NATIONAL RESEARCH CORP - Quarter Report: 2012 March (Form 10-Q)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

 

(Exact name of Registrant as specified in its charter)

 

	Wisconsin		47-0634000
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

 

 

 

 

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income	5
		Condensed Consolidated Statements of Comprehensive Income	6
		Condensed Consolidated Statements of Cash Flows	7
		Condensed Notes to Consolidated Financial Statements	8-14
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
	Item 4.	Controls and Procedures	18
PART II.	OTHER INFORMATION
	Item 1A.	Risk Factors	19
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
	Item 6.	Exhibits	19
	Signatures		20
	Exhibit Index		21

 

·

The possibility of non-renewal of the Company’s client service contracts;

 

·

The Company’s ability to compete in its markets, which are highly competitive, and the possibility of increased price pressure and expenses;

 

·

The effects of an economic downturn;

 

·

The possibility of consolidation in the healthcare industry;

 

·

The impact of federal healthcare reform legislation or other regulatory changes;

 

·

The Company’s ability to retain its limited number of key clients;

 

·

The Company’s ability to attract and retain key managers and other personnel;

 

·

The possibility that the Company’s intellectual property and other proprietary information technology could be copied or independently developed by its competitors;

 

·

Regulatory developments; and

 

·

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 fiscal year ended December 31, 2011, 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).

 

 

 

 

 

		March 31, 2012				December 31, 2011
Assets
Current assets:
Cash and cash equivalents		$	7,872			$	8,082
Trade accounts receivable, less allowance for doubtful accounts of $256 and $289 in 2012 and 2011, respectively			13,577				11,187
Unbilled revenue			999				913
Prepaid expenses and other			2,167				1,166
Deferred income taxes			644				789
Total current assets			25,259				22,137
Property and equipment, net			13,511				13,613
Intangible assets, net			6,685				7,073
Goodwill			57,798				57,730
Other			125				123
Total assets		$	103,378			$	100,676
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable		$	2,072			$	1,861
Accounts payable			1,075				783
Accrued wages, bonus and profit sharing			2,922				3,591
Accrued expenses			1,834				1,519
Income taxes payable			153				145
Deferred revenue			16,361				16,500
Total current liabilities			24,417				24,399
Notes payable, net of current portion			11,948				12,625
Deferred income taxes			7,934				7,588
Deferred revenue			372				185
Other long term liabilities			300				325
Total liabilities			44,971				45,122
Shareholders’ equity:
Common stock, $0.001 par value; authorized 20,000,000 shares, issued 8,214,111 in 2012 and 8,117,849 in 2011, outstanding 6,778,288 in 2012 and 6,724,280 in 2011			8				8
Additional paid-in capital			33,414				31,080
Retained earnings			49,082				46,995
Accumulated other comprehensive income			1,117				907
Treasury stock, at cost; 1,435,823 shares in 2012 and 1,393,569 shares in 2011			(25,214	)			(23,436	)
Total shareholders’ equity			58,407				55,554
Total liabilities and shareholders’ equity		$	103,378			$	100,676

 

(In thousands, except for share amounts, unaudited)

		Three months ended March 31,
		2012				2011
Revenue		$	22,407			$	19,791
Operating expenses:
Direct expenses			8,931				6,758
Selling, general and administrative			6,151				6,090
Depreciation and amortization			1,243				1,243
Total operating expenses			16,325				14,091
Operating income			6,082				5,700
Other income (expense):
Interest income			5				2
Interest expense			(142	)			(169	)
Other, net			(15	)			(29	)
Total other expense			(152	)			(196	)
Income before income taxes			5,930				5,504
Provision for income taxes			2,081				2,048
Net income		$	3,849			$	3,456
Net income per share – basic		$	.57			$	.52
Net income per share – diluted		$	.56			$	.51
Weighted average shares and share equivalents outstanding – basic			6,719				6,654
Weighted average shares and share equivalents outstanding – diluted			6,907				6,809

 

 

		Three months ended March 31,
		2012				2011
Net income		$	3,849			$	3,456
Other comprehensive income, net of tax:
Foreign currency translation		$	210			$	225
Other comprehensive income		$	210			$	225
Comprehensive income		$	4,059			$	3,681

 

 

 

		Three months ended
		March 31,
		2012				2011
Cash flows from operating activities:
Net income		$	3,849			$	3,456
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,243				1,243
Deferred income taxes			275				678
Non-cash share-based compensation expense			52				220
Tax benefit from exercise of stock options			213				20
Net changes in assets and liabilities:
Trade accounts receivable			(2,340	)			(3,708	)
Unbilled revenue			(75	)			(22	)
Prepaid expenses and other			(933	)			(419	)
Accounts payable			87				(171	)
Accrued expenses, wages, bonuses and profit sharing			(335	)			484
Income taxes recoverable and payable			11				974
Deferred revenue			34				1,121
Net cash provided by operating activities			2,081				3,876
Cash flows from investing activities:
Purchases of property and equipment			(633	)			(760	)
Payments for business acquisitions, net of cash acquired and acquisition earn-out obligation			---				(1,564	)
Net cash used in investing activities			(633	)			(2,324	)
Cash flows from financing activities:
Proceeds from notes payable			---				2,045
Payments on notes payable			(467	)			(2,497	)
Payments on other long term liabilities			(31	)			(51	)
Proceeds from exercise of stock options			372				132
Common stock withheld from vested restricted shares for payroll tax withholdings			(466	)			(74	)
Excess tax benefit from share-based compensation			599				71
Payment of dividends on common stock			(1,762	)			(1,477	)
Net cash used in financing activities			(1,755	)			(1,851	)
Effect of exchange rate changes on cash			97				96
Decrease in cash and cash equivalents			(210	)			(203	)
Cash and cash equivalents at beginning of period			8,082				3,519
Cash and cash equivalents at end of period		$	7,872			$	3,316
Supplemental disclosure of cash paid for:
Interest expense		$	135			$	156
Income taxes		$	708			$	187

 

 

 

National Research Corporation (the “Company”) is a provider of performance measurement and improvement services, healthcare analytics and governance education to the healthcare industry in the United States and Canada.  The Company’s services, which are comprehensive, include data collection, healthcare analytics, best practice identification and effective delivery of value-added business intelligence that enables its clients to improve performance across key business metrics.  Through its extensive array of service capabilities and industry relationships, the Company is positioned to provide healthcare information services to organizations across a wide continuum of service delivery segments.

 

 

 

 

 

		Level 1				Level 2				Level 3				Total
		(In thousands)
As of March 31, 2012
Money Market Funds		$	3,519			$	--			$	--			$	3,519
Commercial Paper			4,057				--				--				4,057
Total		$	7,576			$	--			$	--			$	7,576
As of December 31, 2011
Money Market Funds		$	3,243			$	--			$	--			$	3,243
Commercial Paper			4,659				--				--				4,659
Total		$	7,902			$	--			$	--			$	7,902

 

 

		March 31, 2012				December 31, 2011
		(In thousands)
Total carrying amounts of long-term debt		$	14,020			$	14,486
Estimated fair value of long-term debt		$	14,494			$	14,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		2012				2011
Expected dividend yield at date of grant			3.98%				2.35%
Expected stock price volatility			29.10%				28.70%
Risk-free interest rate			1.15%				2.14%
Expected life of options (in years)			6				6

 

 

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Terms (Years)				Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011			769,401			$	25.73				--				--
Granted			31,630			$	38.35				--				--
Exercised			(88,439	)		$	19.04				--				--
Cancelled			(66,043	)		$	26.66				--				--
Outstanding at March 31, 2012			646,549			$	27.16				6.52			$	10,200
Exercisable at March 31, 2012			334,085			$	22.95				5.01			$	6,677

 

 

 

		Shares Outstanding				Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2011			30,002			$	30.57
Granted			7,823			$	38.35
Vested			(2,449	)		$	22.87
Forfeited			--				--
Outstanding at March 31, 2012			35,376			$	32.83

 

 

 

 

		(In thousands)
Balance as of December 31, 2011		$	57,730
Foreign currency translation			68
Balance as of March 31, 2012		$	57,798

		March 31, 2012				December 31, 2011
		(In thousands)
Non-amortizing other intangible assets:
Trade name		$	1,191			$	1,191
Amortizing other intangible assets:
Customer related intangibles			10,520				10,513
Non-compete agreements			430				430
Trade name			1,902				1,902
Total other intangible assets			14,043				14,036
Less accumulated amortization			7,358				6,963
Other intangible assets, net		$	6,685			$	7,073

 

 

		March 31, 2012				December 31, 2011
		(In thousands)
Property and equipment		$	29,999			$	29,229
Accumulated depreciation			(16,488	)			(15,616	)
Property and equipment, net		$	13,511			$	13,613

 

 

		Three months ended March 31,
		(In thousands)
		2012				­ 2011
Weighted average shares and share equivalents – basic			6,719				6,654
Weighted average dilutive effect of options			174				147
Weighted average dilutive effect of restricted stock			14				8
Weighted average shares and share equivalents - dilutive			6,907				6,809

 

 

 

 

 

 

 

 

 

 

		Three months ended
		March 31,
		2012				2011
Revenue			100.0	%			100.0	%
Operating expenses:
Direct expenses			39.9				34.1
Selling, general and administrative			27.5				30.8
Depreciation and amortization			5.5				6.3
Total operating expenses			72.9				71.2
Operating income			27.1	%			28.8	%

 

 

 

 

 

 

 

 

		For the Three Months Ended March 31,
		2012				2011
		(In thousands)
Provided by operating activities		$	2,081			$	3,876
Used in investing activities			(633	)			(2,324	)
Used in financing activities			(1,755	)			(1,851	)
Effect of exchange rate change on cash			97				96
Net decrease in cash and cash equivalents			(210	)			(203	)
Cash and cash equivalents at end of period		$	7,872			$	3,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for capital expenditures was $633,000 for the three-month period ended March 31, 2012.  These expenditures consisted mainly of computer software, computer hardware, furniture and other equipment.  The Company expects similar capital expenditure purchases for the remainder of 2012 consisting primarily of computer software and hardware and other equipment to be funded through cash generated from operations.

 

 

 

 

 

 

 

 

 

There are no material changes to the disclosures regarding the Company’s market risk exposures made in its Annual Report on Form 10-K for the year ended December 31, 2011.

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 – January 31, 2012			6,557			$	38.71				6,557				244,872
February 1 – February 29, 2012			35,697			$	42.69				35,697				209,175
March 1 – March 31, 2012			--				--				--				209,175

 

 

 

 

 

 

(31.1)

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(31.2)

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(32)	Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

(101)*

Financial statements from the Quarterly Report on Form 10-Q of National Research Corporation for the quarter ended March 31, 2012, 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

* 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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