NRC Health 10-Q Summary: Quarter Ended June 30, 2026
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2026, for NRC Health, a provider of subscription-based solutions for healthcare organizations to measure patient experience and employee engagement. The company operates as a single reporting segment. As of July 31, 2026, there were 22,119,566 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | Q2 2025 (3 Months) | YTD 2026 (6 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Revenue | $35.4 million | $34.0 million | $70.2 million | $67.6 million |
| Operating Income (Loss) | $(3.2) million | $1.6 million | $2.3 million | $10.2 million |
| Net Income (Loss) | $(3.3) million | $(0.1) million | $(0.1) million | $5.7 million |
| Diluted EPS | $(0.15) | $(0.01) | $(0.01) | $0.25 |
| Operating Margin | -9% | 5% | 3% | 15% |
| Adjusted EBITDA | $9.4 million | $10.3 million | $18.8 million | $20.6 million |
| Free Cash Flow | $0.1 million | $(4.1) million | $5.4 million | $(0.5) million |
| Cash & Equivalents | $3.3 million (as of June 30, 2026) | |||
| Total Debt (Notes Payable) | $90.0 million ($4.0M current + $86.0M long-term) |
Material Changes vs. Prior Period
- Profitability Decline: The company swung from an operating profit of $1.6 million in Q2 2025 to an operating loss of $3.2 million in Q2 2026. This was primarily driven by a $5.2 million increase in Selling, General, and Administrative (SG&A) expenses.
- Stock-Based Compensation Spike: SG&A expenses included a $7.1 million increase in stock-based compensation, largely due to the acceleration of $6.5 million in expense related to amendments of executive equity awards. Management stated this is not expected to recur.
- Revenue Growth: Revenue grew 4% year-over-year, driven by $1.2 million in higher recurring revenue from existing customers and $0.9 million from new customers.
- Debt Utilization: The company increased its Revolving Loan balance to $13.0 million (from $0 in the prior year) and maintained a Delayed Draw Term Loan balance of $77.3 million. Interest expense increased due to higher debt balances.
- Shareholder Returns: The company repurchased 397,381 shares for $7.4 million in Q2 2026 and paid $3.5 million in dividends declared in the quarter.
Guidance, Outlook, and Risks
- Outlook: Management views Total Recurring Contract Value (TRCV) as a leading indicator. TRCV increased 11% to $151.9 million, suggesting future revenue growth potential despite current GAAP losses.
- Capital Allocation: The Board authorized a $60.0 million stock repurchase program in March 2026. Approximately $50.7 million remains available under this program.
- Liquidity: The company reported a working capital deficit of $12.2 million, primarily due to large deferred revenue balances. However, management asserts that cash, operating cash flows, and $44.6 million in available borrowing capacity (Revolving and Delayed Draw Term Loan) are sufficient for foreseeable needs.
- Risks: Key risks include customer contract non-renewal, competitive pressure, potential cyber-attacks, and the impact of global conflicts or economic downturns. The company also faces risks related to the deductibility of executive compensation under IRC Section 162(m).
Investor Verification Checklist
- Non-Recurring Expenses: Verify the one-time nature of the $6.5 million accelerated stock-based compensation expense to assess normalized profitability.
- Debt Covenants: Confirm continued compliance with the Credit Agreement's fixed charge coverage ratio (1.10x) and cash flow leverage ratio (3.50x).
- TRCV Conversion: Monitor the lag between the 11% growth in TRCV and actual GAAP revenue recognition to validate future growth projections.
- Working Capital: Review the sustainability of the working capital deficit given the reliance on deferred revenue and debt facilities for liquidity.
- Executive Compensation: Assess the impact of the equity award amendments on future compensation costs and potential tax implications.