LEASES

12 Months Ended

Dec. 31, 2023

Leases

LEASES

11. LEASES

We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease ROU assets, current operating lease liability and non-current operating lease liability in our consolidated balance sheets as of December 31, 2023 and 2022. The Company does not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates.

Our lease terms include options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of less than 12 months are not recorded in the consolidated balance sheets. Our lease agreements do not contain any residual value guarantees. For real estate leases, we account for the lease and non-lease components as a single lease component. Some leases include escalation clauses and termination options that are factored in the determination of the lease payments when appropriate.

If a lease is modified after the effective date, the operating lease ROU asset and liability is re-measured using the current incremental borrowing rate. There was one lease modification during the year ended December 31, 2023 and none during the year ended December 31, 2022. We review our incremental borrowing rate for our portfolio of leases on a quarterly basis.

During the years ended December 31, 2023 and 2022, there were approximately $169,000 and $1.0 million, respectively, of unoccupied lease charges for two of the Company’s facilities. There were no lease impairments recorded for the years ended December 31, 2023 and 2022.

During the year ended December 31, 2022, there was a gain on lease termination of approximately $105,000. Additionally, a facility lease was terminated in conjunction with the Company ceasing its document storage services resulting in additional costs of approximately $203,000. These amounts are included in the net loss on lease terminations, unoccupied lease charges and restructuring costs in the consolidated statements of operations.

Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the consolidated statements of operations based on the nature of the expense. As of December 31, 2023, we had 32 leased properties, five in Medical Practice Management and 27 in Healthcare IT, with the remaining terms ranging from less than one year to twelve years. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. We also have some related party leases – see Note 12.

The components of lease expense were as follows:

	Year Ended December 31,
	2023		2022
	($ in thousands)
Operating lease cost	$	2,669	$	3,714
Short-term lease cost		-		92
Variable lease cost		32		29
Total - net lease cost	$	2,701	$	3,835

Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2023 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.

Supplemental balance sheet information related to leases was as follows:

	December 31, 2023			December 31, 2022
	($ in thousands)
Operating leases:
Operating lease ROU assets, net	$	4,365		$	4,921
Operating lease liabilities (current portion)	$	1,888		$	2,273
Operating lease liabilities		2,516			3,207
Total operating lease liabilities	$	4,404		$	5,480
Operating leases:
ROU assets	$	6,571		$	8,293
Asset lease expense		(2,152	)		(3,286	)
Foreign exchange loss		(54	)		(86	)
ROU assets, net	$	4,365		$	4,921
Weighted average remaining lease term (in years):
Operating leases		4.5			5.1
Weighted average discount rate:
Operating leases		13.3	%		7.9	%

Supplemental cash flow and other information related to leases was as follows:

	Year Ended December 31,
	2023		2022
	($ in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,244	$	4,743
ROU assets obtained in exchange for lease liabilities:
Operating leases, excluding impairments and terminations	$	1,682	$	1,569

Maturities of lease liabilities are as follows:

Operating leases - Years ending December 31,	($ in thousands)
2024	$	2,304
2025		1,295
2026		538
2027		416
2028		347
Thereafter		1,427
Total lease payments		6,327
Less: imputed interest		(1,923	)
Total lease obligations		4,404
Less: current obligations		(1,888	)
Long-term lease obligations	$	2,516