National Research Corporation (NRCIB)

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National Research (NRCIB)

Q4 2013 Earnings Call

February 12, 2014 11:00 am ET


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

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


Jeffrey Garro - William Blair & Company L.L.C., Research Division

Frank Sparacino - First Analysis Securities Corporation, Research Division

Peter Van Roden



Ladies and gentlemen, thank you for standing by. Welcome to the -- our [ph] 2013 fourth quarter earnings release conference call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, February 12, 2014. I would now like to turn the conference over to Mr. Michael Hays, Chief Executive Officer. Please go ahead, sir.

Kevin R. Karas

Thank you, Matthew, and welcome, everyone, to the National Research Corporation's 2013 Fourth Quarter and Year End 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; along with Kevin Karas, our CFO.

Before we continue, I'd ask Kevin to review the 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 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 referenced in the earnings release last evening, we set a record in the fourth quarter of 2013 for new sales, which came in at $6.4 million, and that was on the heels of a record third quarter of $6.2 million for the third quarter, again, in 2013. The last half of the year has really set us up nicely for the year 2014. And I want to return and dive into some of the momentum we have on the sales side, but let me have Kevin review the financial performance first. Kevin?

Kevin R. Karas

Thank you, Mike. As Mike mentioned, our net new sales of $6.4 million that were added in the fourth quarter helped increase total contract value for the year to $102.3 million. Subscription-based agreements now represent 85% of our total return contract value and were also representing 85% of total revenue for the fourth quarter. Also, fourth quarter total contract value includes approximately $657,000 of contract value from new Customer Connect agreements, 100% of which were subscription based.

Revenue for the fourth quarter of 2013 was $22.9 million, an increase of 4% over the fourth quarter of 2012. Revenue growth for the quarter was comprised entirely from organic growth, which is driven by a combination of continued gains of market share and vertical growth from cross-selling and increasing contract value in our existing client base.

Fourth quarter revenue results also include $91,000 of revenue from Customer Connect.

The consolidated operating income for the fourth quarter of 2013 was $6.0 million or 26% of revenue compared to $5.8 million, also 26% of revenue, for the same period last year. The 2013 fourth quarter consolidated operating income does include $366,000 in operating losses from Customer Connect.

Operating income for the fourth quarter 2013 without Customer Connect as a result was $6.4 million, which represents a 28% operating income margin and an increase in operating income of 11% over the fourth quarter of 2012. The total operating expenses for the fourth quarter increased by 4%, from $16.2 million in 2012 to $16.9 million in 2013.

Direct expenses increased to $9.6 million for the fourth quarter compared to $9.1 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 expenses as a percent of revenue were 42% for the fourth quarter of 2013. Direct expenses are also expected to continue at 42% of revenue for the full year in 2014.

Selling, general and administrative expenses increased to $6.3 million or 28% of revenue for the 3-month period ended December 31, 2013, compared to $6.0 million or 27% of revenue for the same period in 2012. The SG&A expense for the fourth quarter of 2013 without Customer Connect was $6.0 million or 26% of revenue.

So going into 2014, including the incremental expenses that are projected to be incurred next year for Customer Connect resources, the consolidated SG&A expense is expected to be at 26% of revenue for the full year in 2014. Our depreciation and amortization expense for the fourth quarter of 2013 was $944,000 compared to $1.1 million in the fourth quarter of 2012. The decrease is attributed to declining intangible asset amortization expenses. Depreciation and amortization expense was 4% of revenue for the fourth quarter and is also expected to continue to be 4% of revenue for the full year in 2014.

Our provision for income taxes totaled $2.2 million for the fourth quarter of 2013 compared to $2.0 million for the same quarter in 2012. The effective tax rate was 36.6% for fourth quarter of 2013 compared to effective tax rate of 34.8% for the same period last year.

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