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 6, 2018

National Research Corporation

(Exact name of registrant as specified in its charter)

Wisconsin	001-35929	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:

[ ] 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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company □

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □

Item 2.02. Results of Operations and Financial Condition.

On November 6, 2018, National Research Corporation (the “Company”) issued a press release announcing its earnings for the quarter ended September 30, 2018. A copy of such press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

On November 7, 2018, the Company held a conference call and online Web simulcast in connection with the Company’s announcement of its earnings for the quarter ended September 30, 2018. 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 http://edge.media-server.com/m6/p/v4h88sbd.

Item 9.01. Financial Statements and Exhibits.

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

(d) Exhibits. The exhibits listed in the exhibit index below are being furnished herewith.

EXHIBIT INDEX

(99.1)     Press Release of National Research Corporation, dated November 6, 2018.

(99.2)     Script for conference call and online Web simulcast, held November 7, 2018.

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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 7, 2018

NATIONAL RESEARCH CORPORATION
By:	/s/ Kevin R. Karas
	Kevin R. Karas
	Senior Vice President Finance, Chief Financial Officer, Treasurer and Secretary

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EX-99.1

Exhibit 99.1

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

Contact: Kevin R. Karas Chief Financial Officer 402-475-2525

NATIONAL RESEARCH CORPORATION ANNOUNCES

THIRD QUARTER 2018 RESULTS

LINCOLN, Nebraska (November 6, 2018) — National Research Corporation (NASDAQ:NRC) today announced results for the third quarter of 2018.

● Net New Sales of $6.2 million

● Revenue up 4% to $30 million

● Operating Income up 29% to $9.2 million

● Voice of Customer platform contract value increased to $37 million

● Third quarter platform revenue increased to 27% of total revenue, up from 15% in the same period 2017

Remarking on Company performance, Michael D. Hays, chief executive officer of National Research Corporation said, “We welcome MD Anderson, Johns Hopkins and Cedars-Sinai to our growing list of new and expanded NRC Health partners. In the third quarter alone, we exceeded the total dollar value of new client wins in all of 2017 and year-to-date, have more than doubled last year.”

Kevin Karas, chief financial officer commented, “Third quarter net new sales were 15% higher than the same period last year. We also realized much better customer retention which drove significant improvement in our revenue growth rate compared to the first half of 2018. Operating income increased by over $2.0 million compared to the prior year as a result of revenue growth leverage, operating efficiencies and the impact of $958,000 of recapitalization costs incurred in the third quarter of 2017.”

Revenue for the quarter ended September 30, 2018, was $30.0 million, compared to $29.0 million for the same quarter in 2017. Net income for the quarter ended September 30, 2018, was $7.0 million, compared to $4.2 million for the quarter ended September 30, 2017. Diluted earnings per share increased to $0.27 for the common shares (formerly Class A) for the quarter ended September 30, 2018, from diluted earnings per share of $0.09 for Class A shares and $0.57 for Class B shares for the quarter ended September 30, 2017. Due to the recapitalization transaction on April 17, 2018, income has been allocated to both classes of shares through April 16, and allocated only to common stock (formerly Class A) after April 16.

NRC Announces Third Quarter 2018 Results
Page 2
November 6, 2018

A listen-only simulcast of National Research Corporation’s 2018 third quarter conference call will be available online at http://edge.media-server.com/m6/p/v4h88sbd on November 7, 2018, beginning at 11:00 a.m. Eastern time. The online replay will follow approximately one hour later and continue for 30 days.

For more than 37 years, National Research Corporation has been a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare providers, payers and other healthcare organizations in the United States and Canada. The Company’s solutions enable its clients to understand the voice of the customer with greater clarity, immediacy and depth.

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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NRC Announces Third Quarter 2018 Results
Page 3
November 6, 2018

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)

	Three months ended September 30,						Nine months ended September 30,
	2018			2017			2018			2017
Revenue	$	30,013		$	28,951		$	89,047		$	87,661
Operating expenses:
Direct expenses		11,780			12,267			35,685			36,706
Selling, general and administrative		7,679			8,430			23,486			22,021
Depreciation and amortization		1,388			1,132			3,996			3,376
Total operating expenses		20,847			21,829			63,167			62,103
Operating income		9,166			7,122			25,880			25,558
Other income (expense):
Interest income		3			29			57			58
Interest expense		(544	)		(18	)		(990	)		(68	)
Other, net		(242	)		40			222			76
Total other (expense) income		(783	)		51			(711	)		66
Income before income taxes		8,383			7,173			25,169			25,624
Provision for income taxes		1,391			3,020			2,923			9,198
Net income	$	6,992		$	4,153		$	22,246		$	16,426
Earnings Per Share of Common Stock:
Basic Earnings Per Share:
Common (formerly Class A)	$	0.28		$	0.10		$	0.76		$	0.39
Class B	$	--		$	0.59		$	1.31		$	2.34
Diluted Earnings Per Share:
Common (formerly Class A)	$	0.27		$	0.09		$	0.73		$	0.38
Class B	$	--		$	0.57		$	1.27		$	2.28
Weighted average shares and share equivalents outstanding
Common (formerly Class A) - basic		24,671			20,788			23,184			20,759
Class B - basic		--			3,514			3,527			3,514
Common (formerly Class A) - diluted		25,526			21,740			24,083			21,537
Class B - diluted		--			3,620			3,628			3,595

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NRC Announces Third Quarter 2018 Results
Page 4
November 6, 2018

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

Unaudited Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts and par value)

	Sep. 30,			Dec. 31,
	2018			2017
ASSETS
Current Assets:
Cash and cash equivalents	$	7,273		$	34,733
Accounts receivable, net		16,544			14,806
Income taxes receivable		1,001			375
Other current assets		3,952			2,345
Total Current Assets		28,770			52,259
Property and equipment, net		14,269			12,359
Goodwill		57,955			58,021
Deferred contract costs		3,371			--
Other, net		4,352			4,677
Total Assets	$	108,717		$	127,316
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	4,307		$	3,546
Deferred revenue		18,642			16,878
Accrued compensation		4,586			6,597
Dividends payable		4,209			4,222
Income taxes payable		70			--
Notes payable		3,623			1,067
Total Current Liabilities		35,437			32,310
Non-Current Liabilities		43,141			4,965
Total Liabilities		78,578			37,275
Shareholders’ Equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued		--			--
Common stock (formerly Class A Common stock) $0.001 par value; authorized 60,000,000 shares, issued 29,830,307 in 2018 and 25,835,230 in 2017, outstanding 24,762,212 in 2018 and 20,936,703 in 2017		30			26
Class B Common stock, $0.001 par value; 4,319,256 issued and 3,535,238 outstanding in 2017		--			4
Additional paid-in capital		156,384			51,025
Retained earnings		(97,027	)		77,574
Accumulated other comprehensive loss		(2,053	)		(1,635	)
Treasury stock		(27,195	)		(36,953	)
Total Shareholders’ Equity		30,139			90,041
Total Liabilities and Shareholders’ Equity	$	108,717		$	127,316

-END-

EX-99.2

Exhibit 99.2

Mike:

Thank you, ___________, and welcome everyone to National Research Corporation’s 2018 third quarter earnings call. My name is Mike Hays, the Company’s CEO and joining me on the call today is Kevin Karas, our Chief Financial Officer.

Before we continue, I would ask Kevin to review conditions related to any forward-looking statements that may be made as part of today’s call.

Kevin.

Kevin:

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:

Thanks, and again, welcome everyone.

The clear highlight of the quarter is the swelling adoption by leading healthcare organizations of the Company’s offerings, most notability our Voice of the Customer platform and its integrated feature of creating Star ratings for healthcare brands, their physicians and other providers.

Well known to us all is the research showing 92% of consumers use online reviews to guide most of our ordinary day-to-day purchasing decisions. This research also documents that 37% of consumers use online reviews as the first step in searching for a doctor and these actual patient ratings and reviews are now trusted by consumers as much as recommendations from doctors themselves.

After Kevin shares with us his prepared remarks regarding the 2018 third quarter financial performance, we’ll discuss how consumerism and online ratings and reviews are changing healthcare choice and our business.

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With that, I will now turn the call over to Kevin.

Kevin

Thank you, Mike.

Total contract value for the 2018 third quarter totaled $127.1 million, representing a 3% growth over the same period in the prior year. Healthcare system clients with agreements for multiple solutions represented 24% of our client base at the end of the third quarter 2018, up from 21% at the same time last year. Subscription-based revenue agreements at the end of the third quarter 2018 represented 94% of total recurring contract value. Total contract value for our digital voice of the customer platform increased to $37.0 million compared to $20.1 million at the end of the third quarter of 2017.

Third quarter 2018 revenue was $30.0 million, an increase of 4% from the third quarter 2017 comprised entirely of organic growth from adding new customers and increasing contract value for existing customers. Third quarter revenue for our digital voice of the customer platform increased to 27% of total revenue compared to 15% of total revenue in the third quarter of 2017.

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Consolidated operating income for the third quarter 2018 was $9.2 million or 30% of revenue, compared to $7.1 million, or 25% of revenue for the same period last year.

Total operating expenses decreased by 4% to $20.8 million for the third quarter 2018, compared to $21.8 million for the same period last year.

Direct expenses decreased by 4% to $11.8 million for the third quarter 2018, compared to $12.3 million for the same period in 2017. Direct expenses as a percent of revenue were 39% for the third quarter 2018 and 42% in 2017.

Direct expenses decreased in the third quarter 2018 compared to the same period last year as a result of lower data collection costs, partially offset by increased customer service and information technology expenses.

Selling, general and administrative expenses decreased to $7.7 million for the third quarter 2018, compared to $8.4 million for the same period in 2017. The decrease in SG&A expenses is primarily due to $958,000 of legal and accounting fees associated with the recapitalization incurred in the third quarter of 2017. SG&A expenses were 26% of revenue for the third quarter of 2018 compared to 29% of revenue for the same period in 2017.

4

Depreciation and amortization expense increased to $1.4 million for the third quarter of 2018 compared to $1.1 million in 2017. The increase in expense is driven by additional investments in our technology platform.

The Company incurred income tax expense of $1.4 million for the third quarter 2018 compared to $3.0 million for the same period in 2017. The effective tax rate was 17% for the third quarter of 2018, compared to an effective rate of 42% for the same period in 2017. The decrease in the effective rate is primarily due to the reduction in the corporate tax rate from 35 to 21% due to the Tax Act that was enacted on December 22, 2017. In addition, the Company had a tax benefit of $308,000 in the third quarter 2018 from a tax depreciation method change election for software development costs and also realized income tax benefits from the exercise of options and dividends paid to non-vested shareholders.  

Net income for the third quarter was $7.0 million in 2018, compared to $4.2 million in 2017.

With that I’ll turn the call back to Mike.

5

Mike:

Thank you, Kevin.

I would like to spend a few minutes sharing with you one of the trends that is shaping our business and then we’ll go to Q&A.

The use by consumers of online ratings and reviews is increasing as out-of-pocket healthcare expenses continue to rise and consumers continue to take a more active role in their healthcare decisions. The NRC Health platform including data, analytics and tools used by our healthcare partners enables them to set themselves apart as the trusted provider in their market resulting in increased market share and improved brand loyalty.

Core to our platform’s uniqueness is our acquisition of Digital Assent in December of 2014 which has evolved into the NRC Health Transparency solution and has established itself as the clear market leader for Patient Experience Transparency.

More than 150 healthcare organizations have now selected NRC Health as their Transparency partner which represents the vast majority of organizations leading the adoption of publishing verified patient ratings and comments and putting them on their own website.

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Just this month, two more globally-recognized healthcare organizations—Johns Hopkins Medicine and Cedars-Sinai Medical Center—went live with our Transparency solution, further bolstering our market leadership in this area.

Adoption of our Transparency products will continue to be a driver of the Company’s growth as we enable the balance of approximately 1,500 healthcare organizations in the United States to provide their current and future patients the ratings and reviews those consumers desire.

The economics for NRC Health overall is quite compelling on three fronts:

1. The cross-sell and upsell opportunities that exist within NRC’s customer base is approximately $80 million for our Transparency solution portfolio.

2. Transparency has enabled us to create follow-on wins for large patient experience contracts at organizations like Bellin Health, Hackensack-Meridian and Houston Methodist, and

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3. Transparency has provided unique distinction at the point of sale for driving bundled sales at organizations like Carilion Clinic, Cook Children’s and MD Anderson.

I hope this dialogue has showcased why new client wins in the third quarter 2018 exceeded all of 2017.

This completes our prepared remarks, so operator I will now ask to open the call to questions.

Closing Statement – Mike:

Thank you for your time today. We look forward to reporting our progress next quarter.

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