs associated with our building improvements and equipment purchases and we expect elevated levels of inflation to continue in 2023.
Additionally, in 2023, we experienced increased costs including salary and benefits costs in sales and client support, software costs, contracted services, costs associated with our building improvements and equipment purchases and we expect inflationary pressures to continue in 2024.
As of February 23, 2022, approximately 41.1% of our outstanding common stock was owned by the Trusts and approximately 50.8% of our outstanding common stock was held by the Trusts and other entities owned or controlled by members of Mr. Hays’ family.
As of February 13, 2024, approximately 38.6% of our outstanding common stock was owned by the Trusts and approximately 46.2% of our outstanding common stock was held by the Trusts and other entities controlled by trustees or special power holders for the benefit of members of Mr. Hays’ family.
Our primary competitors among such specialty firms include Press Ganey, which we believe has significantly higher annual revenue than us, and three or four other firms that we believe have lower annual revenue than us.
Our primary competitors include Press Ganey, which we believe has significantly higher annual revenue than us, and several other firms that provide similar services in the market we serve.
Substantially all contracts are renewable annually at the option of our clients, although contracts with clients under unit-based arrangements generally have no minimum purchase commitments. Client contracts are generally cancelable on short notice without penalty, however we are entitled to payment for services through the cancellation date.
Substantially all contracts are renewable annually at the option of our clients. Client contracts are generally cancelable on short notice without penalty; however we are entitled to payment for services through the cancellation date. To the extent that clients fail to renew or defer their renewals, we anticipate our results may be materially adversely affected.
Our future performance may depend, to a significant extent, upon the efforts and ability of our key personnel who have expertise in gathering, interpreting and marketing survey-based performance information for healthcare markets. Although client relationships are managed at many levels within our company, the loss of the services of Michael D.
Our business and operating results could be adversely affected if we are unable to attract or retain key managers and other personnel. Our future performance may depend, to a significant extent, upon the efforts and ability of our key personnel who have expertise in gathering, interpreting and marketing survey-based performance information for healthcare markets.
Reputational harm could have a material adverse effect on our business, financial condition and results of operations. Our ability to maintain a positive reputation is critical to selling our services.
Our ability to maintain a positive reputation is critical to selling our services.
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The outbreak of COVID-19, and the associated responses, have impacted our business in a variety of ways, including business and travel restrictions, recommended social distancing and other guidelines.
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However, the continued spread of COVID-19, including its variants, together with any other outbreak of other contagious diseases or public heath environments could adversely affect our business, results of operations, financial condition, and stock price.
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During the COVID-19 pandemic or other outbreaks or pandemics, businesses, including our clients, may de-emphasize external business opportunities and restrict in-person meetings while shifting their attention toward addressing COVID-19 or pandemic planning, business disruptions, higher costs, and revenue shortfalls. We rely on third-party service providers and business partners, for services or supplies that are critical to providing our clients’ services.
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However, those services could be more negatively impacted in the future.
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These third parties are also subject to risks and uncertainties related to the COVID-19 pandemic or similar outbreaks, which may interfere with their ability to provide their services in a timely manner and in accordance with the agreed-upon terms or our agreements, which could interfere with our ability to operate our business.
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Any system failure, inability to upgrade or update, or security breach (including cyber-attacks) related to our information technology systems may also impact third parties that we rely on in our business and could result in a hinderance to the services provided by the Company or such third parties, as the case may be, and may have a material adverse effect on our business.
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Currently, the principal holders of shares previously owned by Mr. Hays are the Common Property Trust and the Amandla MK Trust (collectively the “Trusts”).
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Changes in privacy and information security laws and standards may require that we incur significant expense to ensure compliance due to increased technology investment and operational procedures.
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In addition, the adoption of AI and other emerging technologies may become significant to operational results in the future. While AI and other technologies may offer substantial benefits, they may also introduce additional risk. We use AI for certain limited processes and expect our AI usage to increase in the future.
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However, if we are unable to successfully implement and utilize such emerging technologies as effectively as competitors or our customers are able to use AI as a replacement to our services, the Company may be negatively affected in the larger marketplace.
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Some of our employees work remotely, which may increase the cybersecurity risks to our business, including an increased demand for information technology resources, increased risk of phishing, and other cybersecurity risks.
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We have, and will continue to have, a portion of our employee population that works from home full-time or under flexible work arrangements, and we have provided associates with expanded remote network access options which enable them to work outside of our corporate infrastructure and, in some cases, use their own personal devices, which exposes us to additional cybersecurity risks.
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Our employees working remotely may expose us to cybersecurity risks through: (i) unauthorized access to sensitive information as a result of increased remote access, including our employees’ use of Company-owned and personal devices and videoconferencing functions and applications to remotely handle, access, discuss, or transmit confidential information, and (ii) increased exposure to phishing and other scams as cybercriminals may, among other things, install malicious software and access sensitive information.
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We believe that the increased number of employees working remotely has incrementally increased our cyber risk profile, but we are unable to predict the extent or impacts of those risks at this time.
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A significant disruption of our information technology systems, unauthorized access to or loss of confidential information, or legal claims resulting from our violation of privacy laws could each have a material adverse effect on our business. Reputational harm could have a material adverse effect on our business, financial condition and results of operations.
Added
Our internal controls over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, failure or interruption of information technology systems, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Added
If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, including with the implementation of our internal controls in acquired companies, our business and operating results could be harmed and we could fail to meet our financial reporting obligations, which also could have a negative impact on our reputation .
Added
In addition, volatility in the equity markets could impair our financial position in general terms and our ability to effectively capitalize on potential merger and acquisition opportunities. Risks Related to our Common Stock Our principal shareholders effectively control the Company. A majority of our common stock and voting power was historically owned and/or held by Michael D.
Added
Although client relationships are managed at many levels within our company, the loss of the services of Michael D.
Added
In January 2024, we announced the appointment of four newly created executive officer positions: Helen Hrdy as Chief Customer Officer, Jason Hahn as Chief Revenue Officer, Christophe Louvion as Chief Product Technology Officer, and Andy Monnich as Chief Corporate Development Officer.
Added
These newly appointed executives reflect one of our investments to achieve our strategic initiatives, which include capturing expanded market opportunities through serving clients across increasingly interconnected patient, customer, and employee experience markets.
Added
We may not be successful in achieving our strategic initiatives within the timeframe we expect or at all, such executives may leave, or we may not realize the expected benefits and results from compensation structures we have put in place. Additionally, Kevin R.
Added
Karas, our Senior Vice President Finance, Treasurer, Secretary and Chief Financial Officer has announced his retirement, effective March 31, 2024. The retirement of Mr. Karas may result in a lack of continuity or operational issues. 13 Table of Contents Like many other companies, we experienced higher attrition rates in the last three years.
Added
Increases in income tax rates, changes in income tax laws or regulations, or unfavorable resolutions of tax matters could adversely impact our profitability. We are subject to income tax in the United States.
Added
Our overall effective income tax rate is a function of the federal and local tax rates and the geographic mix of our income before taxes in the jurisdictions in which we operate. Changes in tax rates could negatively impact our net income. Tax laws and regulations, including rates of taxation, are subject to revisions by individual taxing jurisdictions.
Added
It is possible that these types of changes could materially impact our net income and cash flows. Significant judgment is required in determining our annual income tax expense and in evaluating our tax positions.
Added
Although we believe our tax estimates are reasonable, the final determination of tax audits could materially differ from our historical income tax provisions, estimates and accruals and could materially adversely impact our financial statements for the period or periods which the statute of limitations is open. Failure to comply with public company regulations could adversely impact our profitability.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn February 2021, we began leasing 19,300 square feet of space in Lincoln, Nebraska for our mail survey processing operations that were previously housed at our headquarters. We are leasing 4,000 square feet of office space in Markham, Ontario through February 2024, which we vacated as of October 2022.
Biggest changeIn February 2021, we began leasing 19,300 square feet of space in Lincoln, Nebraska for our mail survey processing operations that were previously housed at our headquarters.
Item 2. Properties Our headquarters is located in an owned office building in Lincoln, Nebraska, of which 62,000 square feet have been used for operations. Our credit facilities are secured by this property and our other assets. We are currently renovating the building and expect renovations to complete in 2024.
Item 2. Properties Our headquarters is located in an owned office building in Lincoln, Nebraska, of which 62,000 square feet have been used for operations. Our credit facilities are secured by this property and our other assets. We are currently renovating the building and expect renovations to be complete in 2025.
Removed
In addition, we lease 1,000 square feet of office space in Bethel, Connecticut. We are subleasing as a sublessor 4,300 square feet of office space in Seattle, Washington. We were leasing 300 square feet of office space in Atlanta, Georgia on a month-to-month lease which we ended in February 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−2 removed2 unchanged
Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Oct 1 – Oct 31, 2022 — — — 1,987,517 Nov 1 – Nov 30, 2022 51,083 36.69 51,083 1,936,434 Dec 1 – Dec 31, 2022 11,990 36.96 11,990 1,924,444 Total 63,073 63,073 (1) Shares were repurchased pursuant to the 2022 program.
Biggest changePeriod Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1) Oct 1 – Oct 31, 2023 14,823 41.91 14,823 1,809,218 Nov 1 – Nov 30, 2023 180,633 41.83 180,633 1,628,585 Dec 1 – Dec 31, 2023 166,281 41.02 166,281 1,462,304 Total 361,737 361,737 (1) Shares were repurchased pursuant to the 2022 program.
See Item 12 in Part III of this Annual Report on Form 10-K for certain information concerning shares of our Common Stock authorized for issuance under our equity compensation plans. 15 Table of Contents The following graph compares the cumulative 5-year total return provided shareholders on our Common Stock relative to the cumulative total returns of the NASDAQ Composite Index and the Russell 2000 Index.
See Item 12 in Part III of this Annual Report on Form 10-K for certain information concerning shares of our common stock authorized for issuance under our equity compensation plans. 17 Table of Contents The following graph compares the cumulative 5-year total return provided shareholders on our common stock relative to the cumulative total returns of the NASDAQ Composite Index and the Russell 2000 Index.
Item 5. Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities We have one class of outstanding capital stock, which is our Common Stock, par value $.001 per share (“Common Stock”). Our Common Stock trades on the NASDAQ Global Select Market under the symbol “NRC”.
Item 5. Market for the Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities We have one class of outstanding capital stock, which is our common stock, par value $.001 per share. Our common stock trades on the NASDAQ Global Select Market under the symbol “NRC”.
The payment and amount of future dividends, if any, is at the discretion of our Board of Directors and will depend on our future earnings, financial condition, general business conditions, alternative uses of our earnings and cash and other factors. On February 14, 2023, there were approximately 10 shareholders of record and approximately 13,661 beneficial owners of our Common Stock.
The payment and amount of future dividends, if any, is at the discretion of our Board of Directors and will depend on our future earnings, financial condition, general business conditions, alternative uses of our earnings and cash and other factors. On February 13, 2024, there were approximately 10 shareholders of record and approximately 13,981 beneficial owners of our common stock.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our Common Stock and in each of the indexes on December 31, 2017, and our relative performance is tracked through December 31, 2022.
An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on December 31, 2018, and our relative performance is tracked through December 31, 2023.
Cash dividends in the aggregate amount of $20.9 million, $12.2 million and $5.3 million were declared in 2022, 2021 and 2020 respectively.
Cash dividends in the aggregate amount of $36.3 million, $20.9 million, and $12.2 million were declared in 2023, 2022 and 2021 respectively.
In May 2022, our Board of Directors approved a new stock repurchase authorization of 2,500,000 shares of Common Stock (the “2022 Program”). The table below summarizes repurchases of Common Stock during the three-month period ended December 31, 2022.
In May 2022, our Board of Directors authorized the repurchase of 2,500,000 shares of common stock (the “2022 Program”). The table below summarizes repurchases of common stock during the three-month period ended December 31, 2023.
Removed
In February 2006 and subsequently amended in May 2013, our Board of Directors authorized the repurchase of up to 2,250,000 shares of Common Stock in the open market or in privately negotiated transactions under a stock repurchase program (the “2006 Program”). In 2022, we repurchased all the remaining shares authorized for repurchase under the 2006 Program.
Added
The stock price performance included in this graph is not necessarily indicative of future stock price performance. 12/18 12/19 12/20 12/21 12/22 12/23 National Research Corporation Common Stock 100.00 175.47 114.29 112.20 102.99 112.89 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85
Removed
The stock price performance included in this graph is not necessarily indicative of future stock price performance. 12/17 12/18 12/19 12/20 12/21 12/22 National Research Corporation Common Stock (1) 100.00 105.36 184.87 120.42 118.22 108.51 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 (1)Prior to a recapitalization that took place in 2018, our Common Stock was referred to as Class A Common Stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

41 edited+11 added−15 removed22 unchanged
Biggest change(In thousands, except percentages) Year Ended December 31, Percentage Increase (Decrease) 2022 2021 2020 2022 over 2021 2021 over 2020 Revenue $ 151,568 $ 147,954 $ 133,277 2.4 11.0 Direct expenses 57,049 52,350 49,187 9.0 6.4 Selling, general, and administrative 42,699 38,960 34,441 9.6 13.1 Depreciation, amortization and impairment 5,277 6,374 7,505 (17.2 ) (15.1 ) Operating income 46,543 50,270 42,677 (7.4 ) 17.8 Total other income (expense) (3,728 ) (1,649 ) (1,210 ) 126.1 36.3 Provision for income taxes 11,015 11,155 4,207 (1.3 ) 165.2 Effective Tax Rate 25.7 % 22.9 % 10.1 % 2.8 12.8 Operating Margin 30.7 % 34.0 % 32.0 % (3.3 ) 2.0 Recurring Contract Value 146,839 150,937 145,079 (2.7 ) 4.0 Cash provided by operating activities 36,265 46,344 40,636 (21.7 ) 14.0 Revenue.
Biggest change(In thousands, except percentages) Year Ended December 31, Percentage Increase (Decrease) 2023 2022 2021 2023 over 2022 2022 over 2021 Revenue $ 148,580 $ 151,568 $ 147,954 (2 ) 2 Direct expenses 56,015 57,049 52,350 (2 ) 9 Selling, general, and administrative 46,621 42,699 38,960 9 10 Depreciation, amortization and impairment 5,899 5,277 6,374 12 (17 ) Operating income 40,045 46,543 50,270 (14 ) (7 ) Total other income (expense) (83 ) (3,728 ) (1,649 ) (98 ) 126 Provision for income taxes 8,991 11,015 11,155 (18 ) (1 ) Effective Tax Rate 22 % 26 % 23 % (4 ) 3 Operating Margin 27 % 31 % 34 % (4 ) (3 ) Recurring Contract Value 141,855 146,839 150,937 (3 ) (3 ) Cash provided by operating activities 38,113 36,265 46,344 5 (22 ) Revenue.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
All obligations under the Credit Facilities are to be guaranteed by each of our wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries. As of December 31, 2022, we were in compliance with our financial covenants.
All obligations under the Credit Facilities are to be guaranteed by each of our direct and indirect wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries. As of December 31, 2023, we were in compliance with our financial covenants.
We concluded that a triggering event had not occurred which would require an additional interim impairment test to be performed as it is not more likely than not that an impairment loss had been incurred at December 31, 2022. 18 Table of Contents Key Financial Metrics and Results of Operations The following table sets forth, for the periods indicated, selected financial information derived from our consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics.
We concluded that a triggering event had not occurred which would require an additional interim impairment test to be performed as it is not more likely than not that an impairment loss had been incurred at December 31, 2023. 20 Table of Contents Key Financial Metrics and Results of Operations The following table sets forth, for the periods indicated, selected financial information derived from our consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics.
See Notes 1 and 3 to our consolidated financial statements for a description of our revenue recognition policies. 17 Table of Contents Valuation of Goodwill and Identifiable Intangible Assets Intangible assets include customer relationships, trade names, technology, and goodwill.
See Notes 1 and 3 to our consolidated financial statements for a description of our revenue recognition policies. 19 Table of Contents Valuation of Goodwill and Identifiable Intangible Assets Intangible assets include customer relationships, trade names, technology, and goodwill.
Debt Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on September 30, 2022 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $23,412,383 term loan (the “Term Loan”) and (iii) a $75,000,000 delayed draw-down term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”).
Debt Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $23,412,383 term loan (the “Term Loan”) and (iii) a $75,000,000 delayed draw-down term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”).
This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
A summary of our operating and finance lease obligations as of December 31, 2022 can be found in Note 10, "Leases", to the Consolidated Financial Statements contained in this report. Taxes The liability for gross unrecognized tax benefits related to uncertain tax positions was $1.6 million as of December 31, 2022.
A summary of our operating and finance lease obligations as of December 31, 2023 can be found in Note 10, "Leases", to the Consolidated Financial Statements contained in this report. Taxes The liability for gross unrecognized tax benefits related to uncertain tax positions was $2.0 million as of December 31, 2023.
As of December 31, 2022, the remaining number of shares of Common Stock that could be purchased under the 2022 Program was 1,924,444 shares. Recent Accounting Pronouncements There are no recently issued accounting pronouncements we believe will have a material impact on our financial position, results of operations or cash flows. 22 Table of Contents
As of December 31, 2023, the remaining number of shares of common stock that could be purchased under the 2022 Program was 1,462,304 shares. Recent Accounting Pronouncements There are no recently issued accounting pronouncements we believe will have a material impact on our financial position, results of operations or cash flows. 25 Table of Contents
Total other expense increased in 2022 compared to 2021 primarily due the reclassification of the cumulative foreign currency translation adjustment of $2.6 million to other expense as a result of the substantial liquidation of our investment in our Canadian subsidiary in December 2022.
Total other expense decreased in 2023 compared to 2022 primarily due to the reclassification of the cumulative foreign currency translation adjustment of $2.6 million to other expense as a result of the substantial liquidation of our Canadian subsidiary in December 2022.
Leases We have lease arrangements for certain computer, office, printing and inserting equipment as well as office and data center space. As of December 31, 2022, we had fixed lease payments of $547,000 and $315,000 for operating and finance leases, respectively payable within 12 months.
Leases We have lease arrangements for certain computer, office, printing and inserting equipment as well as office and data center space. As of December 31, 2023, we had fixed lease payments of $678,000 and $23,000 for operating and finance leases, respectively payable within 12 months.
Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand.
Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5.5 million in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand, and (iv) up to $25 million of costs associated with our building renovation from or after January 1, 2023 .
We believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.
Notwithstanding our working capital deficit on December 31, 2023, we believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.
See the Consolidated Statements of Cash Flows included in this report for the detail of our operating cash flows. 20 Table of Contents We had a working capital surplus of $10.3 million and $33.3 million on December 31, 2022 and 2021, respectively.
See the Consolidated Statements of Cash Flows included in this report for the detail of our operating cash flows. 22 Table of Contents We had a working capital deficit of $11.8 million and surplus of $10.3 million on December 31, 2023 and 2022, respectively.
Our material cash requirements include the following contractual and other obligations: Dividends Cash dividends in the aggregate amount of $20.9 million, $12.2 million and $5.3 million were declared in 2022, 2021 and 2020 respectively. All dividends were paid from cash on hand.
Our material cash requirements include the following contractual and other obligations: Dividends Cash dividends in the aggregate amount of $36.3 million, $20.9 million and $12.2 million were declared in 2023, 2022 and 2021 respectively. Dividends were paid from cash on hand and borrowings on our line of credit.
There have been no borrowings on the Delayed Draw Term Loan since origination. 21 Table of Contents We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.
We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility.
The Term Loan bears interest at a fixed rate per annum of 5%. Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (6.10% at December 31, 2022).
Borrowings under the Delayed Draw Term Loan and Line of Credit, if any, bear interest at a floating rate equal to the 30-day Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (7.68% at December 31, 2023).
We partner with clients across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model. The outbreak of COVID-19, and the associated responses, have impacted our business in a variety of ways.
We partner with clients across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.
As of December 31, 2022, our principal sources of liquidity included $25.0 million of cash and cash equivalents, up to $30 million of unused borrowings under our line of credit and up to $75 million on our delayed draw term note. Of this cash, $78,000 was held in Canada.
As of December 31, 2023, our principal sources of liquidity included $6.7 million of cash and cash equivalents, up to $30 million of unused borrowings under our line of credit and an additional $56 million on our delayed draw term note. Of this cash, $155,000 was held in Canada.
These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters of $3.6 million and $5.1 million, respectively We estimate future costs related to our headquarters building renovations to be $16.1 million and $2.9 million in 2023 and 2024, respectively, which we expect to fund through operating cash flows.
These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters. We estimate future costs related to our headquarters building renovations to be $11.6 million in 2024 and $1.4 million in 2025, which we expect to fund through operating cash flows and borrowings on the line of credit.
The payment and amount of future dividends, if any, is at the discretion of our Board of Directors and will depend on our future earnings, financial condition, general business conditions, alternative uses of our earnings and cash and other factors.
The payment and amount of future dividends, if any, is at the discretion of our Board of Directors and will depend on our future earnings, financial condition, general business conditions, alternative uses of our earnings and cash and other factors. Capital Expenditures We paid cash of $15.8 million for capital expenditures in the year ended December 31, 2023.
We may use the Delayed Draw Term Loan to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit to fund ongoing working capital needs and for other general corporate purposes. The Term Loan has an outstanding balance of $22.3 million and is payable in monthly installments of $462,988 through May 2027.
We may use the Delayed Draw Term Loan to fund any permitted future business acquisitions or repurchases of our common stock and the Line of Credit to fund ongoing working capital needs and for other general corporate purposes.
Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2025. As of December 31, 2022, the Line of Credit did not have a balance.
Interest on the Line of Credit and Delayed Draw Term Loan accrues and is payable monthly. 23 Table of Contents Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2025. The Line of Credit did not have a balance at December 31, 2023 and we had the availability to borrow $30,000,000.
Cash provided by operating activities also decreased due to working capital changes, mainly consisting of changes in deferred revenue primarily due to timing of initial billings on new and renewal contracts and decreased overall recurring contract value and changes in accrued expenses, wages and bonuses mainly due to decreased bonuses, partially offset by changes in prepaid expenses and other current assets primarily due to the timing of our annual business insurance payment.
Cash provided by operating activities increased primarily due to working capital changes, mainly consisting of changes in deferred revenue and trade accounts receivable primarily due to timing of initial billings and collections for new and renewal contracts, changes in accrued expenses, wages and bonuses mainly due to decreased bonuses and reductions in accruals for paid time off due to a new unlimited plan, partially offset by changes in prepaid expenses and other current assets primarily due to the timing of our annual business insurance payment and growth in operating lease assets and liabilities due to changes in our leases and a reassessment.
Cash provided by operating activities decreased mainly due to decreased net income net of non-cash items.
Cash provided by operating activities was also partially offset by decreased net income net of non-cash items.
Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements. Cash used in investing activities consisted of purchases of property and equipment including computer software and hardware, building improvements and furniture and equipment.
Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements.
Provision for income taxes decreased in 2022 compared to 2021 primarily due to decreased taxable income. The effective tax rate increased in 2022 compared to 2021 mainly due to decreased tax benefits from share-based compensation awards of $540,000, the non-deductible reclassification of cumulative foreign currency translation adjustment into earnings of $539,000 and $383,000 in higher state income taxes.
The effective tax rate decreased primarily due to lower state income taxes of approximately $864,000 which fluctuate based on various apportionment factors and rates for the states we operate in, the non-deductible reclassification of the cumulative foreign currency translation adjustment of $539,000 in 2022 and increased tax benefits of $250,000 from the share-based compensation awards.
See Note 7, “Income Taxes,” to our Consolidated Financial Statements contained in this report for additional information on the change in the effective tax rates. Recurring Contact Value .
See Note 7, “Income Taxes,” to our Consolidated Financial Statements contained in this report for additional information on the change in the effective tax rates. Recurring Contact Value . Recurring contract value declined in 2023 compared to 2022 primarily from our strategy to focus on our core digital solutions and lower net sales, although the trend improved later in 2023.
US revenue increased due to growth in recurring revenue in our existing client base of $13.1 million partially offset by decreases in US recurring revenue from new customer sales of $6.8 million and non-recurring revenues of $557,000. We do not expect Canadian revenues in the future due to the closure of the Canadian office. Direct expenses.
US recurring revenue decreased from new customer sales by $1.4 million and from non-recurring revenues by $4,000. We do not expect Canadian revenues in the future due to the closure of the Canadian office. Direct expenses . Variable expenses increased $906,000 in 2023 compared to 2022 primarily from higher data collection expenses.
The timing and amount of stock repurchases will depend on a variety of factors, including market conditions as well as corporate and regulatory considerations. The 2022 Program may be suspended, modified, or discontinued at any time and we have no obligation to repurchase any amount of Common Stock in connection with the 2022 Program.
Under the 2022 Program we are authorized to repurchase from time-to-time shares of our outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions as well as corporate and regulatory considerations.
The discussion that follows the information should be read in conjunction with our consolidated financial statements. Due to changes in our corporate reporting structure in 2021, certain associates moved between departments.
The discussion that follows the information should be read in conjunction with our consolidated financial statements.
Cash used in financing activities consisted of payments for borrowings under the term note, finance lease obligations and debt issuance costs.
Cash used in investing activities primarily consisted of purchases of property and equipment including computer software and hardware, building improvements, and furniture and equipment. Cash used in financing activities consisted of payments for borrowings under the term note, line of credit and finance lease obligations.
Variable expenses as a percentage of revenue were 14.4% in 2022 and 2021. Fixed expenses increased $4.1 million primarily as a result of increased salary and benefit costs to attract and retain associates of $3.3 million, contracted services to support our Human Understanding Solutions of $547,000 and increased travel costs of $376,000 due to COVID travel restrictions being lifted.
Variable expenses as a percentage of revenue were 15% and 14% in 2023 and 2022, respectively. Fixed expenses decreased $1.9 million primarily due to decreased salary and benefit costs from workforce reduction and automation partially offset by increased contracted services to support our Human Understanding solutions and higher travel costs. Selling, general and administrative expenses .
The change was primarily due to decreases in cash and cash equivalents and prepaid expenses partially offset by decreases in accrued wages and bonuses, accrued expenses and deferred revenue. Cash and cash equivalents decreased mainly due to repurchase of shares of our Common Stock for treasury. Prepaid expenses decreased primarily due to the timing of our annual business insurance payment.
The change was primarily due to decreases in cash and cash equivalents and trade accounts receivable and an increase in the current portion of notes payable. These were partially offset by increases in prepaid expenses primarily due to the timing of our annual business insurance payment.
Following the reorganization, we considered the current and expected future economic and market conditions, including the impact of the COVID-19 pandemic, on our reporting unit. We also assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing.
At December 31, 2023, we assessed our current market capitalization compared to book value, forecasts and margins in our last quantitative impairment testing.
Depreciation, amortization and impairment expenses decreased in 2022 compared to 2021 primarily due to a decrease in building depreciation expense of $352,000 resulting from shortening the estimated useful lives of certain building assets, incurring a right-of-use asset impairment of $324,000 from subleasing a remote office location in 2021 and a decrease of $460,000 due to certain software development and intangible assets being fully amortized after 2021.
Depreciation, amortization and impairment expenses increased in 2023 compared to the 2022 period primarily due to additional depreciation expense from shortening the estimated useful lives of certain building assets and increased software investment amortization. Operating income and margin .
Operating income and margin . Operating income and margin decreased in 2022 compared to 2021 primarily due to growth in salary and benefit costs to attract and retain associates including a new associate benefit, as well as additional investments in our Human Understanding Solutions and marketing initiatives outpacing our revenue growth. Total other income (expense ).
Operating income and margin decreased in 2023 compared to 2022 primarily due to a decline in revenue and growth in marketing and technology investments and higher data collection expenses. Total other income (expense ).
We generally do not make unconditional, non-cancelable purchase commitments. We enter into purchase orders in the normal course of business, but these purchase obligations do not exceed one year.
We enter into purchase orders in the normal course of business, but these purchase obligations do not exceed one year. 24 Table of Contents Stock Repurchase Program In May 2022, our Board of Directors approved the 2022 Program with a repurchase authorization of 2,500,000 shares of common stock.
We also used cash to pay deferred acquisition consideration related to our 2021 acquisition of PatientWisdom, repurchase shares of our Common Stock for treasury, to pay dividends on Common Stock and to pay employee payroll tax withholdings on share-based awards exercised.
We also used cash to repurchase shares of our common stock for treasury and to pay dividends on common stock. This was partially offset by cash provided from the proceeds from the exercise of share-based awards, borrowings on the line of credit and delayed draw term loan.
The 2022 Program has no set expiration date. During 2022, we repurchased 744,499 shares of our Common Stock for an aggregate of $27.6 million, of which 168,943 shares were repurchased under the 2006 Program and 575,556 shares were repurchased under the 2022 Program.
The 2022 Program may be suspended, modified, or discontinued at any time and we have no obligation to repurchase any amount of common stock in connection with the 2022 Program. The 2022 Program has no set expiration date. During 2023, we repurchased 462,140 shares of our common stock for an aggregate of $19.1 million under the 2022 Program.
See Note 7, "Income Taxes", to the Consolidated Financial Statements contained in this report for income tax related information. As of December 31, 2022, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act of 2017 was $82,000, which we expect to pay in the next year.
See Note 7, "Income Taxes", to the Consolidated Financial Statements contained in this report for income tax related information. We generally do not make unconditional, non-cancelable purchase commitments.
Removed
Many businesses, including many of our clients, have de-emphasized external business opportunities and restricted in-person meetings while shifting their attention toward addressing COVID-19 planning, business disruptions, higher costs, and revenue shortfalls. The on-going impacts of the COVID-19 pandemic and associated impacts on our business, including the impact on our revenue, expenses, and cash flows, cannot be predicted at this time.
Added
Revenue in 2023 decreased compared to 2022 with reductions in US revenue of $2.2 million and Canadian revenue of $793,000 due to the closure of our Canadian office. US recurring revenue in our existing client base decreased $819,000 which included $439,000 attributed to elimination of a non-core solution.
Removed
In March 2021, we changed our operating segments from six to one to reflect a change in the way we operated and managed our business, including changes to our corporate reporting structure to the Company’s Chief Executive Officer and chief operating decision maker.
Added
Selling, general and administrative expenses increased in 2023 compared to 2022 primarily due to growth in marketing initiative expenses of $2.8 million to expand brand recognition and support sales development, increased salary and benefit costs of $1.5 million in sales and client support, increased travel costs of $512,000, additional technology services of $736,000 partially offset by a reduction in innovation investments of $1.1 million and decreased building demolition costs of $384,000 related to the remodel of our headquarters.
Removed
In connection with the revision to our operating segments, we performed an interim qualitative analysis immediately before and after the reorganization and concluded that the fair value of our reporting units likely exceeded the carrying values and no impairments were recorded.
Added
We expect salary and benefit costs to increase in 2024 due to our new executive officer positions and changes to our commission structure, although we hope to have meaningful offsets from ongoing efficiency and cost controls. 21 Table of Contents Depreciation, amortization and impairment .
Removed
As a result, the related salaries and benefits and company incentive expenses are included in Selling, general and administrative expenses in the 2022 and 2021 periods instead of Direct as in the 2020 periods. The total amount of the reclassified expenses approximates $1.9 million in 2021.
Added
Interest income increased $652,000 from additional money market funds investments and interest expense decreased $347,000 from the declining balance on our term loan partially offset from interest expense due to drawing on the line of credit.
Removed
Revenue in 2022 increased compared to 2021 due to an increase in US revenue of $5.8 million partially offset by decreased Canadian revenue of $2.2 million due to the closure of the Canadian office in 2022.
Added
In future periods we expect total other expense to increase due to an expected decrease in interest income resulting from reduced money market fund investments and increased interest expense due to borrowings on our line of credit and delayed draw term loan. Provision for income taxes and effective tax rate .
Removed
Variable expenses increased $584,000 in 2022 compared to 2021 primarily due to growth in conference expenses of $1.3 million due to additional conferences being held in 2022 compared to 2021 and the shift to allow live or virtual attendance at conferences partially offset by lower survey and other subscription services of $801,000.
Added
Provision for income taxes decreased in 2023 compared to 2022 primarily due to decreased taxable income.
Removed
Selling, general and administrative expenses increased in 2022 compared to 2021 primarily due to innovation investments to support further development of our Human Understanding Solutions of $1.5 million, new marketing initiatives of $2.3 million, increased travel costs of $645,000 due to COVID travel restrictions being lifted, and new associate coaching benefit expense of $561,000, as well as increased business insurance costs of $405,000, partially offset by decreases in public company and other legal and accounting costs of $861,000. 19 Table of Contents Depreciation, amortization and impairment .
Added
Cash and cash equivalents decreased mainly due to the repurchase of shares of our common stock for treasury. We also borrowed on our delayed draw term loan to fund the share repurchases which increased the current portion of notes payable. Trade accounts receivable decreased due to timing of billing and collections, as well decreases in our overall recurring contract value.
Removed
Any future currency changes related to our Canadian subsidiary will be recognized in Other income (expense), net in our Consolidated Statements of Income. This expense was partially offset by a $458,000 decrease in interest expense due to the declining balance on our term loan. Provision for income taxes and effective tax rate .
Added
The outstanding balance on the Term Loan was $17.8 million at December 31, 2023 and is payable in monthly installments of $462,988 through May 2027. The Term Loan bears interest at a fixed rate per annum of 5%.
Removed
Recurring contract value declined in 2022 compared to 2021 primarily from a decrease in new client sales as well as a 2.0% decrease in our client retention rate partially due to our strategy to focus on our core digital solutions. The recurring contract value of our core digital solutions declined 1.1% at December 31, 2022 compared to December 31, 2021.
Added
The weighted average borrowings on the Line of Credit for year ended December 31, 2023 was $1.7 million. The weighted average interest rate on borrowings on the Line of Credit during the year ended December 31, 2023 was 7.67%. The outstanding balance on the Delayed Draw Term Loan was $19.0 million at December 31, 2023.
Removed
Accrued expenses decreased due to timing of payment for services and supplies. Accrued wages and bonuses decreased due to less bonuses being earned in 2022 and the final payment of employer social security taxes that were deferred due to the Coronavirus Aid, Relief, and Economic Security Act.
Added
Principal payments are due in monthly installments of $226,190 through April 2027 and a balloon payment for the remaining balance of $10.2 million is due in May 2027. We had the availability to borrow an additional $56.0 million on the Delayed Draw Term Loan at December 31, 2023.
Removed
Acquisition Consideration On January 4, 2021, we acquired substantially all assets and assumed certain liabilities of PatientWisdom, Inc., a company with a health engagement solution that will further our purpose of operationalizing human understanding through tangible and actionable insights. $3.0 million of the total $5.0 million all-cash consideration was paid at closing.
Added
In June 2023, the Credit Agreement was amended to exclude our costs associated with our building renovation from or after January 1, 2023 from the fixed charge coverage ratio calculation.
Removed
We paid the remaining $2.0 million in January 2022. All payments were made with cash on hand. Capital Expenditures We paid cash of $9.8 million for capital expenditures in the year ended December 31, 2022.
Removed
There were no borrowings on the Line of Credit during the years ended December 31, 2022 or 2021.
Removed
Stock Repurchase Program In February 2006 and subsequently amended in May 2013, our Board of Directors authorized the repurchase of up to 2,250,000 shares of Common Stock in the open market or in privately negotiated transactions under a stock repurchase program under the 2006 Program. In 2022, we repurchased all the remaining shares authorized for repurchase under the 2006 Program.
Removed
In May 2022, our Board of Directors approved the 2022 Program with a repurchase authorization of 2,500,000 shares of Common Stock. Under the 2022 Program we are authorized to repurchase from time-to-time shares of our outstanding Common Stock on the open market or in privately negotiated transactions.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+2 added−9 removed0 unchanged
Biggest changeThere were no borrowings outstanding under the Line of Credit at December 31, 2022, or at any time during 2022. There were no borrowings outstanding under the Delayed Draw Term Note at December 31, 2022, or at any time during 2022.
Biggest changeBorrowings under the Line of Credit and Delayed Draw Term Note may not exceed $30.0 million and $75.0 million, respectively. There were no borrowings outstanding under the Line of Credit at December 31, 2023. We had $19.0 million of borrowings outstanding under the Delayed Draw Term Note at December 31, 2023.
Based on a sensitivity analysis, a one percent per annum change in market interest rates as of December 31, 2022, would impact the estimated fair value of our fixed-rate Term Loan outstanding at December 31, 2022 by approximately $470,000.
At December 31, 2023, our fixed-rate Term Loan totaled $17.8 million. Based on a sensitivity analysis, a hypothetical one percent per annum change in market interest rates as of December 31, 2023, would impact the estimated fair value of our fixed-rate Term Loan outstanding at December 31, 2023 by approximately $300,000.
We are exposed to interest rate risk with both our fixed-rate Term Loan and variable rate Line of Credit. Interest rate changes for borrowings under our fixed-rate Term Loan would impact the fair value of such debt, but do not impact earnings or cash flow. At December 31, 2022, our fixed-rate Term Loan totaled $22.3 million.
We are exposed to interest rate risk with both our fixed-rate Term Loan and variable rate Delayed Draw Term Note and Line of Credit. Interest rate changes for borrowings under our fixed-rate Term Loan would impact the fair value of such debt, but do not impact earnings or cash flow.
Borrowings under our Line of Credit and Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day SOFR plus 235 basis points. Borrowings under the Line of Credit and Delayed Draw Term Note may not exceed $30.0 million and $75.0 million, respectively.
Borrowings under our Delayed Draw Term Loan and Line of Credit, if any, bear interest at a floating rate equal to the 30-day SOFR plus 235 basis points. Interest rate changes for borrowings under our Delayed Draw Term Note and Line of Credit do not affect the fair value of the related debt but affect future earnings and cash flows.
Removed
Item 7A. Quantitative and Qualitative Disclosure About Market Risk Our primary market risk exposures are changes in foreign currency exchange rates and interest rates. Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date.
Added
Item 7A. Quantitative and Qualitative Disclosure About Market Risk Our primary market risk exposure is interest rate risk. Our future income, cash flows and fair values of financial instruments are impacted by changes in market interest rates. We have not purchased or used any derivative instruments or entered any hedging transactions.
Removed
We translate its revenue and expenses at the average exchange rate during the period. We included foreign currency translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. During December 2022, we substantially liquidated our investment in Canada.
Added
The change in interest expense resulting from a hypothetical change of 100 basis points of the benchmark index rate applied to the maximum borrowings available under the Line of Credit and the balance outstanding under the Delayed Draw Term Loan at December 31, 2023 would increase or decrease future earnings and cash flows by approximately $370,000 annually.
Removed
As a result, we reclassified the cumulative foreign currency translation adjustment balance into earnings and recognized a net cumulative foreign currency translation loss of $2.6 million, which is included in Other income (expense), net in our Consolidated Statements of Income. Foreign currency translation gains (losses) were ($194,000), $24,000, and ($190,000) in 2022, 2021, and 2020, respectively.
Removed
Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income and amounted to ($65,000), $10,000, and ($333,000) in 2022, 2021, and 2020, respectively.
Removed
The change is primarily the result of exchange rate fluctuation applied to an intercompany loan from our Canadian subsidiary which was paid off in September 2020. A portion of our cash in our Canadian subsidiary is denominated in foreign currencies, where fluctuations in exchange rates will impact our cash balances in U.S. dollar terms.
Removed
A sensitivity analysis assuming a hypothetical 10% change in the value of the U.S. dollar versus the Canadian dollar would impact our reported cash balance by approximately $8,000. Any future currency changes, related to our Canadian subsidiary will be recognized in Other income (expense), net in our Consolidated Statements of Income.
Removed
However, due to the substantial liquidation of the subsidiary, we do not expect the amounts to be significant after 2022. We have not entered into any foreign currency hedging transactions. We do not purchase or hold any currency exchange related derivative financial instruments.
Removed
A sensitivity analysis assuming a hypothetical 10% movement in interest rates applied to the average daily borrowings and the maximum borrowings available under the Line of Credit for 2022 indicated that such a movement would not have a material impact on our consolidated financial position, results of operations or cash flows.
Removed
We have not entered into any interest rate swaps or hedging transactions.

Other NRC 10-K year-over-year comparisons