nrc20220331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________ to ________

Commission File Number 001-35929

National Research Corporation

(Exact name of Registrant as specified in its charter)

Delaware		47-0634000
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

	1245 Q Street, Lincoln, Nebraska 68508
	(Address of principal executive offices) (Zip Code)

	(402) 475-2525
	(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	NRC	The NASDAQ stock market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $.001 par value, outstanding as of April 22, 2022: 25,194,447

			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Income	4
		Condensed Consolidated Statements of Comprehensive Income	5
		Condensed Consolidated Statements of Shareholders’ Equity	6-7
		Condensed Consolidated Statements of Cash Flows	8
		Notes to Condensed Consolidated Financial Statements	9-19

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

	Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	27

	Item 1A.	Risk Factors	27

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

	Item 6.	Exhibits	29

	Signatures		30

	March 31, 2022			December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,290		$	54,361
Trade accounts receivable, less allowance for doubtful accounts of $69 and $94, respectively		15,910			13,728
Prepaid expenses		4,477			3,884
Income taxes receivable		93			752
Other current assets		1,151			982
Total current assets		68,921			73,707

Net property and equipment		12,853			12,391
Intangible assets, net		1,743			1,790
Goodwill		61,614			61,614
Deferred contract costs, net		3,498			3,772
Deferred income taxes		17			14
Operating lease right-of-use assets		914			975
Other		3,594			3,277
Total assets	$	153,154		$	157,540

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	4,333		$	4,278
Accounts payable		1,134			1,943
Accrued wages and bonuses		5,935			7,139
Accrued expenses		3,541			5,450
Dividends payable		6,047			3,044
Income taxes payable		2,556			-
Deferred revenue		16,693			17,213
Other current liabilities		1,330			1,321
Total current liabilities		41,569			40,388

Notes payable, net of current portion and unamortized debt issuance costs		21,161			22,269
Deferred income taxes		6,507			7,002
Other long-term liabilities		2,431			2,544
Total liabilities		71,668			72,203

Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued		-			-
Common stock, $0.001 par value; authorized 110,000,000 shares, issued 30,898,600 in 2022 and 2021, outstanding 25,194,447 in 2022 and 25,361,409 in 2021		31			31
Additional paid-in capital		174,227			173,942
Retained earnings (accumulated deficit)		(33,620	)		(36,112	)
Accumulated other comprehensive loss, foreign currency translation adjustment		(2,324	)		(2,375	)
Treasury stock, at cost; 5,704,153 and 5,537,191 Common shares in 2022 and 2021, respectively		(56,828	)		(50,149	)
Total shareholders’ equity		81,486			85,337
Total liabilities and shareholders’ equity	$	153,154		$	157,540

	Three months ended March 31,
	2022			2021

Revenue	$	38,441		$	35,464

Operating expenses:
Direct		14,779			11,940
Selling, general and administrative		10,649			9,520
Depreciation, amortization and impairment		1,316			1,984
Total operating expenses		26,744			23,444

Operating income		11,697			12,020

Other income (expense):
Interest income		5			3
Interest expense		(317	)		(432	)
Other, net		48			21

Total other income (expense)		(264	)		(408	)

Income before income taxes		11,433			11,612

Income tax provision		2,894			2,380

Net income	$	8,539		$	9,232

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.34		$	0.36
Diluted Earnings Per Share	$	0.34		$	0.36

Weighted average shares and share equivalents outstanding:
Basic		25,251			25,414
Diluted		25,390			25,668

	Three months ended March 31,
	2022		2021

Net income	$	8,539	$	9,232
Other comprehensive income:
Foreign currency translation adjustment	$	51	$	56
Other comprehensive income	$	51	$	56

Comprehensive income	$	8,590	$	9,288

	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2021	$	31	$	173,942	$	(36,112	)	$	(2,375	)	$	(50,149	)	$	85,337
Purchase of 166,962 shares treasury stock		-		-		-			-			(6,679	)		(6,679	)
Non-cash stock compensation expense		-		285		-			-			-			285
Dividends declared of $0.24 per common share		-		-		(6,047	)		-			-			(6,047	)
Other comprehensive income, foreign currency translation adjustment		-		-		-			51			-			51
Net income		-		-		8,539			-			-			8,539
Balances at March 31, 2022	$	31	$	174,227	$	(33,620	)	$	(2,324	)	$	(56,828	)	$	81,486

	Three months ended
	March 31,
	2022			2021
Cash flows from operating activities:
Net income	$	8,539		$	9,232
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment		1,316			1,984
Deferred income taxes		(498	)		140
Reserve for uncertain tax positions		100			67
Non-cash share-based compensation expense		285			(54	)
Net changes in assets and liabilities:
Trade accounts receivable		(2,164	)		(209	)
Prepaid expenses and other current assets		(989	)		(306	)
Deferred contract costs, net		274			(278	)
Operating lease assets and liabilities, net		(4	)		39
Accounts payable		(485	)		(264	)
Accrued expenses, wages and bonuses		(777	)		142
Income taxes receivable and payable		3,215			2,130
Deferred revenue		(522	)		1,785
Net cash provided by operating activities		8,290			14,408

Cash flows from investing activities:
Purchases of property and equipment		(2,542	)		(1,238	)
Acquisition consideration		-			(3,000	)
Net cash used in investing activities		(2,542	)		(4,238	)

Cash flows from financing activities:
Payments on notes payable		(1,060	)		(1,009	)
Payments on finance lease obligations		(125	)		(122	)
Proceeds from the exercise of share-based awards		-			162
Payment of employee payroll tax withholdings on share-based awards exercised		-			(460	)
Repurchase of shares for treasury		(6,679	)		-
Payments of deferred acquisition consideration		(1,950	)		-
Payment of dividends on common stock		(3,044	)		-
Net cash used in financing activities		(12,858	)		(1,429	)

Effect of exchange rate changes on cash and cash equivalents		39			23
Change in cash and cash equivalents		(7,071	)		8,764
Cash and cash equivalents at beginning of period		54,361			34,690
Cash and cash equivalents at end of period	$	47,290		$	43,454

Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts	$	352		$	403
Income taxes	$	75		$	41
Supplemental disclosure of non-cash investing and financing activities:
Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans	$	-		$	749
Deferred acquisition consideration	$	-		$	1,950

	●	Identify the contract, or contracts, with a customer;
	●	Identify the performance obligations in the contract;
	●	Determine the transaction price;
	●	Allocate the transaction price to the identified performance obligations; and
	●	Recognize revenue when, or as, we satisfy the performance obligations.

	2022		2021
	(In thousands)
Direct expenses	$	36	$	31
Selling, general and administrative expenses	$	471	$	624
Total amortization	$	507	$	655

	Balance at Beginning of Period		Bad Debt Expense (Benefit)			Write-offs		Recoveries		Balance at End of Period

Three months ended March 31, 2022	$	94	$	(27	)	$	-	$	2	$	69
Three months ended March 31, 2021	$	120	$	20		$	27	$	6	$	119

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of March 31, 2022
Money Market Funds	$	5,768	$	-	$	-	$	5,768
Total Cash Equivalents	$	5,768	$	-	$	-	$	5,768

As of December 31, 2021
Money Market Funds	$	6,306	$	-	$	-	$	6,306
Total Cash Equivalents	$	6,306	$	-	$	-	$	6,306

	2022		2021
Subscription services recognized ratably over time	$	35,449	$	33,054
Services recognized at a point in time		1,181		323
Fixed, non-subscription recognized over time		586		579
Unit price services recognized over time		1,225		1,508
Total revenue	$	38,441	$	35,464

	2022						2021
	Contract Asset			Deferred Revenue			Contract Asset			Deferred Revenue
	Increase (Decrease)
Revenue recognized that was included in deferred revenue at beginning of year due to completion of services	$	-		$	(8,112	)	$	-		$	(7,115	)
Increases due to invoicing of client, net of amounts recognized as revenue		-			7,542			-			8,739
Increases due to acquisition		-			-			-			239
Decreases due to completion of services (or portion of services) and transferred to accounts receivable		(49	)		-			(73	)		-
Change due to cumulative catch-up adjustments arising from changes in expected contract consideration					51						164
Increases due to revenue recognized in the period with additional performance obligations before invoicing		22			-			28			-

	March 31, 2022		December 31, 2021
	(In thousands)
Total carrying amount of long-term debt	$	25,560	$	26,620
Estimated fair value of long-term debt	$	25,720	$	27,708

	March 31, 2022			December 31, 2021
Accounts receivables	$	15,910		$	13,728
Contract assets included in other current assets	$	73		$	99
Deferred Revenue	$	(16,693	)	$	(17,213	)

	2022			2021
Expected dividend yield at date of grant		3.22	%		3.01	%
Expected stock price volatility		34.55	%		35.49	%
Risk-free interest rate		1.60	%		0.76	%
Expected life of options (in years)		8			8

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2021		477,640	$	30.88		5.97	$	6,337
Granted		54,759	$	42.25
Exercised		-	$	-			$	-
Forfeited		-	$	-				-
Outstanding at March 31, 2022		532,399	$	32.05		5.67	$	5,709
Exercisable at March 31, 2022		303,921	$	23.06		3.79	$	5,553

	Common Shares Outstanding		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2021		12,698	$	42.92
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding at March 31, 2022		12,698	$	42.92

	For the Three Months Ended March 31, 2022			For the Three Months Ended March 31, 2021
	(In thousands)
Numerator for net income per share – basic:	$	8,539		$	9,232
Net income
Allocation of distributed and undistributed income to unvested restricted stock shareholders		(5	)		(6	)
Net income attributable to common shareholders		8,534			9,226
Denominator for net income per share – basic:
Weighted average common shares outstanding – basic		25,251			25,414
Net income per share – basic	$	0.34		$	0.36

Numerator for net income per share – diluted:
Net income attributable to common shareholders for basic computation		8,534			9,226
Denominator for net income per share – diluted:
Weighted average common shares outstanding – basic		25,251			25,414
Weighted average effect of dilutive securities – stock options		139			254
Denominator for diluted earnings per share – adjusted weighted average shares		25,390			25,668
Net income per share - diluted	$	0.34		$	0.36

	(In thousands, except percentages) Three Months Ended March 31,						Percentage Increase (Decrease)
	2022			2021			2022 over 2021
Revenue	$	38,441		$	35,464			8.4
Direct expenses		14,779			11,940			23.8
Selling, general, and administrative		10,649			9,520			11.9
Depreciation, amortization and impairment		1,316			1,984			(33.7	)
Operating income		11,697			12,020			(2.7	)
Total other income (expense)		(264	)		(408	)		(35.3	)
Provision for income taxes		2,894			2,380			21.6
Effective Tax Rate		25.3	%		20.5	%		23.4

Operating margin		30.4	%		33.9	%		(10.3	)
Recurring Contact Value	$	147,574		$	149,490			(1.3	)
Cash provided by operating activities		8,290			14,408			(42.5	)

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

Jan 1 – Jan 31, 2022		41,962		41.69		41,962		126,981
Feb 1 – Feb 28, 2022		125,000		39.43		125,000		1,981
Mar 1 – Mar 31, 2022		-		-		-		1,981

(3.1)	Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K dated June 29, 2021, and filed on July 2, 2021 (File No. 001-35929)]

(3.2)	Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporation’s Current Report on Form 8-K dated June 29, 2021 and filed on July 2, 2021 (File No. 001-35929)]

(4.1)	Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K dated June 29, 2021, and filed on July 2, 2021 (File No. 001-35929)]

(4.2)	Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporation’s Current Report on Form 8-K dated June 29, 2021 and filed on July 2, 2021 (File No. 001-35929)]

(101) **	Financial statements from the Quarterly Report on Form 10-Q of National Research Corporation for the quarter ended March 31, 2022, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information.

(104) **	Cover Page Interactive Data File (formatted in the Inline XBRL and contained in Exhibit 101).

	NATIONAL RESEARCH CORPORATION


Date: May 6, 2022	By:	/s/ Michael D. Hays
		Michael D. Hays
		Chief Executive Officer (Principal Executive Officer)



Date: May 6, 2022	By:	/s/ Kevin R. Karas
		Kevin R. Karas Senior Vice President Finance, Treasurer, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer)

SEC Form 10-Q filed by National Research Corporation