National Research Q3 2023 Earnings Report

National Research EPS Results

• Actual EPS: $0.32
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

National Research Revenue Results

• Actual Revenue: $37.95 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

National Research Announcement Details

• Quarter: Q3 2023
• Date: 11/7/2023
• Time: N/A
• Conference Call Date: Wednesday, November 8, 2023
• Conference Call Time: 11:00AM ET

National Research (NASDAQ:NRC) provides analytics and insights that facilitate measurement and enhancement of the patient and employee experience. Its portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, employee engagement, reputation management, and brand loyalty. The company also offers marketing solutions that allow the tracking of awareness, perception, and consistency of healthcare brands; assessment of competitive differentiators; and enhanced segmentation tools to evaluate needs, wants, and behaviors of communities through real-time competitive assessments and enhanced segmentation tools. In addition, it provides experience solutions, such as patient experience, employee engagement, health risk assessments, care transition, and improvement tools. Further, the company provides reputation solutions that allow healthcare organizations to share a picture of their organization and ensure that timely and relevant content informs consumer decision-making; and governance solutions for not-for-profit hospital and health system boards of directors, executives, and physician leadership. National Research Corporation was founded in 1981 and is headquartered in Lincoln, Nebraska.

National Research Q3 2023 Earnings Call Transcript

Key Takeaways

• This quarter marked continued progress on NRC Health’s plan to accelerate revenue growth and expand margins, with sequential improvement in sales and margins over the past two quarters.
• The Human Understanding Program now counts 91 health care systems—18% of which are new logos—with existing-client contract value growing at an average of 13% without a fully built sales force.
• The sales team has been expanded by 19% year-to-date, fueling two consecutive quarters of double-digit sales growth versus the prior year.
• Non-sales headcount was reduced by 11% year-over-year, positioning the company for further margin expansion as cost alignment efforts continue.
• Q3 revenue rose slightly year-over-year to support a TRCV of $144.3 million, while operating income fell 10% due to increased marketing, cybersecurity and one-time tax incentive costs; operating margin improved 30 basis points sequentially.

[Operator]

Hello, everyone, and welcome to the National Research Corporation Third Quarter 2023 Earnings Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. I I'll now hand over to our host, Kevin Karas, Chief Financial Officer, to begin. Kevin, please go ahead.

[Speaker 1]

Thank you, Charlie, and welcome, everyone, to National Research Corporation's 2023 Third Quarter Earnings Call. My name is Kevin Karas, the company's CFO. And joining me today on the call is Linda Stacy, our Vice President of Finance. Before we continue, I would ask Linda to review conditions related to any forward looking statements that may be made as a part of today's call. Linda?

[Speaker 2]

Thank you, Kevin. This conference call includes forward looking statements related to the company that involve risks and uncertainties That could cause actual results or outcomes to differ materially from those currently anticipated. These forward looking statements are made pursuant to the Safe Harbor provisions of the Private For further information about the facts that could affect the company's future results, Please see the company's filings with the Securities and Exchange Commission. With that, I'll turn it back to you, Kevin.

[Speaker 1]

Thanks, Linda. This quarter was a good start on our plan to accelerate revenue growth and expand margins over the coming quarters. We've seen sales and margin improving sequentially the past two quarters with only partial implementation of the plan. I will cover 3 topics to set the stage for where we're headed before Linda covers the financial metrics. First, new sales.

[Speaker 1]

NRC Health is a leader in helping health care providers improve their patient experience on an individualized basis using decades of benchmarking and our unique ability to translate data into actionable advice. Our human understanding program released in the second Quarter of 2022 has become widely accepted in the market with 91 health care provider systems adopting Human Understanding, 18% of which were from new logos. Our contract value growth for the Human Understanding Program adoption by existing clients is averaging 13%, which is in line with the results We saw from the successful rollout of our real time solution several years ago. And these results so far have been without the benefit of a Fully developed sales force. To capitalize on the growing demand, the size of our sales force Has been increased by 19% since the beginning of the year, and we expect to continue to add experienced personnel in this area.

[Speaker 1]

The expansion of sales and marketing resources has been successful in building our sales pipeline And producing 2 consecutive quarters of double digit sales growth compared to prior year. We expect to see the results of these efforts Flow through to revenue and TRCV in future periods. 2nd is margin expansion. While increasing our sales force, we have reduced the number of non sales personnel. On a net basis, we have decreased the full time equivalent number of associates by 11% at the end of the Q3 of 2023 compared to the end of Q3 Has not yet been fully reflected.

[Speaker 1]

We expect to see the results of these efforts in revenue per associate and operating margin in future periods. Thirdly, we are highly cognizant of our clients' desire for solutions across multiple patient, Customer and employee experiences. With our continued product development and partner alliances, we are expanding our product offerings To take advantage of a much larger existing total addressable market, while gaining market share in our core patient experience market. With that, let me turn the call back to Linda to review our financial performance and then open the call to any questions.

[Speaker 2]

Thank you, Kevin. Revenue for the Q3 of 2023 increased slightly compared to the Q3 of 2022. We ended the quarter with $144,300,000 in TRCV. Our TRC metric represents the total revenue projected under all renewable contracts For the respective mixed annual renewal periods, assuming no upfills, down sales price increases or cancellations measured as the most recent quarter end. Operating income decreased by 10% for the Q3 of 2023 compared to the Q3 of 2022, Primarily due to growth in certain costs exceeding revenue growth.

[Speaker 2]

Increased investments were made in marketing expenses of 343,000 Excuse me. To expand brand recognition, support sales development and additional cybersecurity and other software services of 292,000 In addition, we incurred $661,000 of expense and non recurring state tax incentive adjustments. The effective tax rate in the Q3 of 2023 was 22% compared to 23% in 2022, Primarily due to a lower state primarily due to lower state income taxes of $313,000 partially offset by decreased tax benefits 138,000 from the exercise of share based compensation awards. Operating margin grew by 0.3% Over the Q2 of 2023 due to revenue growth outpacing operating expense growth. The workforce reductions and other cost alignment changes Implemented during the quarter will enable continued margin improvement in future quarters.

[Speaker 2]

The company remains well positioned to execute the entire range of Capital allocation alternatives, including funding for innovation and growth investments, shareholder dividends and share repurchases. At September 30, 2023, the company had approximately $20,000,000 in net debt $25,000,000 available on the line of credit After funding $3,700,000 for innovation and growth, dollars 27,500,000 for dividend payments and $310,000 for share That concludes my comments for this morning. I'll now turn the call back to you, Kevin.

[Speaker 1]

Thank you, Linda. This completes our prepared remarks. So Charlie, I will now ask you to open the call to any questions.

[Operator]

Thank you. We will pause briefly to allow for any questions to be registered. At this stage, we have no questions registered. So I'll hand back over to the management team for any concluding remarks.

[Speaker 1]

Well, thank you for your time today. We look forward to sharing our results again next quarter.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.