National Research Corporation (NRCIB)

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National Research (NRCIB)

Q2 2013 Earnings Call

August 07, 2013 11:00 am ET


Michael D. Hays - Founder, Chief Executive Officer and Director

Kevin R. Karas - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance, Treasurer and Secretary


Ryan Daniels - William Blair & Company L.L.C., Research Division

Frank Sparacino - First Analysis Securities Corporation, Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2013 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, August 7, 2013. I would now like to turn the conference over to Michael Hays, Chief Executive Officer with National Research Corporation. Please go ahead, sir.

Michael D. Hays

Thank you, Andre, and welcome everyone to National Research Corporation's 2013 second quarter conference call.

My name is Mike Hays, the company's CEO, and joining me on the call today is Susan Henricks, President and Chief Operating Officer; as well as Kevin Karas, our Chief Financial Officer. Before we continue, I'd ask Kevin to review conditions related to any forward-looking statements that may be made as part of today's call. Kevin?

Kevin R. Karas

Thank you, Mike. 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 Securities Litigation Reform Act of 1995. 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, Mike.

Michael D. Hays

Thank you, Kevin, and again, welcome, everyone. As we kick off the call, let me first state the obvious, I'm clearly disappointed, as all shareholders should be, in our 8% top line growth rate this past quarter. Our post-acute care products, while up 5% from our first quarter, and clearly heading in the right direction, dampened what otherwise would have been a very strong quarter.

Top line growth across our acute care product portfolio, which represents 78% of the company's total revenue, grew 20% this last quarter, continuing its similar growth over the past 4 quarters. In fact, over the past 12 months, top line growth has been 21% for this group, which is the top end of our growth expectations of 15% to 20%. Also of note, relative to our top line growth, is that our business development headcount is now 75, up from the mid-60s.

Kevin will review in more detail the quarter's performance in just a moment, after which, I'll return and discuss the launch of Customer Connect, its strategic contribution to the company and its Phase 1 financial objectives. As well, Picker Institute will be introduced September 22, and during this call, I will provide you a preview as to its role as a signature offering of NRC.

With that, Kevin, I will turn the call over to you.

Kevin R. Karas

Thank you, Mike. Net new sales of $4.5 million were added in the second quarter of 2013, which helped increase total contract value for the second quarter to $97.6 million. Subscription-based agreements now represent 83% of our total recurring contract value. I'm aware we have some new shareholders on the call today, and to clarify, total contract value represents the dollar amount of client contracts, which will be recognized as revenue over the next 12 months.

As Mike reviewed, revenue for the second quarter was $22.4 million, an increase of 8% over the same quarter last year. Revenue growth for the quarter was comprised entirely from organic growth, which is driven by a combination of continued gains and market share and vertical growth from cross-selling and increasing contract value to existing clients.

We continue, as Mike said, to realize the strongest revenue growth in our acute-care business with revenue in the second quarter increasing by 20% over the same quarter last year. Operating income for the second quarter of 2013 was $5.5 million or 25% of revenue compared $5.2 million, which was also at 25% of revenue for the same quarter last year.

Total operating expenses for the second quarter increased by 9% from $15.4 million in 2012, to $16.8 million in 2013. Of that, direct expenses increased to $9.5 million for the second quarter, compared to $8.6 million for the same period in 2012. This is a result of increased variable costs related to revenue growth and higher survey volumes for subscription-based products.

Direct expense as a percent of revenue was 42% for the second quarter and direct expense is expected to be at 41% of revenue for the full year of 2013.

Our selling, general and administrative expenses increased to $6.4 million or 29% of revenue for the 3-month period ended June 30, 2013, compared to $5.6 million or 27% of revenue for the same period in 2012. Our SG&A expense for the second quarter of 2013 included $250,000 of expenses incurred for implementation of our recapitalization plan. For the full year of 2013, SG&A expense is expected to be 27% of revenue before Customer Connect expenses.

The Incremental expenses that are projected to be incurred for Customer Connect resources are expected to increase the consolidated SG&A expense to 28% of revenue for the full year of 2013.

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