National Research (US:NRC)2019-05-08 16:08markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for Q1 2019, detailing balance sheets, income, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $2,641 | $12,991 | ($10,350) | | Total current assets | $22,873 | $28,410 | ($5,537) | | Total assets | $104,571 | $108,032 | ($3,461) | | Total current liabilities | $39,238 | $47,109 | ($7,871) | | Total liabilities | $81,832 | $88,949 | ($7,117) | | Total shareholders' equity | $22,739 | $19,083 | $3,656 | - The company adopted the new lease standard (Topic 842) in Q1 2019, resulting in the recognition of **$2.14 million** in Operating lease right-of-use assets on the balance sheet[16](index=16&type=chunk)[49](index=49&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $31,480 | $31,017 | +1.5% | | Operating income | $10,704 | $8,958 | +19.5% | | Net income | $8,196 | $7,306 | +12.2% | | Diluted EPS (Common) | $0.32 | $0.17 | +88.2% | - The significant increase in Diluted EPS for Common stock is partly due to the April 2018 recapitalization, which eliminated the Class B common stock and its separate EPS calculation[18](index=18&type=chunk)[58](index=58&type=chunk)[81](index=81&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $7,300 | $8,228 | ($928) | | Net cash used in investing activities | ($1,134) | ($1,298) | $164 | | Net cash used in financing activities | ($16,820) | ($5,851) | ($10,969) | | Change in cash and cash equivalents | ($10,350) | $745 | ($11,095) | | Cash and cash equivalents at end of period | $2,641 | $35,478 | ($32,837) | - The significant increase in cash used for financing activities was driven by a **$17.1 million** payment of dividends on common stock in Q1 2019, compared to **$4.2 million** in Q1 2018[29](index=29&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company is a leading provider of analytics and insights for healthcare organizations in the U.S. and Canada, operating under the name NRC Health. It aggregates its six operating segments into one reportable segment[31](index=31&type=chunk)[32](index=32&type=chunk) - The majority of revenue is derived from annually renewable subscription-based service agreements, which are recognized ratably over the subscription period. Subscription services accounted for **$27.9 million** of the **$31.5 million** total revenue in Q1 2019[38](index=38&type=chunk)[41](index=41&type=chunk)[59](index=59&type=chunk) - Effective January 1, 2019, the company adopted the new lease accounting standard (Topic 842) using a modified retrospective transition, resulting in the recognition of **$2.3 million** of ROU assets and **$2.4 million** of lease liabilities[48](index=48&type=chunk)[49](index=49&type=chunk) - In April 2018, the company completed a recapitalization, exchanging each Class B share for one Class A share plus **$19.59** in cash. This eliminated the Class B stock and reclassified Class A as the single class of Common Stock[58](index=58&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2019 financial performance, highlighting revenue growth, margin improvement, and liquidity Results of Operations Comparison (as % of Revenue) | Expense Category | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Direct | 37.0% | 41.6% | | Selling, general and administrative | 24.5% | 25.4% | | **Operating income** | **34.0%** | **28.9%** | - Revenue increased by **1.5%** to **$31.5 million** in Q1 2019, primarily due to new customer sales and increased sales to existing clients[96](index=96&type=chunk) - Direct expenses decreased by **9.7%** to **$11.7 million**, mainly due to reduced postage, printing, and paper costs resulting from changes in survey methodologies[97](index=97&type=chunk) - The company had a working capital deficit of **$16.4 million** as of March 31, 2019, which is significantly impacted by large deferred revenue balances (**$18.2 million**)[104](index=104&type=chunk)[105](index=105&type=chunk) - Net cash used in financing activities was **$16.8 million**, primarily for the payment of **$17.1 million** in dividends[112](index=112&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk exposures were reported compared to the 2018 Annual Report on Form 10-K - There are no material changes to the disclosures regarding the Company's market risk exposures from the 2018 Form 10-K[130](index=130&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with new controls for Topic 842 lease accounting - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[131](index=131&type=chunk) - The company implemented new internal controls and business process changes to properly assess and account for the new lease standard, Topic 842, which was adopted on January 1, 2019[132](index=132&type=chunk) [PART II. OTHER INFORMATION](index=26&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine claims and litigation, with liabilities recognized when probable and estimable - The Company is involved in certain claims and litigation from time to time in the normal course of business, but no specific material proceedings are disclosed[135](index=135&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported compared to the 2018 Annual Report on Form 10-K - There have been no material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2018[136](index=136&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details of the stock repurchase program, with no repurchases in Q1 2019 and remaining authorized shares - No Common Stock was repurchased during the three-month period ended March 31, 2019[137](index=137&type=chunk) - As of March 31, 2019, the remaining number of shares of Common Stock that could be purchased under the stock repurchase authorization was **280,491 shares**[137](index=137&type=chunk) [Exhibits](index=27&type=section&id=Item%206.%20Exhibits) Index of exhibits filed with the 10-Q, including CEO/CFO certifications and XBRL financial statements - The exhibits filed with the report include CEO and CFO certifications (31.1, 31.2), a written statement pursuant to 18 U.S.C. Section 1350 (32), and financial statements in XBRL format (101)[141](index=141&type=chunk) [Signatures](index=28&type=section&id=Signatures) - The report was duly signed and authorized on May 8, 2019, by Michael D. Hays, Chief Executive Officer, and Kevin R. Karas, Senior Vice President Finance, Treasurer, Secretary and Chief Financial Officer[143](index=143&type=chunk)[145](index=145&type=chunk)