National Research (US:NRC)2025-08-08 14:30PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company reported a net loss of $0.1 million in Q2 2025, a significant decline from prior year's net income, primarily due to increased SG&A expenses and reduced operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $141.4 million by June 30, 2025, while total liabilities rose to $120.1 million, leading to a decrease in shareholders' equity to $21.3 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $141,387 | $132,539 | | Cash and cash equivalents | $5,274 | $4,233 | | Net property and equipment | $42,232 | $38,269 | | Goodwill | $66,152 | $66,152 | | Total Liabilities | $120,059 | $101,255 | | Notes payable, net | $80,957 | $62,684 | | Deferred revenue | $15,603 | $15,786 | | Total Shareholders' Equity | $21,328 | $31,284 | Condensed Consolidated Statements of Income Q2 2025 saw a slight revenue decrease and an 82% drop in operating income to $1.6 million, resulting in a net loss of $0.1 million due to increased SG&A expenses Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $34,038 | $35,021 | $67,588 | $70,334 | | Operating Income | $1,588 | $8,865 | $10,184 | $17,625 | | Net Income (Loss) | $(106) | $6,175 | $5,681 | $12,534 | | Diluted EPS | $(0.01) | $0.26 | $0.25 | $0.52 | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased to $21.3 million by June 30, 2025, primarily due to treasury stock repurchases and dividend payments, partially offset by net income - Key activities impacting shareholders' equity in the first six months of 2025 include the purchase of 689,445 shares of treasury stock for a total of $10.7 million and the declaration of dividends totaling $5.5 million18 Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $5.5 million for H1 2025, while financing activities provided $1.5 million, driven by debt borrowings offset by share repurchases and dividends Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,507 | $18,824 | | Net cash used in investing activities | $(5,996) | $(9,408) | | Net cash provided by (used in) financing activities | $1,530 | $(15,584) | | Change in cash and cash equivalents | $1,041 | $(6,168) | Notes to Condensed Consolidated Financial Statements Notes detail declining subscription revenue, a surging Q2 2025 effective tax rate, new credit agreement terms, and the grant of 700,000 non-vested stock awards under a new incentive plan - Subscription services, the main revenue source, decreased to $31.2 million in Q2 2025 from $33.1 million in Q2 202455 - The effective tax rate for Q2 2025 surged to 118% from 26% in Q2 2024, mainly due to deductible limitations on executive compensation related to cash bonuses56 - In February 2025, the company entered a new credit agreement, including a $30.0 million revolving facility and a $110.0 million delayed draw-down term facility58 - Under the new 2025 Omnibus Incentive Plan, 700,000 non-vested shares of common stock were granted during the first six months of 202576 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2025 revenue decline and 82% operating income drop to decreased recurring revenue and increased executive compensation, while maintaining liquidity despite a working capital deficit Results of Operations Q2 2025 revenue declined 3% to $34.0 million, while SG&A expenses surged 58% due to executive compensation, leading to an 82% drop in operating income Q2 2025 vs Q2 2024 Performance (in thousands) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $34,038 | $35,021 | (3)% | | Selling, general, and administrative | $17,734 | $11,221 | 58% | | Operating income | $1,588 | $8,865 | (82)% | - The increase in Q2 2025 SG&A expenses was primarily driven by a $7.6 million rise in salary and benefits, which included $6.6 million in cash bonuses and increased non-cash share-based compensation under new executive arrangements97 - Total Recurring Contract Value (TRCV) was $137.0 million at June 30, 2025, a 1% decrease from $138.4 million at June 30, 2024, but has increased sequentially in each of the first two quarters of 202595102109 - Effective June 1, 2025, Trent Green became the new Chief Executive Officer92 Liquidity and Capital Resources The company maintains liquidity through cash and credit facilities despite a $10.6 million working capital deficit, prioritizing innovation, growth, dividends, and share repurchases - Principal sources of liquidity as of June 30, 2025, are $5.3 million in cash, $30 million available on the Revolving Loan, and $27.6 million available on the Delayed Draw Term Loan112 - The company had a working capital deficit of $10.6 million at June 30, 2025, which is significantly impacted by large deferred revenue balances115 - Capital allocation priorities are: 1) funding innovation and growth (including M&A), and 2) quarterly dividends and share repurchases111 - The company paid $6.0 million for capital expenditures in H1 2025, mainly for software development and building renovations, with an additional $2.7 million estimated for the rest of 2025119 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk exposures have occurred since the disclosures in the 2024 Annual Report on Form 10-K - There are no material changes to the disclosures regarding market risk exposures from the company's 2024 Form 10-K134 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective135 - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls138 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal proceedings, which management does not expect to have a material adverse effect on its financial position or operations - The company is involved in routine claims and litigation, but management does not expect them to have a material adverse effect53139 Item 1A. Risk Factors Significant risk factors are referenced from the company's Annual Report on Form 10-K for the year ended December 31, 2024 - Significant risk factors are described in the Annual Report on Form 10-K for the year ended December 31, 2024140 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A new stock repurchase program for up to 1.0 million shares or $20 million was approved in April 2025, with 381,736 shares repurchased in Q2 - A new stock repurchase program for up to 1.0 million shares (not to exceed $20 million) was authorized in April 2025130 Share Repurchases for Q2 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 1 – May 31, 2025 | 159,760 | $12.95 | | Jun 1 – Jun 31, 2025 | 221,976 | $16.42 | | Total | 381,736 | N/A | Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025145 Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including certifications and iXBRL-formatted financial statements