National Research (NRC) - 2020 Q4 - Annual Report

PART I Business NRC Health provides healthcare analytics, focusing on patient and employee experience, with 73.3% of 2020 revenue from its digital VoC platform - NRC Health provides analytics and insights to help healthcare organizations measure and improve patient and employee experience, engagement, and loyalty[14] - The company's digital Voice of the Customer (VoC) platform, including Market Insights, Transparency, and Experience solutions, accounted for 73.3% of total revenue in 2020[21] - Growth strategy focuses on increasing service scope with existing clients, winning new clients, developing new solutions, and pursuing strategic acquisitions[29] Revenue from Key Clients and Foreign Customers | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue from Top 10 Clients | 14% | 16% | 17% | | Revenue from Foreign Customers | 2% | 3% | 4% | - As of December 31, 2020, the company employed 485 associates, with 13 in Canada, and the majority operating remotely[52] Risk Factors The company faces significant risks from the COVID-19 pandemic, contract renewals, intense competition, cybersecurity threats, and founder control - The COVID-19 pandemic presents significant risks, including economic slowdown, reduced demand for clients' elective services, and potential suspension of regulatory survey requirements by CMS[56][57][59] - 14% of total revenue in 2020 came from the ten largest clients, making non-renewal a significant risk to operating results[64] - Cyber-attacks and data security incidents pose risks, as a February 2020 attack led to temporary service suspension, with future incidents potentially causing liability and reputational harm[75][76][77] - As of February 26, 2021, trusts and entities controlled by CEO Michael D. Hays' family held approximately 54.0% of outstanding common stock, granting effective control over shareholder approval matters[86][87] Unresolved Staff Comments The company reports no unresolved staff comments - There are no unresolved staff comments to report[94] Properties The company owns its Lincoln, Nebraska headquarters and is transitioning to a remote workforce, not renewing most leased office spaces - The company owns its headquarters in Lincoln, Nebraska, covering 62,000 square feet[96] - Due to a transition to a remote workforce, the company does not anticipate renewing office leases in Markham, Seattle, and Atlanta upon expiration[97] Legal Proceedings The company is involved in routine claims and litigation, assessing and recording liabilities for probable and estimable losses - The company is involved in certain claims and litigation arising from the normal course of business, with management assessing and recording liabilities for probable and estimable losses[98] Mine Safety Disclosures This item is not applicable to the company - Not applicable[99] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "NRC," with a 2018 recapitalization eliminating Class B stock, and a stock repurchase program in place - In April 2018, a recapitalization exchanged Class B common stock for Class A common stock plus $19.59 in cash, eliminating Class B stock and reclassifying Class A as Common Stock (NRC)[103] Dividends Declared & Paid | Year | Dividends Declared & Paid (in millions) | | :--- | :--- | | 2020 | $5.3 | | 2019 | $19.4 (declared) | | 2018 | $29.7 (declared) | - The stock repurchase program has authorization remaining to purchase 280,491 shares of Common Stock, with no shares repurchased in Q4 2020[105] Selected Financial Data This section provides a five-year financial summary (2016-2020), showing consistent revenue growth and fluctuating assets due to a 2018 recapitalization Five-Year Financial Summary | (In thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $133,277 | $127,982 | $119,686 | $117,559 | $109,384 | | Operating income | $42,677 | $43,035 | $35,275 | $34,219 | $31,197 | | Net income | $37,260 | $32,406 | $30,047 | $22,943 | $20,518 | | Diluted EPS (Common Stock) | $1.45 | $1.26 | $1.04 | $0.52 | $0.48 | | Total assets | $133,423 | $110,685 | $108,032 | $127,316 | $120,624 | | Total shareholders' equity | $64,315 | $32,892 | $19,083 | $90,041 | $82,806 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue increased 4.1% to $133.3 million in 2020, but operating income slightly decreased due to higher expenses and a goodwill impairment, while liquidity remained strong - The COVID-19 pandemic impacted business with some clients reducing services, and management does not expect recent revenue and earnings growth to be indicative of future performance[118] - Operating income in 2020 was impacted by a $1.1 million increase in depreciation and amortization and a $714,000 goodwill impairment charge for the Canadian reporting unit[119][128] Financial Performance Highlights | (In millions) | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | $133.3 | $128.0 | | Operating Income | $42.7 | $43.0 | | Net Income | $37.3 | $32.4 | - As of December 31, 2020, the company had strong liquidity with $34.7 million in cash and cash equivalents, a $30 million unused line of credit, and a $15 million delayed draw term note[148] Quantitative and Qualitative Disclosure About Market Risk The company's market risks include foreign currency exposure from its Canadian subsidiary and interest rate risk from its fixed-rate term loan and variable-rate line of credit - A hypothetical 10% change in the USD/CAD exchange rate would impact the reported cash balance by approximately $686,000 due to foreign currency risk from the Canadian subsidiary[183] - Interest rate risk exists for the $30.7 million fixed-rate Term Loan and variable-rate Line of Credit, with a 1% change in market rates impacting the fair value of fixed-rate debt by about $944,000[184][185] - The company acknowledges the expected phase-out of LIBOR in 2021, which affects its variable-rate credit facilities, with the credit agreement allowing for a substitute index[186] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2020, including the auditor's report, balance sheets, income statements, and detailed notes - KPMG LLP issued an opinion stating the consolidated financial statements are presented fairly and that the company maintained effective internal control over financial reporting as of December 31, 2020[191] - The auditor identified the evaluation of sufficiency of audit evidence over new and modified subscription-based service agreement terms as a critical audit matter due to subjective judgment in revenue recognition[198][200] Consolidated Balance Sheet Highlights | (In thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $54,112 | $29,157 | | Total Assets | $133,423 | $110,685 | | Total Current Liabilities | $31,681 | $38,155 | | Total Liabilities | $69,108 | $77,793 | | Total Shareholders' Equity | $64,315 | $32,892 | - Subsequent to year-end, on January 4, 2021, the company acquired PatientWisdom, Inc. for $5.0 million in cash to enhance its health engagement solutions[319] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[321] Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[322] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[324] Other Information The company reports no other information to disclose for this item - No other information is reported[327] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Required information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[330] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Required information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement[332] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership information is incorporated by reference from the 2021 Proxy Statement, with a table detailing equity compensation plans Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 600,571 | $25.31 | 1,610,219 | | Equity compensation plans not approved by security holders | -- | -- | -- | | Total | 600,571 | $25.31 | 1,610,219 | Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2021 Proxy Statement - Required information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement[338] Principal Accountant Fees and Services Information detailing the principal accountant's fees and services is incorporated by reference from the company's 2021 Proxy Statement - Required information regarding principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement[339] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including financial statements, corporate documents, and certifications - This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications[343] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[346]