nrc20210331_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, 2021

☐	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)

Wisconsin		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 23, 2021: 25,439,013

			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	9-21

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22-28

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

	Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	29

	Item 1A.	Risk Factors	29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 6.	Exhibits	31

	Signatures		32

	March 31, 2021			December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	43,454		$	34,690
Trade accounts receivable, less allowance for doubtful accounts of $119 and $120, respectively		14,296			13,923
Prepaid expenses		3,398			2,645
Income taxes receivable		144			1,235
Other current assets		943			1,619
Total current assets		62,235			54,112

Net property and equipment		11,533			11,726
Intangible assets, net		2,024			1,410
Goodwill		61,614			57,255
Deferred contract costs, net		4,833			4,555
Operating lease right-of-use assets		1,312			1,308
Other		3,327			3,057
Total assets	$	146,878		$	133,423

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	4,113		$	4,061
Accounts payable		1,027			1,095
Accrued wages and bonuses		6,622			6,460
Accrued expenses		3,129			3,184
Income taxes payable		1,037			--
Deferred revenue		17,614			15,585
Deferred acquisition consideration		1,961			--
Other current liabilities		1,435			1,296
Total current liabilities		36,938			31,681

Notes payable, net of current portion and unamortized debt issuance costs		25,494			26,547
Deferred income taxes		7,405			7,265
Other long-term liabilities		3,791			3,615
Total liabilities		73,628			69,108

Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued		--			--
Common stock, $0.001 par value; authorized 60,000,000 shares, issued 30,850,131 in 2021 and 30,775,154 in 2020, outstanding 25,439,013 in 2021 and 25,390,968 in 2020		31			31
Additional paid-in capital		172,642			171,785
Retained earnings (accumulated deficit)		(52,143	)		(61,375	)
Accumulated other comprehensive loss, foreign currency translation adjustment		(2,343	)		(2,399	)
Treasury stock, at cost; 5,411,118 Common shares in 2021 and 5,384,186 Common shares in 2020		(44,937	)		(43,727	)
Total shareholders’ equity		73,250			64,315
Total liabilities and shareholders’ equity	$	146,878		$	133,423

	Three months ended March 31,
	2021			2020

Revenue	$	35,464		$	33,860

Operating expenses:
Direct		11,940			12,546
Selling, general and administrative		9,520			8,749
Depreciation, amortization and impairment		1,984			1,371
Total operating expenses		23,444			22,666

Operating income		12,020			11,194

Other income (expense):
Interest income		3			11
Interest expense		(432	)		(465	)
Other, net		21			630

Total other income (expense)		(408	)		176

Income before income taxes		11,612			11,370

Income tax provision (benefit)		2,380			(385	)

Net income	$	9,232		$	11,755

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.36		$	0.47
Diluted Earnings Per Share	$	0.36		$	0.46

Weighted average shares and share equivalents outstanding:
Basic		25,414			24,972
Diluted		25,668			25,725

	Three months ended March 31,
	2021		2020

Net income	$	9,232	$	11,755
Other comprehensive income (loss):
Foreign currency translation adjustment	$	56	$	(1,124	)
Other comprehensive income (loss)	$	56	$	(1,124	)

Comprehensive income	$	9,288	$	10,631

	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balances at December 31, 2020	$	31	$	171,785		$	(61,375	)	$	(2,399	)	$	(43,727	)	$	64,315
Purchase of 26,932 shares treasury stock		--		--			--			--			(1,210	)		(1,210	)
Issuance of 68,284 common shares for the exercise of stock options		--		911			--			--			--			911
Non-cash stock compensation expense		--		(54	)		--			--			--			(54	)
Other comprehensive income, foreign currency translation adjustment		--		--			--			56			--			56
Net income		--		--			9,232			--			--			9,232
Balances at March 31, 2021	$	31	$	172,642		$	(52,143	)	$	(2,343	)	$	(44,937	)	$	73,250

	Three months ended
	March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	9,232		$	11,755
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment		1,984			1,371
Deferred income taxes		140			348
Reserve for uncertain tax positions		67			80
Non-cash share-based compensation expense		(54	)		332
Net changes in assets and liabilities:
Trade accounts receivable		(209	)		(5,886	)
Prepaid expenses and other current assets		(306	)		(165	)
Insurance receivable		--			(2,771	)
Deferred contract costs, net		(278	)		(693	)
Operating lease assets and liabilities, net		39			(4	)
Accounts payable		(264	)		(623	)
Accrued expenses, wages and bonuses		142			(139	)
Income taxes receivable and payable		2,130			(886	)
Deferred revenue		1,785			2,804
Net cash provided by operating activities		14,408			5,523

Cash flows from investing activities:
Purchases of property and equipment		(1,238	)		(590	)
Acquisition consideration		(3,000	)		--
Net cash used in investing activities		(4,238	)		(590	)

Cash flows from financing activities:
Borrowings on line of credit		--			--
Payments on line of credit		--			--
Payments on notes payable		(1,009	)		(959	)
Payments on finance lease obligations		(122	)		(58	)
Proceeds from the exercise of share-based awards		162			--
Payment of employee payroll tax withholdings on share-based awards exercised		(460	)		(1,280	)
Payment of dividends on common stock		--			(5,239	)
Net cash used in financing activities		(1,429	)		(7,536	)

Effect of exchange rate changes on cash and cash equivalents		23			(893	)
Change in cash and cash equivalents		8,764			(3,496	)
Cash and cash equivalents at beginning of period		34,690			13,517
Cash and cash equivalents at end of period	$	43,454		$	10,021

Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts	$	403		$	445
Income taxes	$	41		$	70
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		$	3,145
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

	2021		2020
	(In thousands)
Direct expenses	$	31	$	118
Selling, general and administrative expenses	$	624	$	773
Total amortization	$	655	$	891

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

Three months ended March 31, 2021	$	120	$	20	$	27	$	6	$	119
Three months ended March 31, 2020	$	144	$	20	$	35	$	14	$	143

	Level 1		Level 2		Level 3		Total
	(In thousands)
As of March 31, 2021
Money Market Funds	$	4,840	$	--	$	--	$	4,840
Total Cash Equivalents	$	4,840	$	--	$	--	$	4,840

As of December 31, 2020
Money Market Funds	$	5,015	$	--	$	--	$	5,015
Total Cash Equivalents	$	5,015	$	--	$	--	$	5,015

Amount of Identified Assets Acquired and Liabilities Assumed
	($ in thousands)
Current Assets	$	184
Property and equipment		10
Customer related		100
Technology		600
Goodwill		4,340
Total assets acquired	$	5,234
Current liabilities		284
Net assets acquired	$	4,950

	2021		2020
Subscription services recognized ratably over time	$	33,054	$	30,421
Services recognized at a point in time		323		1,096
Fixed, non-subscription recognized over time		579		517
Unit price services recognized over time		1,508		1,826
Total revenue	$	35,464	$	33,860

	2021						2020
	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	$	-		$	(7,115	)	$	-		$	(6,475	)
Increases due to invoicing of client, net of amounts recognized as revenue		-			8,739			-			9,218
Increases due to acquisition		-			239			-			-
Decreases due to completion of services (or portion of services) and transferred to accounts receivable		(73	)		-			(69	)		-
Change due to cumulative catch-up adjustments arising from changes in expected contract consideration					164						13
Decreases due to impairment		-			-			-			-
Increases due to revenue recognized in the period with additional performance obligations before invoicing		28			-			81			-

	March 31, 2021		December 31, 2020
	(In thousands)
Total carrying amount of long-term debt	$	29,704	$	30,713
Estimated fair value of long-term debt	$	31,430	$	32,943

	March 31, 2021			December 31, 2020
Accounts receivables	$	14,296		$	13,923
Contract assets included in other current assets	$	266		$	311
Deferred Revenue	$	(17,614	)	$	(15,585	)

	2021			2020
Expected dividend yield at date of grant		3.01	%		1.83	%
Expected stock price volatility		35.49	%		33.79	%
Risk-free interest rate		0.76	%		1.74	%
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, 2020		600,571		$	25.31		5.58	$	11,665
Granted		51,002		$	42.92
Exercised		(68,284	)	$	13.34			$	2,122
Forfeited		(53,763	)	$	40.48
Outstanding at March 31, 2021		529,526		$	27.01		5.79	$	11,203
Exercisable at March 31, 2021		291,968		$	18.24		4.36	$	8,398

	Common Shares Outstanding			Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2020		6,005		$	38.30
Granted		12,698			42.92
Vested		--			--
Forfeited		(6,005	)	$	38.30
Outstanding at March 31, 2021		12,698		$	42.92

	Gross		Accumulated Impairment			Net
	(In thousands)
Balance as of December 31, 2020	$	57,969	$	(714	)	$	57,255
Goodwill acquired		4,340		-			4,340
Foreign currency translation		19		-			19
Balance at March 31, 2021	$	62,328		(714	)	$	61,614

	For the Three Months Ended March 31, 2021			For the Three Months Ended March 31, 2020
	(In thousands)
Numerator for net income per share – basic:	$	9,232		$	11,755
Net income
Allocation of distributed and undistributed income to unvested restricted stock shareholders		(6	)		(23	)
Net income attributable to common shareholders		9,226			11,732
Denominator for net income per share – basic:
Weighted average common shares outstanding – basic		25,414			24,972
Net income per share – basic	$	0.36		$	0.47

Numerator for net income per share – diluted:
Net income attributable to common shareholders for basic computation		9,226			11,732
Denominator for net income per share – diluted:
Weighted average common shares outstanding – basic		25,414			24,972
Weighted average effect of dilutive securities – stock options		254			753
Denominator for diluted earnings per share – adjusted weighted average shares		25,668			25,725
Net income per share - diluted	$	0.36		$	0.46

	Operating Lease
Remainder 2021	$	67
2022		118
2023		122
2024		127
2025		65
Total minimum lease receipts	$	499

	Three Months Ended March 31,
	2021			2020
	(In thousands)
Provided by operating activities	$	14,408		$	5,523
Used in investing activities		(4,238	)		(590	)
Used in financing activities		(1,429	)		(7,536	)
Effect of exchange rate change on cash		23			(893	)
Net change in cash and cash equivalents		8,764			(3,496	)
Cash and cash equivalents at end of period	$	43,454		$	10,021

Contractual Obligations⁽¹⁾	Total Payments		Less than One Year		One to Three Years		Three to Five Years		After Five Years
(In thousands)
Operating leases	$	1,839	$	510	$	993	$	336	$	--
Finance leases		1,194		395		786		13		--
Uncertain tax positions⁽²⁾		--		--		--		--		--
Long-term debt		34,155		4,167		11,112		18,876		--
Total	$	37,188	$	5,072	$	12,891	$	19,225	$	--

(3.1)	Amended and Restated Articles of Incorporation of National Research Corporation, effective as of 5:01 pm, CT, on April 17, 2018 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K dated April 16, 2018 and filed on April 20, 2018 (File No. 001-35929)]

(3.2)	By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.1 to National Research Corporation’s Current Report on Form 8-K dated May 14, 2020 and filed on May 15, 2020 (File No. 001-35929)]

(4.1)	Amended and Restated Articles of Incorporation of National Research Corporation, effective as of 5:01 pm, CT, on April 17, 2018 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K dated April 16, 2018 and filed on April 20, 2018 (File No. 001-35929)]

(4.2)	By-Laws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.1 to National Research Corporation’s Current Report on Form 8-K dated May 14, 2020 and filed on May 15, 2020 (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, 2021, 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 7, 2021	By:	/s/ Michael D. Hays
		Michael D. Hays
		Chief Executive Officer (Principal Executive Officer)



Date: May 7, 2021	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