nrc20220630_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 June 30, 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 July 22, 2022: 24,767,118

			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	20-27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	28

	Item 1A.	Risk Factors	28

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 6.	Exhibits	30

	Signatures		31

	June 30, 2022			December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	32,974		$	54,361
Trade accounts receivable, less allowance for doubtful accounts of $65 and $94, respectively		13,112			13,728
Prepaid expenses		4,107			3,884
Income taxes receivable		389			752
Other current assets		1,198			982
Total current assets		51,780			73,707

Net property and equipment		13,602			12,391
Intangible assets, net		1,696			1,790
Goodwill		61,614			61,614
Deferred contract costs, net		3,167			3,772
Deferred income taxes		18			14
Operating lease right-of-use assets		787			975
Other		3,569			3,277
Total assets	$	136,233		$	157,540

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	4,390		$	4,278
Accounts payable		1,658			1,943
Accrued wages and bonuses		6,914			7,139
Accrued expenses		3,315			5,450
Dividends payable		5,944			3,044
Income taxes payable		558			-
Deferred revenue		15,496			17,213
Other current liabilities		1,312			1,321
Total current liabilities		39,587			40,388

Notes payable, net of current portion and unamortized debt issuance costs		20,044			22,269
Deferred income taxes		5,727			7,002
Other long-term liabilities		2,251			2,544
Total liabilities		67,609			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 24,767,118 in 2022 and 25,361,409 in 2021		31			31
Additional paid-in capital		174,561			173,942
Retained earnings (accumulated deficit)		(31,242	)		(36,112	)
Accumulated other comprehensive loss, foreign currency translation adjustment		(2,423	)		(2,375	)
Treasury stock, at cost; 6,131,482 and 5,537,191 Common shares in 2022 and 2021, respectively		(72,303	)		(50,149	)
Total shareholders’ equity		68,624			85,337
Total liabilities and shareholders’ equity	$	136,233		$	157,540

	Three months ended June 30,						Six months ended June 30,
	2022			2021			2022			2021

Revenue	$	37,292		$	36,425		$	75,734		$	71,889

Operating expenses:
Direct		13,758			12,536			28,537			24,476
Selling, general and administrative		10,748			10,016			21,397			19,536
Depreciation, amortization and impairment		1,290			1,634			2,606			3,618
Total operating expenses		25,796			24,186			52,540			47,630

Operating income		11,496			12,239			23,194			24,259

Other income (expense):
Interest income		14			3			19			6
Interest expense		(318	)		(423	)		(635	)		(855	)
Other, net		(128	)		75			(81	)		96

Total other income (expense)		(432	)		(345	)		(697	)		(753	)

Income before income taxes		11,064			11,894			22,497			23,506

Provision for income taxes		2,742			2,950			5,636			5,330

Net income	$	8,322		$	8,944		$	16,861		$	18,176

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.33		$	0.35		$	0.67		$	0.71
Diluted Earnings Per Share	$	0.33		$	0.35		$	0.67		$	0.71

Weighted average shares and share equivalents outstanding:
Basic		25,083			25,426			25,166			25,420
Diluted		25,211			25,645			25,300			25,656

	Three months ended June 30,					Six months ended June 30,
	2022			2021		2022			2021

Net income	$	8,322		$	8,944	$	16,861		$	18,176
Other comprehensive income (loss):
Foreign currency translation adjustment		(99	)		74		(48	)		130
Other comprehensive income (loss)	$	(99	)	$	74	$	(48	)	$	130

Comprehensive Income	$	8,223		$	9,018	$	16,813		$	18,306

	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
Purchase of 427,329 shares treasury stock		-		-		-			-			(15,475	)		(15,475	)
Non-cash stock compensation expense		-		334		-			-			-			334
Dividends declared of $0.24 per common share		-		-		(5,944	)		-			-			(5,944	)
Other comprehensive income (loss), foreign currency translation adjustment		-		-		-			(99	)		-			(99	)
Net income		-		-		8,322			-			-			8,322
Balances at June 30, 2022	$	31	$	174,561	$	(31,242	)	$	(2,423	)	$	(72,303	)	$	68,624

	Six months ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net income	$	16,861		$	18,176
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment		2,606			3,618
Deferred income taxes		(1,279	)		140
Reserve for uncertain tax positions		205			156
Non-cash share-based compensation expense		619			149
Loss on disposal of property and equipment		-			1
Net changes in assets and liabilities:
Trade accounts receivable		614			(40	)
Prepaid expenses and other current assets		(731	)		(449	)
Deferred contract costs, net		605			(87	)
Operating lease assets and liabilities, net		(13	)		61
Accounts payable		139			(717	)
Accrued expenses, wages and bonuses		(718	)		1,967
Income taxes receivable and payable		918			1,597
Deferred revenue		(1,715	)		994
Net cash provided by operating activities		18,111			25,566

Cash flows from investing activities:
Purchases of property and equipment		(3,886	)		(2,805	)
Acquisition consideration		-			(3,000	)
Net cash used in investing activities		(3,886	)		(5,805	)

Cash flows from financing activities:
Payments on notes payable		(2,127	)		(2,023	)
Payments on finance lease obligations		(242	)		(246	)
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		(22,154	)		-
Payments of deferred acquisition consideration		(1,950	)		-
Payment of dividends on common stock		(9,091	)		(3,053	)
Net cash used in financing activities		(35,564	)		(5,620	)

Effect of exchange rate changes on cash and cash equivalents		(48	)		68
Change in cash and cash equivalents		(21,387	)		14,209
Cash and cash equivalents at beginning of period		54,361			34,690
Cash and cash equivalents at end of period	$	32,974		$	48,899

Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts	$	697		$	801
Income taxes	$	5,790		$	3,432
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.

	Three months ended June 30, 2022		Three months ended June 30, 2021		Six months ended June 30, 2022		Six months ended June 30, 2021
	(In thousands)
Direct Expenses	$	35	$	41	$	71	$	73
Selling, general and administrative expenses		404		740		875		1,363
Total amortization	$	439	$	781	$	946	$	1,436

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

Six months ended June 30, 2022	$	94	$	(10	)	$	22	$	3	$	65
Six months ended June 30, 2021	$	120	$	25		$	47	$	9	$	107

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of June 30, 2022
Money Market Funds	$	2,507	$	-	$	-	$	2,507
Total Cash Equivalents	$	2,507	$	-	$	-	$	2,507

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

	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Subscription services recognized ratably over time	$	35,480	$	34,215	$	70,930	$	67,269
Services recognized at a point in time		735		563		1,916		886
Fixed, non-subscription recognized over time		605		547		1,191		1,126
Unit price services recognized over time		472		1,100		1,697		2,608
Total revenue	$	37,292	$	36,425	$	75,734	$	71,889

	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	$	-		$	(12,962	)	$	-		$	(11,605	)
Increases due to invoicing of client, net of amounts recognized as revenue		-			11,182			-			12,318
Increases due to acquisition		-			-			-			-
Decreases due to completion of services (or portion of services) and transferred to accounts receivable		(81	)		-			(170	)		-
Increases due to acquisition		-			-			-			239
Change due to cumulative catch-up adjustments arising from changes in expected contract consideration		-			63			-			311
Increases due to revenue recognized in the period with additional performance obligations before invoicing		45			-			9			-

	June 30, 2022		December 31, 2021
	(In thousands)
Total carrying amount of long-term debt	$	24,493	$	26,620
Estimated fair value of long-term debt	$	24,364	$	27,708

	June 30, 2022			December 31, 2021
Accounts receivables	$	13,112		$	13,728
Contract assets included in other current assets	$	64		$	99
Deferred Revenue	$	(15,496	)	$	(17,213	)

	2022			2021
Expected dividend yield at date of grant		3.39	%		2.15	%
Expected stock price volatility		35.52	%		34.85	%
Risk-free interest rate		2.33	%		0.91	%
Expected life of options (in years)		6.0			7.0

	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		127,227	$	36.67
Exercised		-	$	-			$	-
Forfeited		-	$	-				-
Outstanding at June 30, 2022		604,867	$	32.10		5.96	$	5,672
Exercisable at June 30, 2022		346,721	$	26.03		4.21	$	5,195

	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 June 30, 2022		12,698	$	42.92

SEC Form 10-Q filed by National Research Corporation