nrc20210930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from to

Commission File Number 001-35929

National Research Corporation

(Exact name of Registrant as specified in its charter)

Delaware		47-0634000
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

	1245 Q Street, Lincoln, Nebraska 68508
	(Address of principal executive offices) (Zip Code)

	(402) 475-2525
	(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	NRC	The NASDAQ stock market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $.001 par value, outstanding as of October 27, 2021: 25,449,013

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NATIONAL RESEARCH CORPORATION

FORM 10-Q INDEX

For the Quarter Ended September 30, 2021

			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Income	4
		Condensed Consolidated Statements of Comprehensive Income	5
		Condensed Consolidated Statements of Shareholders’ Equity	6-7
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9-20

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-28

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

	Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	29

	Item 1A.	Risk Factors	29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 6.	Exhibits	30

	Signatures		31

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Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), “believes,” “expects,” “may,” “could,” “anticipates,” or the use of words such as “would,” “may,” “could,” or “should,” or other words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. In this Quarterly Report on Form 10-Q, statements regarding the future impact of adopting new accounting standards, 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 adequacy of our liquidity sources, future revenue sources, future capital expenditures and the sources of cash to fund such capital expenditures, 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 source of funds for future payments of deferred purchase price obligations and other cash expenses, the future phase out of LIBOR and applicable replacement benchmark rates and the expected impact of the COVID-19 pandemic and related government mandates and recommendations, among others, are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, the following factors:

●	The likelihood that the COVID-19 pandemic will adversely affect our sales, earnings, financial condition and liquidity;

●	The possibility of non-renewal of our client service contracts and retention of 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 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 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 our Annual Report on Form 10-K, as such section may be updated or supplemented by Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this Report) and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as required by the federal securities laws.

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PART I – Financial Information

ITEM 1. Financial Statements

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

	September 30, 2021			December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	52,482		$	34,690
Trade accounts receivable, less allowance for doubtful accounts of $94 and $120, respectively		16,262			13,923
Prepaid expenses		2,869			2,645
Income taxes receivable		95			1,235
Other current assets		1,018			1,619
Total current assets		72,726			54,112

Net property and equipment		11,447			11,726
Intangible assets, net		1,851			1,410
Goodwill		61,614			57,255
Deferred contract costs, net		4,237			4,555
Operating lease right-of-use assets		1,059			1,308
Other		3,252			3,057
Total assets	$	156,186		$	133,423

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable, net unamortized debt issuance costs	$	4,223		$	4,061
Accounts payable		961			1,095
Accrued wages and bonuses		6,828			6,460
Accrued expenses		3,000			3,184
Income taxes payable		464			-
Deferred revenue		17,308			15,585
Deferred acquisition consideration		1,984			-
Dividends payable		3,054			-
Other current liabilities		1,348			1,296
Total current liabilities		39,170			31,681

Notes payable, net of current portion and unamortized debt issuance costs		23,360			26,547
Deferred income taxes		7,151			7,265
Other long-term liabilities		3,377			3,615
Total liabilities		73,058			69,108

Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued		–			–
Common stock, $0.001 par value; authorized 110,000,0000 shares in 2021 and 60,000,000 shares in 2020, issued 30,860,131 in 2021 and 30,775,154 in 2020, outstanding 25,449,013 in 2021 and 25,390,968 in 2020		31			31
Additional paid-in capital		173,112			171,785
Retained earnings (accumulated deficit)		(42,701	)		(61,375	)
Accumulated other comprehensive loss, foreign currency translation adjustment		(2,377	)		(2,399	)
Treasury stock, at cost; 5,411,118 Common shares in 2021 and 5,384,186 Common shares in 2020		(44,937	)		(43,727	)
Total shareholders’ equity		83,128			64,315
Total liabilities and shareholders’ equity	$	156,186		$	133,423

See accompanying notes to condensed consolidated financial statements

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts, unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020

Revenue	$	37,767		$	33,477		$	109,656		$	98,503
Insurance Recoveries		–			533			–			533

Operating expenses:
Direct		13,707			12,189			38,184			36,369
Selling, general and administrative		9,523			7,953			29,060			25,554
Depreciation, amortization and impairment		1,399			1,847			5,016			4,623
Total operating expenses		24,629			21,989			72,260			66,546

Operating income		13,138			12,021			37,396			32,490

Other income (expense):
Interest income		4			2			10			15
Interest expense		(413	)		(451	)		(1,268	)		(1,366	)
Other, net		(105	)		94			(8	)		454

Total other income (expense)		(514	)		(355	)		(1,266	)		(897	)

Income before income taxes		12,624			11,666			36,130			31,593

Provision for income taxes		2,967			2,088			8,297			2,545

Net income	$	9,657		$	9,578		$	27,833		$	29,048

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.38		$	0.38		$	1.09		$	1.15
Diluted Earnings Per Share	$	0.38		$	0.37		$	1.08		$	1.13

Weighted average shares and share equivalents outstanding:
Basic		25,427			25,219			25,423			25,113
Diluted		25,650			25,704			25,655			25,701

See accompanying notes to condensed consolidated financial statements

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2021			2020		2021		2020

Net income	$	9,657		$	9,578	$	27,833	$	29,048
Other comprehensive income (loss):
Foreign currency translation adjustment		(108	)		249		22		(414	)
Other comprehensive income (loss)	$	(108	)	$	249	$	22	$	(414	)

Comprehensive Income	$	9,549		$	9,827	$	27,855	$	28,634

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands except share and per share amounts, unaudited)

	Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2020	$	31	$	171,785		$	(61,375	)	$	(2,399	)	$	(43,727	)	$	64,315
Purchase of 26,932 shares treasury stock		–		–			–			–			(1,210	)		(1,210	)
Issuance of 68,284 common shares for the exercise of stock options		–		911			–			–			–			911
Non-cash stock compensation expense		–		(54	)		–			–			–			(54	)
Other comprehensive income, foreign currency translation adjustment		–		–			–			56			–			56
Net income		–		–			9,232			–			–			9,232
Balances at March 31, 2021	$	31	$	172,642		$	(52,143	)	$	(2,343	)	$	(44,937	)	$	73,250
Non-cash stock compensation expense		–		202			–			–			–			202
Dividends declared of $0.24 per common share		–		–			(6,105	)		–			–			(6,105	)
Other comprehensive income, foreign currency translation adjustment		–		–			–			74			–			74
Net income		–		–			8,944			–			–			8,944
Balances at June 30, 2021	$	31	$	172,844		$	(49,304	)	$	(2,269	)	$	(44,937	)	$	76,365
Issuance of 10,000 common shares for the exercise of stock options		–		142			–			–			–			142
Non-cash stock compensation expense		–		126			–			–			–			126
Dividends declared of $0.12 per common share		–		–			(3,054	)		–			–			(3,054	)
Other comprehensive loss, foreign currency translation adjustment		–		–						(108	)		–			(108	)
Net income		–		–			9,657			–			–			9,657
Balances at September 30, 2021	$	31	$	173,112		$	(42,701	)	$	(2,377	)	$	(44,937	)	$	83,128

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands except share and per share amounts, unaudited)

	Common Stock		Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2019	$	30	$	162,154	$	(93,357	)	$	(2,209	)	$	(33,726	)	$	32,892
Purchase of 75,980 shares treasury stock		–		–		–			–			(4,425	)		(4,425	)
Issuance of 260,481 common shares for the exercise of stock options		–		3,145		–			–			–			3,145
Non-cash stock compensation expense		–		332		–			–			–			332
Dividends declared of $0.21 per common share		–		–		(5,278	)		–			–			(5,278	)
Other comprehensive loss, foreign currency translation adjustment		–		–		–			(1,124	)		–			(1,124	)
Net income		–		–		11,755			–			–			11,755
Balances at March 31, 2020	$	30	$	165,631	$	(86,880	)	$	(3,333	)	$	(38,151	)	$	37,297
Purchase of 38,369 shares treasury stock		–		–		–			–			(2,077	)		(2,077	)
Issuance of 148,284 common shares for the exercise of stock options		1		2,036		–			–			–			2,037
Forfeitures of 6,793 restricted common shares		–		–		–			–			–			–
Non-cash stock compensation expense		–		141		–			–			–			141
Other comprehensive income, foreign currency translation adjustment		–		–		–			461			–			461
Net income		–		–		7,715			–			–			7,715
Balances at June 30, 2020	$	31	$	167,808	$	(79,165	)	$	(2,872	)	$	(40,228	)	$	45,574
Purchase of 17,590 shares treasury stock		–		–		–			–			(916	)		(916	)
Issuance of 103,608 common shares for the exercise of stock options		–		1,970		–			–			–			1,970
Non-cash stock compensation expense		–		274		–			–			–			274
Other comprehensive income, foreign currency translation adjustment		–		–		–			249			–			249
Net income		–		–		9,578			–			–			9,578
Balances at September 30, 2020	$	31	$	170,052	$	(69,587	)	$	(2,623	)	$	(41,144	)	$	56,729

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine months ended
	September 30,
	2021			2020
Cash flows from operating activities:
Net income	$	27,833		$	29,048
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment		5,016			4,623
Deferred income taxes		(120	)		(134	)
Reserve for uncertain tax positions		210			150
Non-cash share-based compensation expense		275			747
Gain on insurance recoveries for damaged property		–			(260	)
Loss on disposal of property and equipment		1			-
Net changes in assets and liabilities:
Trade accounts receivable		(2,188	)		(5,830	)
Prepaid expenses and other current assets		231			(478	)
Insurance recoverable		–			(913	)
Deferred contract costs, net		318			(339	)
Operating lease assets and liabilities, net		17			(5	)
Accounts payable		(207	)		(681	)
Accrued expenses, wages, bonuses		(202	)		473
Income taxes receivable and payable		1,604			(2,974	)
Deferred revenue		1,482			992
Net cash provided by operating activities		34,270			24,419

Cash flows from investing activities:
Purchases of property and equipment		(3,797	)		(2,435	)
Insurance proceeds for damaged property		–			260
Acquisition consideration		(3,000	)		–
Net cash used in investing activities		(6,797	)		(2,175	)

Cash flows from financing activities:
Payments on notes payable		(3,049	)		(2,575	)
Payment of debt issuance costs		–			(36	)
Payments on finance lease obligations		(369	)		(187	)
Proceeds from the exercise of share-based awards		304			1,592
Payment of employee payroll tax withholdings on share-based awards exercised		(461	)		(1,859	)
Payment of dividends on common stock		(6,105	)		(10,517	)
Net cash used in financing activities		(9,680	)		(13,582	)

Effect of exchange rate changes on cash		(1	)		(324	)
Change in cash and cash equivalents		17,792			8,338
Cash and cash equivalents at beginning of period		34,690			13,517
Cash and cash equivalents at end of period	$	52,482		$	21,855

Supplemental disclosure of cash paid for:
Interest, net of capitalized amounts	$	1,186		$	1,315
Income taxes	$	6,601		$	5,034
Supplemental disclosure of non-cash investing and financing activities:
Finance lease obligations originated for property and equipment	$	–		$	771
Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans	$	749		$	5,560
Deferred acquisition consideration	$	1,950			–

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business and basis of presentation

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States and Canada. Our purpose is to enable human understanding. Our solutions enable health care organizations to understand what matters most to each person they serve. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.

In March 2021, we changed our operating segments from six to one to reflect a change in corporate reporting structure to the Company’s Chief Executive Officer and chief operating decision maker.

Our condensed consolidated balance sheet at December 31, 2020 was derived from our audited consolidated balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

SEC Form 10-Q filed by National Research Corporation