NRC Health — Q1 2022 Form 10-Q
Business context and reporting period
National Research Corporation, doing business as NRC Health, provides analytics and insights to healthcare organizations to measure and improve patient and employee experience, engagement, and loyalty. This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $38.4 million | $35.5 million; up 8.4% |
| Operating income / margin | $11.7 million / 30.4% | $12.0 million / 33.9% |
| Net income / diluted EPS | $8.5 million / $0.34 | $9.2 million / $0.36 |
| Operating cash flow | $8.3 million | $14.4 million; down 42.5% |
| Capital expenditures | $2.5 million | $1.2 million |
| Recurring contract value | $147.6 million | $149.5 million; down 1.3% |
Subscription services recognized over time generated $35.4 million of Q1 revenue. Cash and cash equivalents were $47.3 million at March 31, down from $54.4 million at December 31, 2021. Working capital surplus was $27.4 million, versus $33.3 million at year-end.
Debt consisted of a term loan; the note reports $25.6 million outstanding before unamortized issuance costs, including $4.3 million current. The $30 million revolving facility and $15 million delayed-draw facility were undrawn. The term loan bears fixed interest of 5%, with monthly installments and a balloon due May 2025. The company reported compliance with financial covenants.
Material changes and drivers
- Revenue growth reflected new customers, increased sales to existing clients, and higher conference revenue.
- Direct expenses rose 23.8%, faster than revenue, reflecting higher conference costs and salary, benefits, and contracted-service costs. SG&A rose 11.9%, including spending on innovation, state franchise taxes, and building renovations.
- Operating income declined 2.7% and operating margin fell 3.5 percentage points. Management cited compensation and retention costs, investment in Human Understanding Solutions and automation, and renovation spending.
- Net income fell 7.5%; the effective tax rate increased to 25.3% from 20.5%, mainly from fewer tax benefits on share-based awards and higher state income taxes.
- Operating cash flow decreased amid collection and billing timing, lower deferred revenue, and payments of accrued expenses, wages, and bonuses.
- Recurring contract value declined as NRC Health phased out certain legacy offerings and faced selling challenges during the pandemic and increased sales-force turnover. Management said its core digital solutions had positive recurring contract value growth.
Outlook, risks, and unusual items
No numerical revenue or earnings guidance was provided. Management cautioned that recent revenue and earnings growth should not be viewed as indicative of future expectations, while stating that available liquidity should meet projected needs for the foreseeable future. It expects headquarters renovation costs of $14.5 million in 2022 and $7 million in 2023, funded from operating cash flows.
Management described COVID-19 impacts and their duration as uncertain, noted higher associate attrition and potential costs to recruit and retain employees, and identified risks involving contract renewals, competition and pricing, healthcare consolidation, economic conditions, regulation, staffing, and cybersecurity or technology disruptions. The company said pending claims and litigation were not expected to materially adversely affect its financial position, results, or liquidity. It paid the remaining $2 million PatientWisdom acquisition consideration in January 2022.
In Q1, NRC Health repurchased shares for $6.7 million and declared $6.0 million of dividends, paid in April. The filing estimates remaining renovation costs at $21.5 million across 2022–2023. Unrecognized tax benefits were $1.2 million; the company expected to pay a remaining $656,000 of deferred employer Social Security taxes in December 2022.
Important facts for investors to verify
- Whether subscription and core digital growth can offset the decline in recurring contract value and legacy-service eliminations.
- Whether operating margins and cash conversion recover as investment, hiring, and renovation costs continue.
- Progress and funding for the planned $21.5 million headquarters renovations, and the effect on cash, dividends, and repurchases.
- Debt figures and covenant capacity: the debt note reports $25.56 million gross term debt, while MD&A separately refers to an outstanding balance of $26.6 million.
- Repurchase-share count: the equity statement and monthly repurchase table report 166,962 shares, while MD&A reports 166,692; the filing also says 1,981 authorized shares remained.