Attached files
| file | filename |
|---|---|
| 8-K - NATIONAL RESEARCH CORP | v200591_8k.htm |
| EX-99.1 - NATIONAL RESEARCH CORP | v200591_ex99-1.htm |
Mike:
Thank
you, ___________, and welcome everyone to National Research Corporation’s third
quarter 2010 conference call. My name is Mike Hays, the Company’s
CEO, and joining me on the call today is Pat Beans our Chief Financial
Officer.
Before we
commence our remarks, I would ask Pat to review conditions related to any
forward-looking statements that may be made as part of today’s
call. Pat.
Pat:
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.
Mike:
Thank
you, Pat.
To begin,
clearly one of the highlights of the third quarter was our record-breaking sales
performance. The Company recorded $5.4 million in net new contracts
for the quarter. This level of performance is especially noteworthy
given we had just recorded $3.8 million in net new contracts in the second
quarter, which in and of itself was the highest quarterly sales performance in
the past two years. Combining these past two quarters, the Company
has achieved $9.2 million in net new contracts which now surpasses all of
2009.
Another
positive event previously announced, was the acquisition of OCS in the third
quarter. Before I provide an update on the OCS integration, new
product activities and other highlights, I’ll have Pat review the financial
performance for the quarter.
Pat
For the
third quarter, we saw revenue growth in NRC Picker U.S. for the first time in
many quarters. In addition, all of the other Business Units except
NRC Picker Canada showed increases compared to the same quarter
2009. With the two back-to-back great quarters of net new contracts,
we are in the position to have increased revenue growth as these contracts
convert to revenue. Revenue was $16 million, up 18% compared to the
prior year. Operating margin was 22% with operating income at $3.5
million, an increase of 6% over the prior year. Net income was $2.1
million, up 7%, and diluted earnings per share was $0.32, up 8%.
With the
exclusion of the direct transaction cost of the OCS acquisition of $187,000 for
the quarter and $286,000 for the year, net income would have been $2.3 million
for the quarter, or 14% of revenue, up 13%. For the year, the net
income would have been $7.1 million or 15% of revenue, an increase in net income
of 14%.
The
increase in revenue was driven by NRC Picker’s return to positive growth
compared to 2009, adding OCS, and double-digit revenue and operating income
growth in The Governance Institute, My InnerView and Ticker
divisions. Operating income was impacted by the OCS transaction
costs, as well as costs associated with the new rollout of
Illuminate.
The
Governance Institute’s third quarter sales were a record for this division and
will be recognized over the next twelve months, helping expand the margins for
this division going forward.
My
InnerView’s third quarter sales were also strong adding to the great growth
trends for the last three quarters which has enabled the division to maintain it
double-digit revenue growth for the past two quarters in a row. In
addition, given subscription pricing, the average new sale is three times
greater than last year.
Operating
expenses were $12.5 million for the quarter, up $2.3 million or 23% compared to
the third quarter 2009. This is largely the result of increased
direct costs associated with servicing the additional revenue, as well as in
selling, general and administrative expenses, and depreciation and
amortization. Our operating margin was 22% for the quarter, compared
to 24% in the third quarter of 2009. Our operating margin was up
three percentage points compared to the second quarter this
year. Excluding the direct costs associated with the acquisition of
OCS, our operating margins would have been 23% in the third quarter and 25% year
to date. Our goal is 25% operating margin and we anticipate it to be
back in that range for the full year of 2010.
Direct
costs for the quarter were $6 million or 38% of revenue. As a percent
of revenue, direct costs were down three percentage points, driven in part by
the increases in revenue of Ticker, TGI and the new OCS division, where we
realized the margin expansion of a subscription-based model. We will
continue to work to expand our revenue base into products that are
subscription-like models which will help maintain and improve the
margins.
The
selling, general and administrative expenses for the quarter were $5.3 million
or 33% of revenue. This is up $1.5 million compared to the prior
year, driven by the costs associated with the new OCS division, additional
transaction costs related to the OCS acquisition, the start-up cost of the
Illuminate division, sales expansion largely in the NRC Picker group, and the
addition of several leadership positions. With the sales expansion
program and additional depth of leadership continuing, SG&A as a percent of
revenue will continue to be on the higher side of our goal thru
2010.
The
depreciation and amortization expense for the quarter was $1.2 million or 8% of
revenue. Depreciation and amortization will increase by $60,000 in
future quarters to report the full quarterly impact of the amortization
associated with the OCS acquisition. Going forward, as a percentage
of revenue, depreciation and amortization should be moving back down to 7% of
revenue or a little bit lower.
The
year-to-date income taxes increased due to the new higher federal income tax
rate for 2010 which is expected to be 35%, up 1% over prior years.
Net
income for the third quarter increased to $2.1 million, up 7% over the prior
year, and for the nine months ended September 30, increased to $6.9 million, up
11% over the prior year.
2
Diluted
earnings per share for the quarter increased to $0.32, up 7% over the prior year
same quarter. For the nine months, diluted earnings per share
increased to $1.03, up 11% over the prior year same period.
Cash flow
from operations for the first nine months of 2010 was $12.4
million. The cash balance as of September 30, 2010, was $3.2
million. During the quarter, the Company paid back the $1.3 million
line of credit advanced to fund the working capital purchase of
OCS.
With
that, I’ll turn it back to you, Mike.
Mike
Thanks,
Pat.
I would
like to continue my review of the quarter by highlighting that NRC Picker, NRC’s
largest business unit, is top-line positive. In the third quarter,
after experiencing flat to negative growth since the fourth quarter 2008, NRC
Picker registered a 7% revenue gain. Contributing to this turnaround
has been increased feet on the street, excellent sales leadership, and the
introduction of subscription-based pricing. We anticipate growth at
an increasing rate within NRC Picker as subscription pricing hits full stride,
as will an enhanced bundling of services to all current NRC Picker
clients. The balance of the Company’s top-line growth remains strong
looking out over the balance of 2010 and into 2011. With NRC Picker
now providing positive top-line contribution, it’s possible to again regain
revenue growth in the 20% plus range.
Let me
now turn to Illuminate, our recently launched patient outreach program for
acute-care hospitals, designed to facilitate service and clinical recovery
within the critical 48 hours of a patient being discharged from the healthcare
facility.
Results
from the earliest adopters are showing quantifiable increases in HCAHPS scores
and lower re-admissions, the two key business issues Illuminate was design to
positively impact. As well, the service experience among clients of
Illuminate is reported as stellar. We are rapidly resourcing the
Illuminate business unit with both current NRC associates and talent from
outside the organization. We anticipate head count to be 17-plus by
year-end, largely in the area of business development. Currently
business development associates are now, and will continue, leveraging the 2,400
acute care hospitals which are clients of one or more of NRC’s business units,
with a heavy focus on The Governance Institute’s 600 hospitals’ CEO
members. Everything we have learned since we announced the rollout of
Illuminate during our last earnings call reinforces that we are at the right
spot at the right time with the right offering.
3
Illuminate,
as you know, is the outcome of a dedicated product development effort we
established a few years back. That product development effort has a
robust pipeline of offerings at various stages of development and tests, one of
which is a much enhanced set of member benefits that will be offered by The
Governance Institute. Market test of the new TGI offering has
resulted in 15 charter members who have opted for the enhanced package of member
benefits at a price point equal to two times the current spend. This
enhanced offering will be rolled in the first quarter out to current TGI
members. We anticipate very high take rate across its current 600
members. Currently, in the fourth quarter, we are offering this new
benefit package to the roughly 2,500 non-TGI hospital members which comprise the
directly addressable market for this offering. Early indication of
acceptance is positive.
MyInnerView’s
top-line growth is benefiting from product development efforts as
well. The rollout of subscription pricing, which includes a broader
and more robust slate of offerings, is doing well with sales of $1.2 million to
date, representing a double of average spend compared to past new
contracts. With the acquisition of OCS and its focus on the home care
segment of the post acute care market, we have elected to combine OCS with MIV
which also serves the post acute care market, most notably the long-term care
segment. The synergies realized will result in cross selling and
bundling of their respective offerings and reduction of costs through
elimination of duplication. To this end and within the fourth
quarter, we will centralize all MIV/OCS functions in Lincoln and Seattle and
eliminate the cost of the Wausau operation and other
duplications. Given such, a one-time $300,000 cost for closure will
be taken in the fourth quarter 2010.
Effective
Monday, Jeff MacDonald joined NRC as President of NRC Picker
Canada. I’m excited about Jeff, who is yet another example of our
continued focus to add materially to our leadership ranks. Jeff comes
to NRC from Lifelabs Medical Laboratory Services where, after moving up through
the ranks, most recently held the position of Senior Vice President and General
Manager of a $260 million business. Jeff’s experience in the Canadian
healthcare market and his proven business leadership will not only contribute
across all of NRC, but will also change the growth trajectory of NRC Picker
Canada.
Ticker
continues its top-line grow trends in the third quarter which, given the
syndicated nature of its business model, achieved a 48% operating income and
accounted for 30% of the Company’s total operating income on only 13% of the
Company’s sales. Ticker is also rolling out new benefits to its
subscribers which will likely help continue its track record of
growth.
And
finally, Payer Solutions’ third quarter performance was above
expectations. In fact, what we saw as a likely revenue decline over
the course of 2010, Payer Solutions is instead growth positive both top and
bottom line for the quarter as well as year-to-date. An intriguing
new Payer Solutions product offering is in market test as we speak, and I look
forward to reviewing those test results with you next quarter.
In
summary, 18% revenue growth for the quarter is good, but not what we consider to
be great. Nor is 18% what we desire going forward with the stable of
products and massive depth of talent we have on board.
Operator,
I would now like to open the call to questions, please.
Closing
Statement
Thank you
for your time today. Pat and I look forward to speaking with you
again next quarter.
4