[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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National Research Corporation | ||||
(Exact name of Registrant as specified in its charter) |
Wisconsin | 47-0634000 | |||
(State or other jurisdiction of |
(I.R.S. Employer
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incorporation or organization) | Identification No.) |
1245 Q Street, Lincoln, Nebraska 68508 | ||||
(Address of principal executive offices) (Zip Code) |
(402) 475-2525 | ||||
(Registrant’s telephone number, including area code) |
Large accelerated filer £ | Accelerated filer T | Non-accelerated filer £ | Smaller reporting company £ |
(Do not check if a smaller reporting company)
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Page No.
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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Condensed Consolidated Balance Sheets
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4
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Condensed Consolidated Statements of Income
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5
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Condensed Consolidated Statements of Comprehensive Income
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6
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Condensed Consolidated Statements of Cash Flows
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7
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Condensed Notes to Consolidated Financial Statements
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8-13
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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14-18
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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18
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Item 4.
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Controls and Procedures
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18
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PART II.
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OTHER INFORMATION
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Item 1A.
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Risk Factors
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19
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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19
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Item 6.
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Exhibits
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19
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Signatures
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20
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Exhibit Index
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21
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·
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The possibility of non-renewal of the Company’s client service contracts;
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·
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The Company’s ability to compete in its markets, which are highly competitive, and the possibility of increased price pressure and expenses;
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·
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The effects of an economic downturn;
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·
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The possibility of consolidation in the healthcare industry;
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·
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The impact of federal healthcare reform legislation or other regulatory changes;
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·
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The Company’s ability to retain its limited number of key clients;
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·
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The Company’s ability to attract and retain key managers and other personnel;
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·
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The possibility that the Company’s intellectual property and other proprietary information technology could be copied or independently developed by its competitors;
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·
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Regulatory developments; and
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·
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The factors set forth under the caption “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as such section may be updated by Part II, Item 1A of the Company’s subsequently filed Quarterly Reports on Form 10-Q (including this Report).
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March 31,
2013
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December 31,
2012
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 9,234 | $ | 8,286 | ||||
Trade accounts receivable, less allowance for doubtful accounts of $227 and $244 in 2013 and 2012, respectively
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14,378 | 12,119 | ||||||
Unbilled revenue
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1,552 | 932 | ||||||
Prepaid expenses
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2,171 | 1,269 | ||||||
Income tax receivable
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-- | 158 | ||||||
Deferred income taxes
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155 | 547 | ||||||
Other current assets
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379 | 504 | ||||||
Total current assets
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27,869 | 23,815 | ||||||
Property and equipment, net
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12,192 | 12,493 | ||||||
Intangible assets, net
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5,528 | 5,794 | ||||||
Goodwill
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57,736 | 57,799 | ||||||
Other
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177 | 145 | ||||||
Total assets
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$ | 103,502 | $ | 100,046 | ||||
Liabilities and Shareholders’ Equity
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Current liabilities:
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Notes payable
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$ | 12,110 | $ | 12,436 | ||||
Accounts payable
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1,298 | 291 | ||||||
Accrued wages, bonus and profit sharing
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2,803 | 4,392 | ||||||
Accrued expenses
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2,550 | 2,265 | ||||||
Current portion of capital lease obligations
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105 | 102 | ||||||
Income taxes payable
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1,341 | -- | ||||||
Deferred revenue
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15,541 | 15,812 | ||||||
Total current liabilities
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35,748 | 35,298 | ||||||
Deferred income taxes
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7,204 | 7,527 | ||||||
Deferred revenue
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405 | 254 | ||||||
Other long term liabilities
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198 | 225 | ||||||
Total liabilities
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43,555 | 43,304 | ||||||
Shareholders’ equity:
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Common stock, $0.001 par value; authorized 20,000,000 shares, issued 8,416,343 in 2013 and 8,376,592 in 2012, outstanding 6,910,928 in 2013 and 6,874,992 in 2012
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8 | 8 | ||||||
Additional paid-in capital
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40,832 | 39,514 | ||||||
Retained earnings
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47,028 | 44,700 | ||||||
Accumulated other comprehensive income, foreign currency translation
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889 | 1,124 | ||||||
Treasury stock, at cost; 1,505,415 shares in 2013 and 1,501,600 shares in 2012
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(28,810 | ) | (28,604 | ) | ||||
Total shareholders’ equity
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59,947 | 56,742 | ||||||
Total liabilities and shareholders’ equity
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$ | 103,502 | $ | 100,046 |
Three months ended
March 31,
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2013
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2012
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Revenue
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$ | 24,906 | $ | 22,407 | ||||
Operating expenses:
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Direct
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10,246 | 8,931 | ||||||
Selling, general and administrative
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6,493 | 6,151 | ||||||
Depreciation and amortization
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950 | 1,243 | ||||||
Total operating expenses
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17,689 | 16,325 | ||||||
Operating income
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7,217 | 6,082 | ||||||
Other income (expense):
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Interest income
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19 | 5 | ||||||
Interest expense
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(117 | ) | (142 | ) | ||||
Other, net
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14 | (15 | ) | |||||
Total other expense
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(84 | ) | (152 | ) | ||||
Income before income taxes
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7,133 | 5,930 | ||||||
Provision for income taxes
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2,663 | 2,081 | ||||||
Net income
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$ | 4,470 | $ | 3,849 | ||||
Net income per share – basic
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$ | 0.65 | $ | 0.57 | ||||
Net income per share – diluted
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$ | 0.64 | $ | 0.56 | ||||
Weighted average shares and share equivalents outstanding – basic
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6,890 | 6,719 | ||||||
Weighted average shares and share equivalents outstanding – diluted
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7,021 | 6,907 |
Three months ended
March 31,
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2013
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2012
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Net income
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$ | 4,470 | $ | 3,849 | ||||
Other comprehensive income (loss):
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Foreign currency translation adjustment
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$ | (235 | ) | $ | 210 | |||
Other comprehensive income (loss)
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$ | (235 | ) | $ | 210 | |||
Comprehensive income
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$ | 4,235 | $ | 4,059 |
Three months ended
March 31, |
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2013
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2012
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Cash flows from operating activities:
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Net income | $ | 4,470 | $ | 3,849 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 950 | 1,243 | ||||||
Deferred income taxes | 13 | 275 | ||||||
Non-cash share-based compensation expense | 218 | 52 | ||||||
Tax benefit from exercise of stock options | 56 | 213 | ||||||
Loss on disposal of property and equipment | 1 | -- | ||||||
Net changes in assets and liabilities: | ||||||||
Trade accounts receivable | (2,297 | ) | (2,340 | ) | ||||
Unbilled revenue | (633 | ) | (75 | ) | ||||
Prepaid expenses and other | (633 | ) | (933 | ) | ||||
Accounts payable | 799 | 87 | ||||||
Accrued expenses, wages, bonuses and profit sharing | (1,237 | ) | (335 | ) | ||||
Income taxes receivable and payable | 1,502 | 11 | ||||||
Deferred revenue | (108 | ) | 34 | |||||
Net cash provided by operating activities | 3,101 | 2,081 | ||||||
Cash flows from investing activities:
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Purchases of property and equipment | (416 | ) | (633 | ) | ||||
Net cash used in investing activities | (416 | ) | (633 | ) | ||||
Cash flows from financing activities:
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Payments on notes payable | (326 | ) | (467 | ) | ||||
Payments on capital lease obligations | (27 | ) | (31 | ) | ||||
Proceeds from exercise of stock options | 375 | 372 | ||||||
Common stock withheld from vested restricted shares for payroll tax withholdings | (55 | ) | (466 | ) | ||||
Excess tax benefit from share-based compensation | 575 | 599 | ||||||
Payment of dividends on common stock | (2,142 | ) | (1,762 | ) | ||||
Net cash used in financing activities | (1,600 | ) | (1,755 | ) | ||||
Effect of exchange rate changes on cash
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(137 | ) | 97 | |||||
Increase (decrease) in cash and cash equivalents | 948 | (210 | ) | |||||
Cash and cash equivalents at beginning of period
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8,286 | 8,082 | ||||||
Cash and cash equivalents at end of period
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$ | 9,234 | $ | 7,872 | ||||
Supplemental disclosure of cash paid for:
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Interest expense
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$ | 77 | $ | 135 | ||||
Income taxes
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$ | 257 | $ | 708 |
Level 1
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Level 2
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Level 3
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Total
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(In thousands)
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As of March 31, 2013
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Money Market Funds
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$ | 5,835 | $ | -- | $ | -- | $ | 5,835 | ||||||||
Commercial Paper
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3,052 | -- | -- | 3,052 | ||||||||||||
Total
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$ | 8,887 | $ | -- | $ | -- | $ | 8,887 | ||||||||
As of December 31, 2012
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Money Market Funds
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$ | 5,245 | $ | -- | $ | -- | $ | 5,245 | ||||||||
Commercial Paper
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2,242 | -- | -- | 2,242 | ||||||||||||
Total
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$ | 7,487 | $ | -- | $ | -- | $ | 7,487 |
March 31, 2013
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December 31, 2012
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(In thousands)
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Total carrying amounts of long-term debt
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$ | 12,110 | $ | 12,436 | ||||
Estimated fair value of long-term debt
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$ | 12,053 | $ | 12,490 |
2013
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2012
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Expected dividend yield at date of grant
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3.46 | % | 3.98 | % | ||||
Expected stock price volatility
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30.51 | % | 29.10 | % | ||||
Risk-free interest rate
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1.07 | % | 1.15 | % | ||||
Expected life of options (in years)
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6 | 6 |
Number of
Options
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Weighted Average Exercise
Price
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Weighted Average Remaining Contractual Terms (Years)
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Aggregate Intrinsic
Value
(In thousands)
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Outstanding at December 31, 2012
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455,918 | $ | 30.34 | |||||||||||||
Granted
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29,448 | $ | 52.42 | |||||||||||||
Exercised
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(39,751 | ) | $ | 13.21 | ||||||||||||
Cancelled
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-- | -- | ||||||||||||||
Outstanding at March 31, 2013
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445,615 | $ | 33.33 | 6.85 | $ | 10,909 | ||||||||||
Exercisable at March 31, 2013
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195,325 | $ | 26.74 | 5.28 | $ | 6,068 |
Shares Outstanding
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Weighted Average Grant Date Fair Value Per Share
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Outstanding at December 31, 2012
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20,203 | $ | 34.65 | |||||
Granted
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-- | -- | ||||||
Vested
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-- | -- | ||||||
Forfeited
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-- | -- | ||||||
Outstanding at March 31, 2013
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20,203 | $ | 34.65 |
(In thousands)
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Balance as of December 31, 2012
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$ | 57,799 | ||
Foreign currency translation
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(63 | ) | ||
Balance as of March 31, 2013
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$ | 57,736 |
March 31, 2013
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December 31, 2012
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(In thousands)
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Non-amortizing other intangible assets:
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Trade name
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$ | 1,191 | $ | 1,191 | ||||
Amortizing other intangible assets:
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Customer related intangibles
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10,514 | 10,521 | ||||||
Non-compete agreements
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430 | 430 | ||||||
Trade name
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1,902 | 1,902 | ||||||
Total other intangible assets
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14,037 | 14,044 | ||||||
Accumulated amortization
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(8,509 | ) | (8,250 | ) | ||||
Other intangible assets, net
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$ | 5,528 | $ | 5,794 |
March 31, 2013
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December 31, 2012
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(In thousands)
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Property and equipment
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$ | 31,564 | $ | 31,191 | ||||
Accumulated depreciation
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(19,372 | ) | (18,698 | ) | ||||
Property and equipment, net
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$ | 12,192 | $ | 12,493 |
Three months ended
March 31,
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(In thousands)
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2013
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2012
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Weighted average shares and share equivalents – basic
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6,890 | 6,719 | ||||||
Weighted average dilutive effect of options
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120 | 174 | ||||||
Weighted average dilutive effect of restricted stock
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11 | 14 | ||||||
Weighted average shares and share equivalents - diluted
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7,021 | 6,907 |
ITEM 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Three months ended
March 31, |
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2013
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2012
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Revenue:
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100.0 | % | 100.0 | % | ||||
Operating expenses:
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Direct
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41.1 | 39.9 | ||||||
Selling, general and administrative
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26.1 | 27.5 | ||||||
Depreciation and amortization
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3.8 | 5.5 | ||||||
Total operating expenses
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71.0 | 72.9 | ||||||
Operating income
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29.0 | % | 27.1 | % |
Three Months Ended March 31,
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2013
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2012
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(In thousands)
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Provided by operating activities
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$ | 3,101 | $ | 2,081 | ||||
Used in investing activities
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(416 | ) | (633 | ) | ||||
Used in financing activities
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(1,600 | ) | (1,755 | ) | ||||
Effect of exchange rate change on cash
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(137 | ) | 97 | |||||
Net increase (decrease) in cash and cash equivalents
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948 | (210 | ) | |||||
Cash and cash equivalents at end of period
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$ | 9,234 | $ | 7,872 |
ITEM 3.
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Quantitative and Qualitative Disclosures about Market Risk
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ITEM 4.
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Controls and Procedures
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ITEM 1A.
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Risk Factors
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ITEM 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Period
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Total Number of Shares Purchased
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Average Price
Paid per Share
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Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs
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Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
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January 1 – January 31, 2013
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3,815 | $ | 53.81 | 3,815 | 139,583 | |||||||||||
February 1 – February 28, 2013
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-- | -- | -- | 139,583 | ||||||||||||
March 1 – March 31, 2013
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-- | -- | -- | 139,583 |
ITEM 6.
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Exhibits
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NATIONAL RESEARCH CORPORATION
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Date: May 8, 2013
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By:
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/s/ Michael D. Hays | |
Michael D. Hays
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Chief Executive Officer (Principal Executive Officer)
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Date: May 8, 2013 | By: | /s/ Kevin R. Karas | |
Kevin R. Karas
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Senior Vice President Finance, Treasurer, Secretary and
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Chief Financial Officer (Principal Financial and Accounting Officer)
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(31.1)
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Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
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(31.2)
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Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
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(32)
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Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
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(101)*
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Financial statements from the Quarterly Report on Form 10-Q of National Research Corporation for the quarter ended March 31, 2013, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information.
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*
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In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
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1.
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I have reviewed this Quarterly Report on Form 10-Q of National Research Corporation;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 8, 2013
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/s/ Michael D. Hays
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Michael D. Hays
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Chief Executive Officer
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1.
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I have reviewed this Quarterly Report on Form 10-Q of National Research Corporation;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 8, 2013
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/s/ Kevin R. Karas
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Kevin R. Karas
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Chief Financial Officer
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1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Michael D. Hays | |||
Michael D. Hays
|
|||
Chief Executive Officer
|
|||
/s/ Kevin R. Karas | |||
Kevin R. Karas
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|||
Chief Financial Officer
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|||
Date: May 8, 2013 |
Note 7 - Earnings Per Share (Detail) - Weighted Average Number of Shares
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Mar. 31, 2012
|
|
Weighted average shares and share equivalents – basic | 6,890 | 6,719 |
Weighted average shares and share equivalents - diluted | 7,021 | 6,907 |
Stock Options [Member]
|
||
Weighted average dilutive effect of | 120 | 174 |
Restricted Stock [Member]
|
||
Weighted average dilutive effect of | 11 | 14 |
Note 3 - Notes Payable
|
3 Months Ended |
---|---|
Mar. 31, 2013
|
|
Debt Disclosure [Text Block] |
3. NOTES
PAYABLE
On
December 19, 2008, the Company borrowed $9.0 million under
a term note to partially finance the acquisition of My
InnerView. In July 2010, the Company refinanced
the existing term loan with a $6.9
million term loan. The new term loan is payable
in 35 monthly installments of $80,104, with a balloon
payment of $4.8 million for the remaining principal balance
and interest due on July 31, 2013. Borrowings
under the term note bear interest at an annual rate of
3.79%. The outstanding balance of the term note
at March 31, 2013, was $5.0 million.
On
July 31, 2010, the Company borrowed $10.0 million under a
term note to partially finance the acquisition of Outcome
Concept Systems, Inc. The term loan is payable
in 35 monthly installments of $121,190 with a balloon
payment of $6.7 million for the remaining principal balance
and interest due on July 31, 2013. Borrowings
under the term note bear interest at an annual rate of
3.79%. The outstanding balance of the term note
at March 31, 2013, was $7.1 million.
The
Company expects to refinance the term notes prior to July
31, 2013. If, however, the notes cannot be
extended, the Company believes it has adequate cash flows
from operations to meet its debt and capital needs.
The
Company also has a revolving credit note that was renewed in
June 2012 to extend the term to June
30, 2013. The
maximum aggregate amount available under the revolving credit
note is $6.5 million, subject to a borrowing base equal to
75% of the Company’s eligible accounts
receivable. Borrowings under the revolving credit
note bear interest at a variable annual rate, with three rate
options at the discretion of management as
follows: (1) 2.5% plus the daily reset one-month
London Interbank Offered Rate (“LIBOR”) or (2)
2.2% plus the one-, two-, three-, six- or twelve-month LIBOR
rate, or (3) the bank’s Money Market Loan
Rate. As of March 31, 2013 the revolving credit
note did not have a balance. According to the
borrowing base requirements, the Company had the capacity to
borrow $6.5 million as of March 31, 2013.
The
term notes and revolving credit note are secured by certain
of the Company’s assets, including the
Company’s land, building, trade accounts receivable
and intangible assets. The term notes contain
various restrictions and covenants applicable to the
Company, including requirements that the Company maintain
certain financial ratios at prescribed levels and
restrictions on the ability of the Company to consolidate
or merge, create liens, incur additional indebtedness or
dispose of assets. As of March 31, 2013, the
Company was in compliance with these restrictions and
covenants.
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