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):	August 3, 2010

National Research Corporation

(Exact name of registrant as specified in its charter)

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

1245 Q Street, Lincoln, Nebraska  68508

(Address of principal executive offices, including zip code)

(402) 475-2525

(Registrant’s telephone number)

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:

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

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

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

o 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 August 3, 2010, National Research Corporation (the “Company”) issued a press release announcing its earnings for the quarter ended June 30, 2010.  A copy of such press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

On August 4, 2010, the Company held a conference call and online Web simulcast in connection with the Company’s announcement of its earnings for the quarter ended June 30, 2010.  A copy of the script for such conference call and simulcast is furnished as Exhibit 99.2 and is incorporated by reference herein.  An archive of such conference call and simulcast and the related question and answer session will be available online at www.earnings.com.

Item 9.01 Financial Statements and Exhibits.

(a)  Not applicable.

(b)  Not applicable.

(c)  Not applicable.

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

(99.1) Press Release of National Research Corporation, dated August 3, 2010.

(99.2) Script for conference call and online Web simulcast, held August 4, 2010.

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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:  August 4, 2010

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 August 3, 2010

Exhibit

Number

(99.1)  Press Release of National Research Corporation, dated August 3, 2010.

(99.2)  Script for conference call and online Web simulcast, held August 4, 2010.

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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 ANNOUNCES

SECOND QUARTER 2010 RESULTS

Total Contract Value Reaches $72 Million

Board of Directors Declares Third Quarter Dividend

LINCOLN, Nebraska (August 3, 2010) — National Research Corporation (NASDAQ:NRCI) today announced results for the second quarter 2010.

· Quarterly net new contracts up 114% from prior year quarter adding $3.8 million to total contract value;

· Acquisition of Outcome Concept Systems, Inc (OCS) adds $7.4 million to total contract value;

· Illuminate™ launched to capture an estimated $200 million market for discharge planning.

Commenting on the second quarter results, Michael D. Hays, president and chief executive officer of National Research Corporation, said, “I’m delighted that net new contracts for the quarter more than doubled from a year ago, largely driven by an NRC Picker record-breaking sales performance—its second quarter in a row of double-digit growth in net new contracts.  Exciting as well is the launch of Illuminate, a discharge planning product which minimizes avoidable hospital readmission for which CMS is broadening financial penalties.  This first-to-market, full-scale programmatic solution is already implemented in hospitals covering more than 200,000 patient discharges annually.  Today, we also completed the acquisition of OCS, a Seattle-based health analytics and informatics firm.  In my view, this transaction brings a whole new opportunity to NRC given OCS’s expertise and systems to benchmark financial, clinical and operational performance of healthcare providers.”

Revenue for the quarter ended June 30, 2010, was $14.1 million, compared to $13.6 million for the same quarter in 2009.  Net income for the quarter ended June 30, 2010, was $1.7 million, or $.25 per basic and diluted share, compared to $1.6 million for the second quarter 2009, or $.24 per basic and diluted share.

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NRCI Announces Second Quarter 2010 Results

Page 2

August 3, 2010

Revenue for the first half of 2010 increased 4% to $31.5 million, compared to $30.3 million for the same period in 2009.  Net income for the first six months of 2010 increased 12% to $4.8 million, resulting in $0.72 basic and $0.71 diluted earnings per share, also up 13%, over the same period in 2009.

The Company also announced that its Board of Directors has declared a regular quarterly cash dividend of $0.19 (nineteen cents) per share payable September 30, 2010, to shareholders of record as of the close of business on September 3, 2010.

In closing, Patrick E. Beans, chief financial officer of National Research Corporation, said, “Net income for the quarter was lower than we desire at 12% of revenue, but understandable given the Illuminate launch and transaction expenses related to OCS.  For the third quarter 2010, we anticipate net income back in the 15% range which aligns with our model.  In fact, OCS’s software as a service product portfolio, and Illuminate’s syndicated-based business model should provide for very attractive margins on that book of business.”

A listen-only simulcast of National Research Corporation’s 2010 first quarter conference call will be available online at www.earnings.com on August 4, 2010, beginning at 11:00 a.m. Eastern time.  The online replay will follow approximately one hour later and continue for 30 days.

National Research Corporation, headquartered in Lincoln, Nebraska, is a leading provider of performance measurement, improvement services, and governance education to the healthcare industry in the United States and Canada.

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 Second Quarter 2010 Results

Page 3

August 3, 2010

 NATIONAL RESEARCH CORPORATION

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenue	$	14,139		$	13,594		$	31,509		$	30,334
Operating expenses:
Direct expenses		5,877			6,114			12,333			13,242
Selling, general and administrative		4,545			3,887			9,014			8,016
Depreciation and amortization		1,059			891			2,157			2,001
Total operating expenses		11,481			10,892			23,504			23,259
Operating income		2,658			2,702			8,005			7,075
Other income (expense), net:
Interest income		2			-			3			1
Interest expense		(93	)		(85	)		(191	)		(223	)
Other, net		49			(98	)		6			(57	)
Total other income (expense), net		(42	)		(183	)		(182	)		(279	)
Income before income taxes		2,616			2,519			7,823			6,796
Provision for income taxes		956			910			3,034			2,537
Net income	$	1,660		$	1,609		$	4,789		$	4,259
Net income per share, basic	$	0.25		$	0.24		$	0.72		$	0.64
Net income per share, diluted	$	0.25		$	0.24		$	0.71		$	0.63
Weighted average shares outstanding:
Basic		6,634			6,637			6,637			6,635
Diluted		6,732			6,734			6,724			6,720

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NRCI Announces Second Quarter 2010 Results

Page 4

August 3, 2010

NATIONAL RESEARCH CORPORATION

Unaudited Consolidated Condensed Balance Sheets

(Dollars in thousands)

	June 30,			Dec. 31,
	2010			2009
ASSETS
Current Assets:
Cash and cash equivalents	$	7,236		$	2,512
Accounts receivable, net		7,902			5,214
Income taxes recoverable		1,325			803
Other current assets		3,050			3,135
Total current assets		19,513			11,664
Net property and equipment		13,031			13,975
Other, net		46,280			46,860
Total Assets	$	78,824		$	72,499
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	1,730		$	1,446
Deferred revenue		15,909			11,907
Accrued compensation		2,281			1,926
Notes payable		819			816
Total current liabilities		20,739			16,095
Non-current liabilities		11,717			12,233
Total Liabilities		32,456			28,328
Shareholders’ Equity:
Common stock, $0.001 par value; 20,000,000 shares authorized;issued 8,029,282 in 2010 and 8,018,044 in 2009; outstanding 6,653,001 in 2010 and 6,662,111 in 2009		8			8
Additional paid-in capital		28,274			27,871
Retained earnings		40,165			37,905
Accumulated other comprehensive income		766			769
Treasury stock		(22,845	)		(22,382	)
Total shareholders’ equity		46,368			44,171
Total liabilities and shareholders’ equity	$	78,824		$	72,499

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EX-99.2

Mike:

Thank you, ___________, and welcome everyone to National Research Corporation’s second quarter 2010 conference call.  My name is Mike Hays, the Company’s CEO, and joining me on the call today is Pat Beans our Chief Financial Officer.

Before we commence our remarks, I would ask Pat to review conditions related to any forward-looking statements 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.

During the call today, we have two exciting events to discuss in addition to our typical review of the quarter.  These two material events include the OCS transaction, which was announced last night, and the launch of Illuminate, a new product that has been in development and testing for upwards of a year.  Speaking to the quarter itself, NRC Picker recorded new sales during the second quarter 2010 which surpassed sales levels of any quarter in the past several years.  In fact, NRC Picker’s 2010 year-to-date new sales stand at 83% of annual sales for all of 2009.  This sales achievement, along with the OCS transaction, has driven Total Contract Value to $72 million.

Before I continue my remarks, I will have Pat review the financial performance of the quarter.

Pat

For the second quarter, we saw revenue growth in all Business Units except NRC Picker.  With the best quarter of net new contracts since 2008 led by NRC Picker, we are projecting some positive revenue growth for NRC Picker for the balance of the year.  Revenue was $14.1 million, up 4% compared to the prior year.  Operating margin was 19% with operating income at $2.7 million, down 2% over the prior year.  Net income was $1.7 million, up 3%, and diluted earnings per share were $0.25, up 3%.

Growth in revenue was again driven by double-digit revenue and operating income growth by My InnerView and Ticker divisions.  Also, operating income was impacted by combined activities of the OCS transaction expense and costs associated with the new rollout of Illuminate.  Going into the third quarter, we should see net income back to the 15% of revenue range.

Ticker’s second quarter sales contributed to a 40% revenue growth for that division compared to the same quarter last year.  This is the third quarter in a row that Ticker’s quarterly revenue growth has exceeded 40%.  Much of the revenue from these new clients will be recognized over the balance of the calendar year 2010, highlighting the revenue momentum and margin expansion going forward for this business unit.

My InnerView additionally had double-digit revenue growth this quarter.  My InnerView’s new sales for the quarter were very strong, an increase of greater than 70% compared to the second quarter 2009 and first quarter of 2010.

In addition to the divisions just highlighted, TGI added 34 new clients this quarter compared to 12 new clients in the same quarter 2009.

Operating expenses were $11.5 million for the quarter, up $600,000, or 5%, compared to the second quarter 2009.  This is largely the result of increases in selling, general and administrative expenses and depreciation and amortization.  Our operating margin was 19% for the quarter, compared to 20% in the second quarter of 2009.  Our goal is 25% operating margin and we anticipate it to be back in that range in the third quarter of 2010.

Direct costs for the quarter were $5.9 million, or 42% of revenue, which are down from the prior year’s quarter in absolute dollars.  As a percent of revenue, direct expenses were down five percentage points, driven in part by the increases in revenue of Ticker and TGI where we realized the margin expansion of a subscription-based model.  Going forward, we are working to expand the subscription model to be in more units which will help maintain and improve the margin and, in the near term, we would see direct costs as a percent of revenue to be lower than the prior year.

The selling, general and administrative expenses for the quarter were $4.5 million or 32% of revenue.  This is up $660,000 compared to the prior year, driven by the OCS transaction cost, the start-up cost of the Illuminate division, sales expansion largely in the NRC Picker group, and the addition of several leadership positions.  With the sales expansion program continuing, the SG&A as a percent of revenue will continue to be on the higher side of our goal, but should come down a percentage point or two from this quarter.

The depreciation and amortization expense for the quarter was $1.1 million, or 7.5% of revenue.  The depreciation and amortization currently is expected to stay fairly flat for the balance of the year in absolute dollars, so we should get some expansion of margin as revenue grows during the balance of the year.  There will be a one-time jump in depreciation and amortization with the addition of OCS, but as a percent of revenue, we should stay around 7% of revenue.

The income tax increase for the quarter was due to a new higher federal income tax rate for 2010 expected to be 35%, up 1% over prior years.

Net income for the second quarter increased to $1.7 million, up 3% over the prior year, and for the six months ended June 30, net income increased to $4.8 million, up 12% over the prior year.

Diluted earnings per share for the quarter increased to $0.25, up 3% over the prior year.  For the six months, diluted earnings per share increased to $0.71, up 13% over the same period.

Cash flow from operations for the first six months of 2010 was $9.2 million.  The cash balance increased by $7.2 million as of June 30, 2010.  During the quarter, the company used cash to repurchase treasury stock in the amount of $163,000.

With that, I’ll turn it back to you, Mike.

Mike

Thanks, Pat.

Let me highlight the fact that NRC Picker’s growth in net new contracts cannot be over looked and, to me, represents a major turning point.  As has been reported in the past, NRC Picker, our biggest business unit, has largely offset growth achieved by the other NRC businesses.  For example, in the second quarter 2010, the balance of NRC businesses achieved a 16% revenue and a 77% operating income growth over the second quarter 2009.  As you know, operating income leveraged across this latter group of businesses is driven by their syndicated-based business models.  If NRC Picker maintains its recent growth trends in net new contracts, the resulting increase in total contract value will change the overall growth trajectory of the company.  The balance of the company’s growth and operating metrics remain strong looking out over the balance of 2010.

Let me now turn to Illuminate, a patient outreach program for acute-care hospitals, designed to facilitate service and clinical recovery within the critical 48 hours of a patient being discharged from the acute-care hospital.

The business case is clear—nationally, 30% of all discharged patients are readmitted to the hospital within 30 days which represents millions of patients at an annual cost of $17 billion.  CMS has cited these readmissions are the direct result of avoidable clinical events.  Today, and expanding going forward, CMS will levy financial penalties in the form of zero reimbursement for readmitted patients meeting CMS avoidable event definition.  In summary, Illuminate minimizes hospitals readmission rates and consequently, the uncompensated care that would have resulted.

In addition to triaging patients who are at-risk for readmission, Illuminate enables rapid service recovery for patients reporting less-than a satisfactory experience during their hospital stay.  In a world of transparency where hospitals are required to publicly report patient experience ratings, 80% of the country’s hospital boards of trustees have tied personal financial incentives to the CEO for improving their HCAHPS scores. Given this incentive, rapid service recovery has moved to the center of the bullseye for hospital CEOs.  In a few words, Illuminate drives clinical and service improvement.

Creating Illuminate has not been easy.  New approaches for patient outreach had to be invented.  Research was undertaken to determine how to identify at-risk patients.  New work flow tools, staffing assignments and processes were needed for hospitals to deal with triaged patients.  Illuminate passed these rigorous development hurdles and market tests and is now being sold to acute-care hospitals across the country.

Our go-to market strategies include leveraging The Governance Institute’s membership base of 600 hospital CEOs and embedding Illuminate into the NRC Picker product offering.  We believe the addressable market for Illuminate to be in the $200 million range annually.  Illuminate’s application to other provider segments served by NRC, like long-term care and short-stay, are currently being evaluated.

Today, Illuminate is implemented and at work in hospitals covering 200,000 annual patient discharges and is receiving rave review by users.  Most rewarding is the difference Illuminate is making by literally saving lives.  A case in point.  An elderly gentleman was recently discharged from the cardiac unit of a 700 bed hospital after having undergone a pacemaker procedure.  Lucky for him, that cardiac unit had implemented Illuminate.  Within 48 hours of discharge, the Illuminate process identified the gentleman was at-risk for pacemaker failure.  The at-risk patient was triaged to the emergency department where the problem was corrected.  This individual, according to the hospital’s clinical champion for Illuminate, is alive today largely because of their use of Illuminate.  Proof points like this make the ROI decision easy.

Turning now to the OCS transaction, OCS represents a new-found runway in the home health and hospice markets and adds a vast array capability across all of NRC.  At the core of the OCS transaction is a client base of home healthcare and hospice providers that adds $7.4 million to NRC’s total contract value, which in and of itself, creates an immediately accretive transaction.

This OCS client base of 2,000, utilizes the company’s software as service offerings, which enables patient-level clinical and financial benchmarking as well as analytical models for improving revenue management, clinical outcomes, cost containment and regulatory compliance.

Give the similarities of need between of home healthcare providers and long-term care providers, direct application of the existing OCS benchmarking and analytical toolsets creates a tangible new revenue opportunity by bringing this product to our 7,000 long-term care clients.

Patient satisfaction adds yet another upside to the OCS revenue stream.  Recently, patient satisfaction was added to the OCS offerings driven by CMS requiring home healthcare agencies to use and publicly report a version of the HCAHPS patient satisfaction tool, not unlike the requirement in place for acute-care hospitals.  Commencing October 1, 2010, over 10,000 home healthcare agencies will be required to field Home Health CAHPS or lose a portion of their reimbursement.

As one can see, material revenue growth is likely within the OCS client base, as well as from the leverage of the OCS product portfolio.

In addition to the established OCS client base and products I have just spoken about, the OCS transaction has added capacity and vast capabilities to NRC as a whole, one of which is health analytics.  Opportunities to establish and utilize the health analytics team from OCS to create product extensions for other NRC business units which house massive amounts of data is intriguing.  As well, given the OCS staff of world-class developers, IT infrastructure experts and related associates with proven experiences from the likes of Microsoft and Amazon, NRC has now added immeasurable depth to this important side of the business.  In fact, this latter contribution of people will likely prove to be the most valuable aspect of the OCS organization joining the NRC family.

Operator, I would now like to open the call to questions, please.

Closing Statement

Thank you for your time today.  Pat and I look forward to speaking with you again next quarter.