8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

_________________

Date of Report
(Date of earliest
event reported):	November 2, 2004

National Research Corporation

(Exact name of registrant as specified in its charter)

Wisconsin	0-29466	47-0634000
(State or other	(Commission File	(IRS Employer
jurisdiction of	Number)	Identification No.)
incorporation)

1245 "Q" Street, Lincoln, Nebraska 68508

(Address of principal executive offices, including zip code)

(402) 475-2525

(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[   ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02.    Results of Operations and Financial Condition.

        On November 2, 2004, National Research Corporation (the “Company”) issued a press release announcing its earnings for the third quarter ended September 30, 2004. A copy of such press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

        On November 3, 2004, the Company held a conference call in connection with the Company’s announcement of its earnings for the third quarter ended September 30, 2004. A copy of the script for such conference call is furnished as Exhibit 99.2 and is incorporated by reference herein. An archive of such conference call and the related question and answer session will be available online at www.fulldisclosure.com.

Item 9.01.    Financial Statements and Exhibits.

(a) Not applicable.

(b) Not applicable.

(c) Exhibits. The following exhibits are being furnished herewith:

(99.1) Press Release of National Research Corporation, dated November 2, 2004.

(99.2) Script for conference call, held November 3, 2004.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:  November 3, 2004

NATIONAL RESEARCH CORPORATION

By:  /s/ Patrick E. Beans

        Patrick E. Beans

        Vice President, Treasurer, Secretary and Chief

        Financial Officer

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NATIONAL RESEARCH CORPORATION

Exhibit Index to Current Report on Form 8-K
Dated November 2, 2004

Exhibit
Number

(99.1) Press Release of National Research Corporation, dated November 2, 2004.

(99.2) Script for conference call, held November 3, 2004.

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EX-99.1

1245 "Q" Street
Lincoln, NE 68508
Phone: 402-475-2525
Fax: 402-475-9061

Contact: Patrick E. Beans
Chief Financial Officer
402-475-2525

NATIONAL RESEARCH CORPORATION REPORTS
THIRD QUARTER RESULTS

LINCOLN, Nebraska (November 2, 2004) — National Research Corporation (NASDAQ/NM:NRCI), a leader in healthcare performance measurement, today announced results for the third quarter and nine months ended September 30, 2004.

        Revenues for the third quarter ended September 30, 2004, increased 16.6% to $9.3 million compared with revenues of $8.0 million for the third quarter of 2003. Net income for the third quarter of 2004 increased 32.0% to $1.7 million, or $0.24 per basic and diluted share, compared with net income of $1.3 million, or $0.18 per basic and diluted share, for the same period in 2003.

        Commenting on the third quarter results, Michael D. Hays, chief executive officer of National Research Corporation, said, “We are pleased with our third quarter performance. Going forward, we are ideally positioned to continue taking advantage of the increasing focus on quality measurement and improvement in the healthcare sector. We view this environment as a perfect opportunity for our company to achieve its full potential.”

        Revenues for the nine months ended September 30, 2004, increased 15.2% to $23.3 million compared with revenues of $20.2 million for the same period in 2003. Net income for the nine months ended September 30, 2004, was $3.6 million, or $0.50 per basic and diluted share, compared with $3.1 million, or $0.43 per basic and diluted share, in the prior-year period.

        Patrick E. Beans, chief financial officer of National Research Corporation, added, “We are pleased with the margin expansion during the quarter despite the incremental expenses relating to our sales expansion. Our previously announced earnings per share guidance of $0.24 for the fourth quarter remains unchanged, which would result in earnings per share of $0.74 for the full year.”

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NRCI Announces Third Quarter Results
Page 2
November 2, 2004

        A listen-only simulcast of National Research Corporation’s third quarter conference call will be available online at www.fulldisclosure.com on November 3, 2004, beginning at 11:00 a.m. Eastern time. The online replay will follow approximately two hours later and continue for 30 days.

        National Research Corporation, headquartered in Lincoln, Nebraska, is a leading provider of ongoing survey-based performance measurement, analysis, tracking services and improvement services to the healthcare industry. The Company addresses the growing need of healthcare providers and payors to measure the care outcomes, specifically experience and health status, of their patients and/or members. The Company has been at the forefront of the industry in developing tools that enable healthcare organizations to obtain performance measurement information necessary to improve their business practices.

        This press release includes “forward-looking” statements related to the Company that can generally be identified as describing the Company’s future plans, objectives or goals. Such forward-looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the factors that could affect the Company’s future results, please see the Company’s filings with the Securities and Exchange Commission.

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NRCI Announces Third Quarter Results
Page 3
November 2, 2004

NATIONAL RESEARCH CORPORATION
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Revenues	$	9,320		$	7,993		$	23,253		$	20,180
Operating expenses:
Direct expenses		4,174			3,797			10,189			9,280
Selling, general and administrative		1,824			1,564			5,578			4,381
Depreciation and amortization		538			536			1,492			1,464
Total operating expenses		6,536			5,897			17,259			15,125
Operating income		2,784			2,096			5,994			5,055
Other income (expense):
Interest income		87			77			248			214
Interest expense		(105	)		(108	)		(355	)		(322	)
Other, net		29			5			(35	)		48
Total other income (expense)		11			(26	)		(142	)		(60	)
Income before income taxes		2,795			2,070			5,852			4,995
Provision for income taxes		1,079			770			2,222			1,866
Net income	$	1,716		$	1,300		$	3,630		$	3,129
Net income per share, basic	$	0.24		$	0.18		$	0.50		$	0.43
Net income per share, diluted	$	0.24		$	0.18		$	0.50		$	0.43
Weighted average shares outstanding:
Basic		7,137			7,262			7,195			7,255
Diluted		7,224			7,331			7,281			7,304

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NRCI Announces Third Quarter Results
Page 4
November 2, 2004

NATIONAL RESEARCH CORPORATION
Unaudited Consolidated Condensed Balance Sheets
(Dollars in thousands)

	Sept. 30, 2004			Dec. 31, 2003
ASSETS
Current Assets:
Cash and cash equivalents	$	2,544		$	3,441
Short-term investments		14,597			12,767
Accounts receivable, net		4,086			5,479
Other current assets		2,457			1,834
Total current assets		23,684			23,521
Net property and equipment		12,669			12,189
Other, net		9,875			9,963
Total Assets	$	46,228		$	45,673
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	1,179		$	1,074
Deferred revenue		3,399			4,439
Accrued compensation		787			805
Notes payable		153			142
Income taxes payable		595			244
Total current liabilities		6,113			6,704
Noncurrent liabilities		6,474			6,545
Total Liabilities		12,587			13,249
Shareholders' Equity:
Common stock, $0.001 par value; 20,000,000 shares authorized;
7,666,764 and 7,639,819 shares issued, respectively;
7,130,143 and 7,305,819 outstanding, respectively		8			8
Additional paid-in capital		19,165			18,875
Retained earnings		19,462			15,832
Unearned compensation		(249	)		(394	)
Accumulated other comprehensive income		(42	)		(27	)
Treasury stock		(4,703	)		(1,870	)
Total shareholders' equity		33,641			32,424
Total Liabilities and Shareholders' Equity	$	46,228		$	45,673

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EX-99.2

Mike:

Thank you _________. I would like to welcome all participants to National Research Corporation’s third quarter 2004 conference call. My name is Mike Hays, CEO of National Research Corporation. Joining me today for the call is Patrick Beans, the company’s CFO. Before we begin the call, I would like to ask Pat to review conditions related to any forward-looking statments that may be made as part of today’s call. Pat.

Pat:

Thank you, Mike. This conference call includes forward-looking statements related to the company that involve risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the facts that could affect the company’s future results, please see the company’s filings with the Securities and Exchange Commission. With that, I’ll turn it back to you, Mike.

Mike:

Thank you, Pat.

The topics we plan on covering during the call today will start with highlights of our third quarter financial performance, which will be followed by a more detail review by Pat. After that I will provide you an update on the key metrics we introduced during our last call. We will also update you on various activities under way including H-CAHPS, the national standardized patient experience survey, and our sales expansion.

After our remarks we will open the call to questions and answers. Just a quick note on the Q&A portion. During our last call, several listeners had questions that did not get in the queue before the call ended. I would encourage all to register questions early to ensure they get covered.

Let me now turn to our third quarter financial performance.

1

Revenue for the third quarter ending September 30, 2004, was $9.3 million, the highest revenue quarter in the company’s history. The previous highest revenue quarter was third quarter 2003, in which we recorded revenue of $8.0 million.

Third quarter 2004 Earnings Per Share was, as well, a record for the company reaching $0.24 compared to $0.18 for the third quarter last year. The EPS growth rate of 32% on top line growth of 17%, showcases the opportunity for margin expansion on increased revenues.

For a more detailed review of third quarter performance, I would now like to turn the call over to Pat.

Pat:

During the third quarter 2004, NRC achieved record revenues of $9.3 million, exceeding the record $8 million in the third quarter 2003. This represented a 17% increase over the same period in 2003.

For the first nine months of 2004, NRC’s revenue increased 15% compared to the first nine months of 2003. The company’s revenue reached $23.3 million in 2004, compared to $20.2 million during the same period in 2003. This revenue growth is primarily the outcome of excellent renewals in 2003 and 2004, the cross-selling and increases in scope of current clients, and additional new clients

The net income for the third quarter of 2004 was $1.7 million or $0.24 per basic and diluted share, compared to $1.3 million or $0.18 per diluted share in the third quarter 2003.

The net income for the first nine months of 2004 was $3.6 million or $0.50 per basic and diluted share, compared to net income of $3.1 million or $0.43 per basic and diluted share during the same period in 2003. The year-to-date growth of earnings per share is 16%.

2

Now I would like to discuss our expenses looking at the third quarter, the balance of 2004, and into 2005.

Our direct expense as a percentage of revenue was 44.8% for the quarter, and 43.8% for the first nine months of 2004, which are both within the range of our model. During the third quarter, we do expense 100% of the production costs of the Healthcare Market Guide which causes an increase in the percentage of direct expenses for the quarter. We expect direct expenses to decrease slightly during the fourth quarter compared to the third quarter. Direct expenses annualized for 2004 and going into 2005 are expected to stay within the range of our model which is 43 to 45% of revenue.

Selling, General and Administrative expenses in total dollars have been $1.8 to $1.9 million during each of the first three quarters of 2004, for a total of $5.6 million for the nine months, compared to $4.4 million during the first nine months of 2003. An increase in SG&A during the first six months caused it to be outside our model, but with the higher revenues in the third quarter, the first nine months are now within our model and brings the year to date SG & A to 24% of revenue which is within our goal of 23 to 25% of revenue. For the fourth quarter, SG & A may grow slightly higher in absolute dollars, and as a percentage of revenue, will be slightly higher. We should finish the year 2004 within our expected range of 23 to 25% of revenue. The goal for 2005 will be the same range of 23-25% of revenue for SG & A expenses.

Depreciation and amortization was 5.8% of revenue during the third quarter 2004 and 6.4% for the first nine months. This is down from the 7.3% of revenue during the first nine months of 2003. The additional revenue during the third quarter helped lower last quarter’s percentage. For the fourth quarter of 2004, we expect a slight increase, however at year-end, depreciation and amortization as a percentage of revenue will remain within the model of 5.5 to 6.5%, which is also our estimated range for 2005.

Cash flow from operations for the first nine months of 2004 was $5.6 million. The company continues to improve its strong financial position. The balance sheet has improved again this quarter and should continue to improve even more during the last quarter of 2004. Cash and short-term investments as of September 30, 2004, were approximately $17.1 million, or $2.35 per share.

3

At this time, I would like to discuss our forecast for the year 2005. As always, our goal is to achieve a minimum 20% growth. Based upon the activities that we see in the marketplace, the base of recurring revenue, and our sales expansion efforts, our goal for earnings per share for the entire year 2005 is within the range of $0.90 per share to $0.93 per share. This EPS range would produce earnings growth over 2004 estimates, of between 22 and 26%. We will continue to provide each quarter’s earnings per share guidance for the current quarter as part of each earnings release.

I will now turn it back over to Mike for additional discussion.

Mike:

Thank you, Pat.

During our last earnings call, we introduced three additional metrics. I would like to provide an update for each of the three measures as of the quarter ending September 30.

The first measure is Net New Contract Value. As you’ll recall, Net New Contracts are new sales generated as a result of adding to the work we do for current clients, as well as being awarded contracts from completely new clients. This contract value of all new sales is then netted against reductions, if any, in current clients’ contract value. It is our intent that this metric measure our ability to continually generate incremental revenue without respect as to when that work will be performed.

Year-to-date, Net New Contracts for our performance measurement and improvement products increased 28% over the same period in 2003. As previously reported, this metric at the end of second quarter 2004, showed an increase of 32% year-to-date over 2003.

4

Just a reminder that given by far, the largest proportion of any one year’s revenue is from recurring revenue carried forward from the previous year, it would be unwise to relate the 28 to 32% increase in new sales to the entire revenue base as your method of forecasting our overall growth rates. Our overall minimum growth rate goal remains at 20%.

Our strong performance in adding new business is a direct result of our sales expansion plan which kicked off exactly one year ago. I will provide you an update on actual performance to plan here in a few minutes.

The second measure we introduced relates to our ability to add new clients for Healthcare Market Guide, our highly profitable syndicated product. For the first nine months of this year, we added 32 new clients to the base of Healthcare Market Guide subscribers. Revenue from new clients was up 38% for the first nine months of 2004, compared to the revenue generated from new HCMG clients during the same nine month period in 2003. By way of comparison, we reported on our last call a 28% increase for the first six months of the year compared to its previous period. Overall we are very happy with our ability to increase our penetration of the 1,400 possible HCMG subscribers.

The third metric we reported was Total Recurring Contract Value. This measure represents the annualized dollar value of ongoing projects. Within any one year, ongoing or recurring projects account for 90% of the Company’s total revenues. The remaining 10% of revenue is driven by one-time studies or, in the case of some new clients, projects that are designed to demonstrate our capabilities before an ongoing contract is entered into. Total Recurring Contract Value as of September 30, 2004, was $29,561,000, up 20.4% from September 30, 2003. This compares to TCV growth of 19% reported during our last call.

Let me now update you on the H-CAHPS rollout.

The timetable remains the same as reported 90 days ago. During January 2005, the “dry run” is set to start pending the release of the survey which we will happen in the next few weeks. The dry run is the opportunity for hospitals to gain experience with the H-CAHPS survey in advance of the formal data collection period which is set to start in the spring of 2005. After all data collection and analysis are completed, the hospitals will have a period of time to review their survey results before being publicly reported in early 2006.

5

We have found that hospitals value gaining early experience with the survey. In fact, NRC used the new H-CAHPS survey in the largest test of the tool to date with 200 hospitals in California. Results for each of the 200 hospitals were publicly reported this past September. We assume many more hospitals will desire the same “heads up” come January as did hospitals in California.

Before I review our sales expansion activities, let me remind you that I will then open the call to Q&A.

Our three-year plan to expand our direct sales force has been in place exactly one year. Without exception, actual performance is ahead of plan by all measures. We are generating more sales and faster than anticipated. If the plan execution continues as it has once the full complement of 36 new sales associates are all hitting full quota, which per plan would be fourth quarter 2006, we could be generating $18 to $20 million in new contract value each year. Given the category expansion we see this growth as sustainable for many years to come.

________, I would now open the call to questions.

In summary, I want to repeat the earnings guidance that Pat reviewed earlier. For the year ending December 2005, we anticipate EPS to be in the range of $0.90 to $0.93.

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