National Research (NRC) - 2025 Q1 - Quarterly Report

PART I – Financial Information This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2025 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, including the balance sheets, statements of income, shareholders' equity, and cash flows, along with accompanying notes. The statements reflect a decrease in net income and cash from operations compared to the prior year period Condensed Consolidated Financial Statements The company's financial position shows a slight increase in total assets to $135.2 million and an increase in total liabilities to $105.5 million as of March 31, 2025. For the first quarter, revenue decreased to $33.6 million from $35.3 million year-over-year, and net income fell to $5.8 million from $6.4 million. Cash from operating activities significantly decreased from $12.0 million to $6.6 million Condensed Consolidated Balance Sheet Highlights (in thousands of USD) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,502 | $4,233 | | Total current assets | $20,402 | $19,600 | | Total assets | $135,175 | $132,539 | | Total current liabilities | $37,774 | $35,858 | | Total liabilities | $105,503 | $101,255 | | Total shareholders' equity | $29,672 | $31,284 | Condensed Consolidated Statements of Income (in thousands of USD, except per share amounts) | Account | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $33,551 | $35,313 | | Operating income | $8,596 | $8,760 | | Net income | $5,787 | $6,359 | | Diluted Earnings Per Share | $0.25 | $0.27 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands of USD) | Cash Flow Activity | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,646 | $12,037 | | Net cash used in investing activities | ($2,986) | ($4,138) | | Net cash used in financing activities | ($5,391) | ($12,854) | | Change in cash and cash equivalents | ($1,731) | ($4,954) | Notes to Condensed Consolidated Financial Statements The notes detail the company's significant accounting policies, including revenue recognition primarily from subscription-based services. Key events include entering a new credit agreement in February 2025. The company operates as a single reportable segment. The effective tax rate increased to 25% from 22% YoY due to lower tax benefits from share-based compensation and higher state taxes - The majority of revenues are derived from annually renewable, subscription-based service agreements, which are recognized ratably over the subscription period[34][38] Revenue by Type (in thousands of USD) | Revenue Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Subscription services recognized ratably over time | $31,042 | $33,271 | | Services recognized at a point in time | $1,741 | $1,421 | | Fixed, non-subscription recognized over time | $645 | $495 | | Unit price services recognized over time | $123 | $126 | | Total revenue | $33,551 | $35,313 | - In February 2025, the company entered a new credit agreement, which includes a $30.0 million revolving credit facility and a $110.0 million delayed draw-down term facility[59] - The effective tax rate for Q1 2025 was 25%, compared to 22% for Q1 2024. The increase was mainly due to decreased tax benefits from share-based compensation awards and higher state income taxes[58] - The company determined it has a single operating and reportable segment, as the business is managed on a consolidated basis and all solutions provide similar analytics and insights to healthcare organizations[81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 5% year-over-year revenue decrease in Q1 2025, primarily from reduced recurring revenue, though operating margin improved to 26% from 25% due to cost controls. The company appointed Trent Green as the new CEO, effective June 1, 2025, which will result in significant one-time and ongoing compensation expenses. Despite a working capital deficit, liquidity is considered sufficient through cash, operating cash flows, and available credit facilities Results of Operations Revenue for Q1 2025 decreased by $1.8 million (5%) compared to Q1 2024, driven by a $2.1 million decline in recurring revenue from existing clients. Total Recurring Contract Value (TRCV) was down 4% YoY but showed sequential quarterly growth. Operating expenses decreased, leading to a slight improvement in operating margin from 25% to 26%. The company anticipates significant compensation charges in Q2 2025 related to the new CEO and other executive awards Financial Performance Comparison (in thousands of USD) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $33,551 | $35,313 | (5)% | | Operating income | $8,596 | $8,760 | (2)% | | Operating margin | 26% | 25% | 1 ppt | | Recurring Contract Value | $134,371 | $139,548 | (4)% | - The revenue decrease was mainly from a $2.1 million drop in recurring revenue from the existing client base, partially offset by a $353,000 increase from new clients[92] - The appointment of new CEO Trent Green is expected to result in a $3.6 million charge in Q2 2025 for his signing bonus, plus quarterly non-cash charges of approximately $447,000 for his equity grant[94] Liquidity and Capital Resources As of March 31, 2025, primary liquidity sources included $2.5 million in cash, $26.5 million available on the Revolving Loan, and $47.6 million on the Delayed Draw Term Loan. Cash from operations decreased to $6.6 million from $12.0 million YoY. The company completed its 2022 stock repurchase program and authorized a new 1.0 million share program in April 2025. Capital expenditures for 2025 are estimated at $3.7 million, mainly for headquarters renovations - Capital allocation priorities are 1) funding innovation, growth, and M&A, and 2) quarterly dividends and share repurchases[100] - Principal sources of liquidity as of March 31, 2025, include $2.5 million cash, $26.5 million unused borrowings under the Revolving Loan, and an additional $47.6 million on the Delayed Draw Term Loan[101] - The company repurchased 307,709 shares for $5.0 million in Q1 2025, completing the 2022 program. A new program to repurchase up to 1.0 million shares was approved in April 2025[118][119] - Future costs for headquarters building renovations are estimated to be $3.7 million in 2025, funded through operating cash flows and borrowings[108] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposures from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes to the company's market risk exposures since the 2024 Annual Report on Form 10-K[121] Item 4. Controls and Procedures Management, including the CEO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025. There were no material changes in internal control over financial reporting during the quarter - Management, with the participation of the CEO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[122] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[125] PART II – Other Information This section covers legal proceedings, risk factors, equity sales, other information, and exhibits for the reporting period Item 1. Legal Proceedings The company is involved in certain claims and litigation arising in the normal course of business. Management does not believe the final disposition of these claims will have a material adverse effect on its financial position, operations, or liquidity - The company is periodically involved in claims and litigation from the normal course of business, which are not expected to have a material adverse effect[126] Item 1A. Risk Factors This section refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024, indicating no new significant risk factors are being reported - The significant risk factors are described in the Annual Report on Form 10-K for the year ended December 31, 2024[127] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company repurchased 307,709 shares of common stock, completing its 2022 repurchase program. In April 2025, the Board of Directors approved a new stock repurchase authorization for up to 1.0 million shares, not to exceed $20 million Common Stock Repurchases (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 1 – Jan 31, 2025 | 26,894 | $16.87 | | Feb 1 – Feb 28, 2025 | 120,704 | $16.92 | | Mar 1 – Mar 31, 2025 | 160,111 | $15.14 | | Total | 307,709 | | - In April 2025, the Board approved a new stock repurchase program (the "2025 Program") for up to 1.0 million shares, with a maximum dollar amount of $20 million[132] Item 5. Other Information The company states that during the first quarter of 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the first quarter of 2025[133] Item 6. Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including the CEO's offer letter, certifications required by the Securities Exchange Act, and the interactive data files (iXBRL) - The exhibits filed with the report include the offer letter for new CEO Trent Green, CEO certifications pursuant to Rule 13a-14(a) and Section 1350, and financial statements formatted in Inline XBRL[138]