National Research Corporation Announces Third Quarter and Year-to-Date 2020 Results

Net New Sales and Total Contract Value Continue Impressive Growth

Lincoln, Nebraska, UNITED STATES

LINCOLN, Neb., Nov. 03, 2020 (GLOBE NEWSWIRE) -- National Research Corporation (NASDAQ:NRC) (the “Company,” “we,” or “our”) today announced results for the third quarter of 2020.

Third quarter 2020 compared to the third quarter 2019:

  • Record Net New Sales of $11.2 million
  • Total Recurring Contract Value increased 10% to $147.5 million
  • Voice of the Customer platform recurring contract value grew to $115.5 million, a 27% increase
  • Revenue increased 3% to $33.5 million
  • Operating Income increased 18% to $12.0 million
  • Net Income increased 18% to $9.6 million

Demand for our Voice of the Customer (VOC) platform offerings remained strong in the third quarter 2020. Net New Sales were a record $11.2 million for the quarter and have increased by 12% year-to-date 2020 compared to 2019, reflecting a successful transition to virtual sales efforts. We believe our offerings are highly differentiated in our clients’ eyes against competitive offerings from firms outside of the healthcare industry and legacy vendors within. This differentiation drove the decision of several more of the nation’s largest and most prestigious healthcare systems to partner with NRC Health in the third quarter 2020. We believe every added client deepens our moat and brings additive value to all current partners through the network effect.

Total Recurring Contract Value has increased by 10% at the end of the third quarter 2020 compared to the end of third quarter 2019, a subset of which is our VOC platform. Our VOC platform now comprises $115.5 million of Recurring Contract Value, an increase of 27% year-over-year. We believe the efficiencies inherent in this digital platform have led to long-term margin improvements, a hallmark of our financial performance as demonstrated by the increase in operating income margin in the third quarter 2020 to 36% of revenue compared to 31% in third quarter 2019.

Third quarter 2020 revenue was $33.5 million, an increase of 3% over third quarter 2019. Consolidated operating income for the third quarter 2020 was $12.0 million or 36% of revenue, compared to $10.2 million or 31% of revenue for the same period last year. In the third quarter of 2020, we recorded insurance recoveries representing $533,000 in lost revenue.

Total operating expenses of $22.0 million for the third quarter 2020 decreased by 1% compared to the third quarter 2019 total operating expenses of $22.2 million.

Direct expenses increased to $12.2 million for the third quarter 2020, compared to $12.1 million for the third quarter 2019. Direct expenses as a percentage of revenue decreased to 36% in the third quarter 2020 compared to 37% in the third quarter 2019. Direct expenses increased primarily due to an increase in fixed expenses partially offset by a decrease in variable expenses. Fixed expenses increased primarily due to increased salary and benefit costs in the customer service and information technology areas partially offset by lower travel and meals costs due to restricted travel associated with COVID-19. Variable costs are lower due in a large part to the continued shift in our revenue mix from legacy solutions to VOC platform revenue, as well as decreased conference expenses from rescheduling and virtual hosting due to COVID-19.

Selling, general and administrative expenses decreased to $8.0 million for the third quarter 2020, compared to $8.7 million for the same period in 2019, due to lower travel and meals costs because of restricted travel associated with COVID-19, decreased legal and accounting costs due to timing of tax and audit related work and decreases in other taxes due to a favorable sales tax ruling allowing the reversal of a previous sales tax accrual, partially offset by increased software and platform hosting expenses and additional contracted services. Selling, general and administrative expenses were 24% of revenue for the third quarter 2020, compared to 27% of revenue for third quarter 2019.

Depreciation and amortization expense increased to $1.8 million in the third quarter of 2020 compared to $1.4 million in 2019, primarily due to the change in the estimated useful lives of certain assets.

Other income and expense decreased to $355,000 of other net expense in the third quarter 2020 compared to $411,000 of other net expense in third quarter of 2019. This decrease in other net expense was primarily from a gain on insurance recoveries for property damages and decreased interest expense due to the declining balance on our Term Loan and no borrowings on our Line of Credit during the 2020 period. This was partially offset by revaluation on intercompany transactions due to changes in the foreign exchange rate.

The Company had an income tax provision of $2.1 million for third quarter 2020 compared to $1.7 million in 2019 with an effective tax rate of 18% for third quarter 2020 compared to 17% in 2019.
Net income for third quarter 2020 was $9.6 million, compared to $8.1 million for the same period last year. Diluted earnings per share increased to $0.37 for the quarter ended September 30, 2020, from diluted earnings per share of $0.31 for the quarter ended September 30, 2019.         

On a year-to-date basis, 2020 revenue increased by 3% to $98.5 million compared to $95.4 million in 2019. Operating income in 2020 grew by 5%, increasing from $31.1 million in 2019 to $32.5 million in 2020. Year-to-date net income for 2020 grew to $29.0 million, an increase of 23% over 2019 net income of $23.7 million. Net income growth in 2020 includes a decrease in the effective income tax rate from 19% in 2019 to 8% in 2020, primarily due to increased tax benefits from the exercise and vesting of share-based compensation awards partially offset by higher state income taxes.

The Company also announced that Michael Hays, current Chief Executive Officer, was appointed as the Company’s President effective as of October 2, 2020, to fill the vacancy created by the resignation of Steven Jackson.
For more than 39 years, National Research Corporation has been a leading provider of analytics and insights that facilitate measurement and improvement of human understanding.

This press release contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be identified by their use of terms or phrases such as “believes,” derivations thereof, and similar terms and phrases. Forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements, including those risks and uncertainties as set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission. In this press release, the statements relating to the future impact of adding additional clients are forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

Unaudited Condensed Consolidated Statements of Income
(In thousands, except per share data)

 Three months ended
September 30,
 Nine months ended
September 30,
  2020  2019  2020  2019
Revenue$33,477 $32,465 $98,503 $95,359
Insurance Recoveries 533  --  533  --
Operating expenses:           
Direct expenses 12,189  12,109  36,369  35,269
Selling, general and administrative 7,953  8,706  25,554  24,732
Depreciation and amortization 1,847  1,430  4,623  4,285
Total operating expenses 21,989  22,245  66,546  64,286
Operating income 12,021  10,220  32,490  31,073
Other income (expense):           
Interest income 2  10  15  24
Interest expense (451)  (510)  (1,366)  (1,613)
Other, net 94  89  454  (330)
Total other expense (355)  (411)  (897)  (1,919)
Income before income taxes 11,666  9,809  31,593  29,154
Provision for income taxes 2,088  1,690  2,545  5,446
Net income$9,578 $8,119 $29,048 $23,708
Earnings Per Share of Common Stock:           
Basic Earnings Per Share$0.38 $0.33 $1.15 $0.95
Diluted Earnings Per Share$0.37 $0.31 $1.13 $0.92
Weighted average shares and share equivalents outstanding           
Basic 25,219  24,827  25,113  24,794
Diluted 25,704  25,741  25,701  25,624

Unaudited Condensed Consolidated Balance Sheets
(Dollars in thousands, except share amounts and par value)

 September 30,
  December 31,
Current assets:       
Cash and cash equivalents$21,855  $13,517 
Accounts receivable, net 17,426   11,639 
Income taxes receivable 2,673   69 
Other current assets 5,412   3,932 
Total current assets 47,366   29,157 
Net property and equipment 12,267   13,530 
Goodwill 57,875   57,935 
Other, net 9,738   10,063 
Total assets$127,246  $110,685 
Liabilities and Shareholders’ Equity       
Current liabilities:       
Notes payable$4,008  $4,378 
Accounts payable and accrued expenses 3,341   4,687 
Accrued compensation 6,155   6,086 
Income taxes payable --   366 
Dividends payable --   5,239 
Deferred revenue 17,328   16,354 
Other current liabilities 1,241   1,045 
Total current liabilities 32,073   38,155 
Notes payable, net of current portion 27,583   29,795 
Other non-current liabilities 10,861   9,843 
Total liabilities 70,517   77,793 
Shareholders’ equity:       
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued --   -- 
Common stock, $0.001 par value; authorized 60,000,000 shares, issued 30,657,154 in 2020 and 30,151,574 in 2019, outstanding 25,321,141 in 2020 and 24,947,500 in 2019 31   30 
Additional paid-in capital 170,052   162,154 
Retained earnings (accumulated deficit) (69,587)  (93,357)
Accumulated other comprehensive loss, foreign currency translation adjustment (2,623)  (2,209)
Treasury stock (41,144)  (33,726)
Total shareholders’ equity 56,729   32,892 
Total liabilities and shareholders’ equity$127,246  $110,685 

Kevin R. Karas        

Chief Financial Officer