10-Q 1 nrc20220930_10q.htm FORM 10-Q nrc20220930_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

 

 

For the quarterly period ended September 30, 2022

or

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

 

 

 

For the transition period from ________ to ________

Commission File Number 001-35929

 

 

National Research Corporation

 

(Exact name of Registrant as specified in its charter)

 

Delaware

 

47-0634000

(State or other jurisdiction of

 

(I.R.S. Employer

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)

 

 

Securities registered pursuant to 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.001 par value

NRC

The NASDAQ stock market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer     

Non-accelerated filer

Smaller reporting company

  

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.    ☐
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes     No  ☒ 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Common Stock, $.001 par value, outstanding as of October 21, 2022: 24,691,246 

 

 

 

NATIONAL RESEARCH CORPORATION

 

FORM 10-Q INDEX

 

For the Quarter Ended September 30, 2022

 

   

Page

No.

     

PART I.

FINANCIAL INFORMATION

 
       
 

Item 1.

Financial Statements

 
       
   

Condensed Consolidated Balance Sheets

3

   

Condensed Consolidated Statements of Income

4

   

Condensed Consolidated Statements of Comprehensive Income

5

   

Condensed Consolidated Statements of Shareholders Equity

6-7

   

Condensed Consolidated Statements of Cash Flows

8

   

Notes to Condensed Consolidated Financial Statements

9-20

       
 

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

21-28

       
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

       
 

Item 4.

Controls and Procedures

28

       

PART II.

OTHER INFORMATION

 
       
 

Item 1.

Legal Proceedings

28

       
 

Item 1A.

Risk Factors

28

       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

       
 

Item 6.

Exhibits

30

     
 

Signatures

31

 

 

 

Special Note Regarding Forward-Looking Statements

 

Certain matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), “believes,” “expects,” “may,” “could,” “anticipates,” “estimates” or the use of words such as “would,” “may,” “could,” or “should,” or other words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. In this Quarterly Report on Form 10-Q, statements regarding the future impact of adopting new accounting standards, value and utility of, and market demand for, our service offerings, future opportunities for growth with respect to new and existing clients, our future ability to compete and the types of firms with which we will compete, future consolidation in the healthcare industry, future adequacy of our liquidity sources, future revenue sources, future revenue growth, future revenue estimates used to calculate recurring contract value, future capital expenditures including, without limitation, our headquarters renovation costs, and the timing, amount, and sources of cash to fund such capital expenditures, future stock repurchases and dividends, the expected impact of pending claims and contingencies, the future outcome of uncertain tax positions, our future use of owned and leased real property and the expected impact of the COVID-19 pandemic and related government mandates and recommendations, among others, are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, the following factors:

 

 

The likelihood that the COVID-19 pandemic will adversely affect our sales, earnings, financial condition and liquidity;

 

 

The possibility of non-renewal of our client service contracts and retention of key clients;

 

 

Our ability to compete in our markets, which are highly competitive with new market entrants, and the possibility of increased price pressure and expenses;

 

 

The effects of an economic downturn;

 

 

The impact of consolidation in the healthcare industry;

 

 

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

 

 

Our ability to attract and retain key managers and other personnel;

 

 

The possibility that our intellectual property and other proprietary information technology could be copied or independently developed by our competitors;

 

 

The possibility for failures or deficiencies in our information technology platform;

 

 

The possibility that we or our third-party providers could be subject to cyber-attacks, security breaches or computer viruses; and 

 

 

The factors set forth under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, as such section may be updated or supplemented by Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this Report) and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

 

Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as required by the federal securities laws.

 

 

 

PART I Financial Information

ITEM 1. Financial Statements

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

 

  

September 30,

2022

  

December 31,

2021

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $28,392  $54,361 

Trade accounts receivable, less allowance for doubtful accounts of $65 and $94, respectively

  15,378   13,728 

Prepaid expenses

  3,593   3,884 

Income taxes receivable

  386   752 

Other current assets

  1,356   982 

Total current assets

  49,105   73,707 
         

Net property and equipment

  15,761   12,391 

Intangible assets, net

  1,650   1,790 

Goodwill

  61,614   61,614 

Deferred contract costs, net

  2,784   3,772 

Deferred income taxes

  17   14 

Operating lease right-of-use assets

  661   975 

Other

  3,391   3,277 

Total assets

 $134,983  $157,540 
         

Liabilities and Shareholders Equity

        

Current liabilities:

        

Current portion of notes payable

 $4,434  $4,278 

Accounts payable

  1,056   1,943 

Accrued wages and bonuses

  6,023   7,139 

Accrued expenses

  4,709   5,450 

Dividends payable

  5,926   3,044 

Income taxes payable

  310   - 

Deferred revenue

  17,373   17,213 

Other current liabilities

  1,253   1,321 

Total current liabilities

  41,084   40,388 
         

Notes payable, net of current portion and unamortized debt issuance costs

  18,837   22,269 

Deferred income taxes

  5,241   7,002 

Other long-term liabilities

  2,055   2,544 

Total liabilities

  67,217   72,203 
         

Shareholders’ equity:

        

Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued

  -   - 

Common stock, $0.001 par value; authorized 110,000,000 shares, issued 30,922,181 in 2022 and 30,898,600 in 2021, outstanding 24,691,246 in 2022 and 25,361,409 in 2021

  31   31 

Additional paid-in capital

  175,162   173,942 

Retained earnings (accumulated deficit)

  (28,870

)

  (36,112

)

Accumulated other comprehensive loss, foreign currency translation adjustment

  (2,608

)

  (2,375

)

Treasury stock, at cost; 6,230,935 and 5,537,191 Common shares in 2022 and 2021, respectively

  (75,949

)

  (50,149

)

Total shareholders’ equity

  67,766   85,337 

Total liabilities and shareholders’ equity

 $134,983  $157,540 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts, unaudited)

 

  

Three months ended
September 30,

  

Nine months ended
September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Revenue

 $37,691  $37,767  $113,424  $109,656 
                 

Operating expenses:

                

Direct

  14,524   13,707   43,062   38,184 

Selling, general and administrative

  10,762   9,523   32,159   29,060 

Depreciation, amortization and impairment

  1,296   1,399   3,902   5,016 

Total operating expenses

  26,582   24,629   79,123   72,260 
                 

Operating income

  11,109   13,138   34,301   37,396 
                 

Other income (expense):

                

Interest income

  15   4   34   10 

Interest expense

  (288

)

  (413

)

  (923

)

  (1,268

)

Other, net

  11   (105

)

  (69

)

  (8

)

                 

Total other income (expense)

  (262

)

  (514

)

  (958

)

  (1,266

)

                 

Income before income taxes

  10,847   12,624   33,343   36,130 
                 

Provision for income taxes

  2,549   2,967   8,184   8,297 
                 

Net income

 $8,298  $9,657  $25,159  $27,833 
                 

Earnings Per Share of Common Stock:

                

Basic Earnings Per Share

 $0.34  $0.38  $1.01  $1.09 

Diluted Earnings Per Share

 $0.33  $0.38  $1.00  $1.08 
                 

Weighted average shares and share equivalents outstanding:

                

Basic

  24,716   25,427   25,014   25,423 

Diluted

  24,847   25,650   25,147   25,655 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)

 

  

Three months ended
September 30,

  

Nine months ended

September 30,

 
  

2022

  

2021

  

2022

  

2021

 
                 

Net income

 $8,298  $9,657  $25,159  $27,833 

Other comprehensive income (loss):

                

Foreign currency translation adjustment

  (185

)

  (108

)

  (233

)

  22 

Other comprehensive income (loss)

 $(185

)

 $(108

)

 $(233

)

 $22 
                 

Comprehensive Income

 $8,113  $9,549  $24,926  $27,855 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In thousands except share and per share amounts, unaudited)

 

  

Common
Stock

  

Additional
Paid-in
Capital

  

Retained
Earnings

(Deficit)

  

Accumulated

Other
Comprehensive
Income (Loss)

  

Treasury

Stock

  

Total

 

Balances at December 31, 2021

 $31  $173,942  $(36,112

)

 $(2,375

)

 $(50,149

)

 $85,337 

Purchase of 166,962 shares treasury stock

  -   -   -   -   (6,679

)

  (6,679

)

Non-cash stock compensation expense

  -   285   -   -   -   285 

Dividends declared of $0.24 per common share

  -   -   (6,047

)

  -   -   (6,047

)

Other comprehensive income, foreign currency translation adjustment

  -   -   -   51   -   51 

Net income

  -   -   8,539   -   -   8,539 

Balances at March 31, 2022

 $31  $174,227  $(33,620

)

 $(2,324

)

 $(56,828

)

 $81,486 

Purchase of 427,329 shares treasury stock

  -   -   -   -   (15,475

)

  (15,475

)

Non-cash stock compensation expense

  -   334   -   -   -   334 

Dividends declared of $0.24 per common share

  -   -   (5,944

)

  -   -   (5,944

)

Other comprehensive income (loss), foreign currency translation adjustment

  -   -   -   (99

)

  -   (99

)

Net income

  -   -   8,322   -   -   8,322 

Balances at June 30, 2022

 $31  $174,561  $(31,242

)

 $(2,423

)

 $(72,303

)

 $68,624 

Purchase of 99,453 shares treasury stock

  -   -   -   -   (3,646

)

  (3,646

)

Issuance of 23,581 common shares for the exercise of stock options

  -   310   -   -   -   310 

Non-cash stock compensation expense

  -   291   -   -   -   291 

Dividends declared of $0.24 per common share

  -   -   (5,926

)

  -   -   (5,926

)

Other comprehensive income (loss), foreign currency translation adjustment

  -   -   -   (185

)

  -   (185

)

Net income

  -   -   8,298   -   -   8,298 

Balances at September 30, 2022

 $31  $175,162  $(28,870

)

 $(2,608

)

 $(75,949

)

 $67,766 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In thousands except share and per share amounts, unaudited)

 

  

Common
Stock

  

Additional
Paid-in
Capital

  

Retained
Earnings

(Deficit)

  

Accumulated

Other
Comprehensive
Income (Loss)

  

Treasury

Stock

  

Total

 

Balances at December 31, 2020

 $31  $171,785  $(61,375

)

 $(2,399

)

 $(43,727

)

 $64,315 

Purchase of 26,932 shares treasury stock

  -   -   -   -   (1,210

)

  (1,210

)

Issuance of 68,284 common shares for the exercise of stock options

  -   911   -   -   -   911 

Non-cash stock compensation expense

  -   (54

)

  -   -   -   (54

)

Other comprehensive income, foreign currency translation adjustment

  -   -   -   56   -   56 

Net income

  -   -   9,232   -   -   9,232 

Balances at March 31, 2021

 $31  $172,642  $(52,143

)

 $(2,343

)

 $(44,937

)

 $73,250 

Non-cash stock compensation expense

  -   202   -   -   -   202 

Dividends declared of $0.24 per common share

  -   -   (6,105

)

  -   -   (6,105

)

Other comprehensive income, foreign currency translation adjustment

  -   -   -   74   -   74 

Net income

  -   -   8,944   -   -   8,944 

Balances at June 30, 2021

 $31  $172,844  $(49,304

)

 $(2,269

)

 $(44,937

)

 $76,365 

Issuance of 10,000 common shares for the exercise of stock options

  -   142   -   -   -   142 

Non-cash stock compensation expense

  -   126   -   -   -   126 

Dividends declared of $0.12 per common share

  -   -   (3,054

)

  -   -   (3,054

)

Other comprehensive income, foreign currency translation adjustment

  -   -   -   (108

)

  -   (108

)

Net income

  -   -   9,657      -   9,657 

Balances at September 30, 2021

 $31  $173,112  $(42,701

)

 $(2,377

)

 $(44,937

)

 $83,128 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 

  

Nine months ended

 
  

September 30,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net income

 $25,159  $27,833 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation, amortization and impairment

  3,902   5,016 

Deferred income taxes

  (1,765

)

  (120

)

Reserve for uncertain tax positions

  336   210 

Non-cash share-based compensation expense

  910   275 

Loss on disposal of property and equipment

  1   1 

Net changes in assets and liabilities:

        

Trade accounts receivable

  (1,655

)

  (2,188

)

Prepaid expenses and other current assets

  (97

)

  231 

Deferred contract costs, net

  988   318 

Operating lease assets and liabilities, net

  (9

)

  17 

Accounts payable

  (557

)

  (207

)

Accrued expenses, wages and bonuses

  127   (202

)

Income taxes receivable and payable

  660   1,604 

Deferred revenue

  161   1,482 

Net cash provided by operating activities

  28,161   34,270 
         

Cash flows from investing activities:

        

Purchases of property and equipment

  (7,869

)

  (3,797

)

Acquisition consideration

  -   (3,000

)

Net cash used in investing activities

  (7,869

)

  (6,797

)

         

Cash flows from financing activities:

        

Payments on notes payable

  (3,208

)

  (3,049

)

Payments on finance lease obligations

  (355

)

  (369

)

Proceeds from the exercise of share-based awards

  -   304 

Payment of employee payroll tax withholdings on share-based awards exercised

  (190

)

  (461

)

Repurchase of shares for treasury

  (25,299

)

  - 

Payments of deferred acquisition consideration

  (1,950

)

  - 

Payment of dividends on common stock

  (15,035

)

  (6,105

)

Net cash used in financing activities

  (46,037

)

  (9,680

)

         

Effect of exchange rate changes on cash and cash equivalents

  (224

)

  (1

)

Change in cash and cash equivalents

  (25,969

)

  17,792 

Cash and cash equivalents at beginning of period

  54,361   34,690 

Cash and cash equivalents at end of period

 $28,392  $52,482 
         

Supplemental disclosure of cash paid for:

        

Interest expense, net of capitalized amounts

 $1,028  $1,186 

Income taxes

 $8,947  $6,601 

Supplemental disclosure of non-cash investing and financing activities:

        

Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans

 $311  $749 

Deferred acquisition consideration

 $-  $1,950 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of business and basis of presentation

 

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is 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 organizations in the United States and Canada. Our purpose is to enable human understanding. We believe that understanding the story is the key to unlocking the highest-quality and truly personalized care. Our end-to-end solutions enable health care organizations to understand what matters most to each person they serve – before, during, after, and outside of clinical encounters – to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.

 

Our condensed consolidated balance sheet at December 31, 2021 was derived from our audited consolidated balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

 

Information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2022.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

The consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada. All significant intercompany transactions and balances have been eliminated.

 

Our Canadian subsidiary uses Canadian dollars as its functional currency. It translates its assets and liabilities into U.S. dollars at the exchange rate in effect at the balance sheet date. It translates its revenue and expenses at the average exchange rate during the period. We include translation gains and losses in accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses related to transactions denominated in a currency other than the functional currency of the country in which we operate and short-term intercompany accounts are included in other income (expense) in the consolidated statements of income.

 

Revenue Recognition

 

We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or no notice without penalty. See Note 3 for further information about our contracts with customers. We account for revenue using the following steps:

 

 

Identify the contract, or contracts, with a customer;

 

Identify the performance obligations in the contract;

 

Determine the transaction price;

 

Allocate the transaction price to the identified performance obligations; and

 

Recognize revenue when, or as, we satisfy the performance obligations.

 

9

 

Our revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time, or within close proximity of one another. We combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together. For contracts that contain more than one separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.

 

Our arrangements with customers consist principally of four different types of arrangements: 1) subscription-based service agreements; 2) one-time specified services performed at a single point in time; 3) fixed, non-subscription service agreements; and 4) unit-priced service agreements.

 

Subscription-based services - Services that are provided under subscription-based service agreements are usually for a twelve- month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the customer. These agreements are renewable at the option of the customer at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer as the customer receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed annually in advance but may also be billed on a quarterly and monthly basis.

 

One-time services – These agreements typically require us to perform a specific one-time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.

 

Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch-up adjustment which could impact the amount and timing of revenue for any period.

 

Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.

 

Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.  

 

10

 

Deferred Contract Costs

 

Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable customer contract. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors such as historical customer attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract. An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services. We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of one year or less. We deferred incremental costs of obtaining a contract of $68,000 and $233,000 in the three-month periods ended September 30, 2022 and 2021, respectively. We deferred incremental costs of obtaining a contract of $410,000 and $1.8 million in the nine-month periods ended September 30, 2022 and 2021, respectively. Deferred contract costs, net of accumulated amortization was $2.8 million and $3.8 million at September 30, 2022 and December 31, 2021, respectively. Total amortization by expense classification for the three and nine-month periods ended September 30, 2022 and 2021 was as follows:

 

  

Three months

ended
September 30,

2022

  

Three months

ended
September 30,

2021

  

Nine months

ended
September 30,

2022

  

Nine months

ended
September 30,

2021

 
  

(In thousands)

 

Direct Expenses

 $40  $40  $111  $113 

Selling, general and administrative expenses

  398   596   1,273   1,960 

Total amortization

 $438  $636  $1,384  $2,073 

 

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $13,000 and $2,000 for the three months ended September 30, 2022 and 2021, respectively and $14,000 and $24,000 in the nine-month periods ended September 30, 2022 and 2021, respectively.

 

Trade Accounts Receivable

 

Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

The following table provides the activity in the allowance for doubtful accounts for the nine-month periods ended September 30, 2022 and 2021 (In thousands):

 

  

Balance at

Beginning of

Period

  

Bad Debt

Expense

(Benefit)

  

Write-offs

  

Recoveries

  

Balance at

End of

Period

 
                     

Nine months ended September 30, 2022

 $94  $6  $37  $2  $65 

Nine months ended September 30, 2021

 $120  $38  $74  $10  $94 

 

11

 

Leases

 

We determine whether a lease is included in an agreement at inception. We recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for our operating leases under which we are lessee. Operating lease ROU assets are included in operating lease right-of-use assets in our consolidated balance sheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long-term liabilities. Certain lease arrangements may include options to extend or terminate the lease. We include these provisions in the ROU asset and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do not contain any residual value guarantees.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the rate of interest implicit in each lease is not readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.

 

We elected the practical expedient to account for lease and non-lease components as a single lease component for all asset classifications. We have also made a policy election to not record short-term leases with a duration of 12 months or less on the balance sheet.

 

Due to remote working arrangements, we reassessed our office needs and subleased our Seattle location under an agreement considered to be an operating lease beginning in May 2021. We have not been legally released from our primary obligations under the original lease and therefore we continue to account for the original lease separately. We recorded an ROU asset impairment charge in the nine months ended September 30, 2021 of $324,000, which was the amount by which the carrying value of the Seattle office lease ROU asset exceeded the fair value. We estimated the fair value based on the discounted cash flows of estimated net rental income for the office space subleased. The ROU asset impairment charge is included in depreciation, amortization and impairment expenses. There were no ROU asset impairment charges in the nine months ended September 30, 2022. Rent income from the sublessee are included in the statement of operations on a straight-line basis as an offset to rent expense associated with the original operating lease included in other expenses.

 

Fair Value Measurements

 

Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; (3) Level 3 Inputs—unobservable inputs.

 

The following details our financial assets within the fair value hierarchy at September 30, 2022 and December 31, 2021:

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 
  

(In thousands)

 

As of September 30, 2022

                

Money Market Funds

 $2,366  $-  $-  $2,366 

Total Cash Equivalents

 $2,366  $-  $-  $2,366 
                 

As of December 31, 2021

                

Money Market Funds

 $6,306  $-  $-  $6,306 

Total Cash Equivalents

 $6,306  $-  $-  $6,306 

 

There were no transfers between levels during the nine months ended September 30, 2022.

 

12

 

Our long-term debt described in Note 5 is recorded at historical cost. The fair value of long-term debt is classified in Level 2 of the fair value hierarchy and was estimated based primarily on estimated current rates available for debt of the same remaining duration and adjusted for nonperformance and credit. The following are the carrying amount and estimated fair values of long-term debt:

 

  

September 30,

2022

  

December 31,

2021

 
  

(In thousands)

 

Total carrying amount of long-term debt

 $23,412  $26,620 

Estimated fair value of long-term debt

 $22,681  $27,708 

 

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes ROU assets, property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). We estimated the fair value of the Seattle office ROU using discounted cash flows of the sublease based on management’s most recent projections, which are considered level 3 inputs in the fair value hierarchy and recorded an ROU asset impairment charge of $324,000 during 2021. As of September 30, 2022 and December 31, 2021, there was no indication of impairment related to these assets.

 

Annually, we consider whether the recorded goodwill and indefinite lived intangibles have been impaired. However, goodwill and intangibles must be tested between annual tests if an event occurs or circumstances change to indicate that it is more likely than not that an impairment loss has been incurred (“triggering event”).

 

Commitments and Contingencies

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. We do not believe the final disposition of claims at September 30, 2022 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

 

(2)

ACQUISITION

 

On January 4, 2021, we acquired substantially all assets and assumed certain liabilities of PatientWisdom, Inc., a company with a health engagement solution that will further our purpose of operationalizing human understanding through tangible and actionable insights. $3.0 million of the total $5.0 million all-cash consideration was paid at closing. We paid the remaining $2.0 million in January 2022. All payments were made with cash on hand. The acquisition was accounted for as a business combination, using the acquisition method of accounting, which requires, among other things, certain assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date.

 

The financial results associated with the PatientWisdom assets we acquired and liabilities we assumed are included in our consolidated financial statements from the date of acquisition, although the amounts are insignificant for the three- and nine-month periods ended September 30, 2022 and 2021.

 

13

 
 

(3)

CONTRACTS WITH CUSTOMERS

 

The following table disaggregates revenue for the three- and nine-month periods ended September 30, 2022 and 2021 based on timing of revenue recognition (in thousands):

 

  

Three months ended

  

Nine months ended

 
  

September 30,

2022

  

September 30,

2021

  

September 30,

2022

  

September 30,

2021

 

Subscription services recognized ratably over time

 $34,907  $34,598  $105,822  $101,867 

Services recognized at a point in time

  1,342   1,160   3,272   2,046 

Fixed, non-subscription recognized over time

  1,127   888   2,318   2,014 

Unit price services recognized over time

  315   1,121   2,012   3,729 

Total revenue

 $37,691  $37,767  $113,424  $109,656 

 

 

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands):

 

  

September 30,

2022

  

December 31,

2021

 

Accounts receivables

 $15,378  $13,728 

Contract assets included in other current assets

 $19  $99 

Deferred Revenue

 $(17,373

)

 $(17,213

)

 

Significant changes in contract assets and contract liabilities during the nine-month periods ended September 30, 2022 and 2021 are as follows (in thousands):

 

  

2022

  

2021

 
  

Contract

Asset

  

Deferred

Revenue

  

Contract

Asset

  

Deferred

Revenue

 
  

Increase (Decrease)

 

Revenue recognized that was included in deferred revenue at beginning of year due to completion of services

 $-  $(16,522

)

 $-  $(14,926

)

Increases due to invoicing of client, net of amounts recognized as revenue

  -   16,578   -   16,087 

Decreases due to completion of services (or portion of services) and transferred to accounts receivable

  (88

)

  -   (164

)

  - 

Increases due to acquisition

  -   -   -   239 

Change due to cumulative catch-up adjustments arising from changes in expected contract consideration

  -   104   -   323 

Increases due to revenue recognized in the period with additional performance obligations before invoicing

  8   -   26   - 

 

We have elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at September 30, 2022 approximated $1.8 million, of which $218,000, $972,000, $621,000 and $15,000 are expected to be recognized during 2022, 2023, 2024 and 2025, respectively.

 

 

(4)

INCOME TAXES

 

The effective tax rate was 23.5% for the three-month periods ended September 30, 2022 and 2021. The effective tax rate for the nine-month period ended September 30, 2022 increased to 24.5% compared to 23.0% for the same period in 2021 mainly due to decreased tax benefits from the exercise and vesting of share-based compensation awards of $316,000 and a 0.6% increase in our state tax rate which fluctuates based on the various apportionment factors and rates for the states we operate in.

 

14

 

In March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. As a result of the CARES Act, we had deferred $1.3 million of employer social security tax payments in 2020. In accordance with the CARES Act, we paid half of this liability in December 2021 and we expect to pay the remaining $656,000 in December 2022. We have had no other impacts to our consolidated financial statements or related disclosures from the CARES Act.

 

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into U.S. law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. The Company is evaluating the provisions included under the IRA and does not expect the provisions to have a material impact to the Company’s consolidated financial statements.

 

 

(5)

NOTES PAYABLE

 

Our long-term debt consists of the following:  

 

  

September 30,

2022

  

December 31,

2021

 
  

(In thousands)

 

Term Loans

 $23,412  $26,620 

Less: current portion

  (4,434

)

  (4,278

)

Less: unamortized debt issuance costs

  (141

)

  (73

)

Notes payable, net of current portion

 $18,837  $22,269 

 

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on September 30, 2022 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $23,412,383 term loan (the “Term Loan”) and (iii) a $75,000,000 delayed draw-down term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”). We may use the Delayed Draw Term Loan to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit to fund ongoing working capital needs and for other general corporate purposes.

 

The amended Term Loan revised the remaining payments for the existing balance outstanding balance of $23.4 million to monthly installments of $462,988 through May 2027. The Term Loan bears interest at a fixed rate per annum of 5%.  

 

Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (4.53% at September 30, 2022). Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2025. As of September 30, 2022, the Line of Credit did not have a balance. There were no borrowings on the Line of Credit during the nine-month periods ended September 30, 2022 or 2021. There have been no borrowings on the Delayed Draw Term Loan since origination.

 

We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.

 

The Credit Agreement is collateralized by substantially all of our assets, subject to permitted liens and other agreed exceptions, and contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio of 3.00x or less for all testing periods throughout the term(s) of the Credit Facilities. All obligations under the Credit Facilities are to be guaranteed by each of our direct and indirect wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries. As of September 30, 2022, we were in compliance with our financial covenants.

 

15

 

On September 30, 2022, we adopted ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption did not have an impact on our consolidated financial statements since there were no borrowings outstanding under the Line of Credit or the Delayed Draw Term Loan, which referenced LIBOR prior to the September 2022 amendment.

 

 

(6)

SHARE-BASED COMPENSATION

 

We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur. We refer to our restricted stock awards as “non-vested” stock in these consolidated financial statements.

 

Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3,000,000 shares of our Common Stock. The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ. Beginning in 2018, on the date of each annual meeting of shareholders, options to purchase shares of Common Stock equal to an aggregate grant date fair value of $100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service.

 

Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1,800,000 shares of our Common Stock. Stock options granted may be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally five to ten years following the date of grant.

 

During the nine-month periods ended September 30, 2022 and 2021, we granted options to purchase 127,227 and 101,091 shares of Common Stock, respectively. Options to purchase shares of Common Stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

 

  

2022

  

2021

 

Expected dividend yield at date of grant

  3.39

%

  2.15

%

Expected stock price volatility

  35.52

%

  34.85

%

Risk-free interest rate

  2.33

%

  0.91

%

Expected life of options (in years)

  6.3   7.0 

 

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.

 

16

 

The following table summarizes stock option activity under the 2006 Equity Incentive Plans and the 2004 Director Plan for the nine-month periods ended September 30, 2022:

 

  

Number of
Options

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Terms

(Years)

  

Aggregate

Intrinsic

Value

(In

thousands)

 

Outstanding at December 31, 2021

  477,640  $30.88   5.97  $6,337 

Granted

  127,227  $36.67         

Exercised

  23,581  $13.17      $- 

Forfeited

  -  $-       - 

Outstanding at September 30, 2022

  581,286  $32.86   5.84  $5,664 

Exercisable at September 30, 2022

  323,140  $26.97   4.08  $4,964 

 

As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.5 million which was expected to be recognized over a weighted average period of 2.62 years.

 

There was $304,000 cash received from stock options exercised for the nine months ended September 30, 2021. There was no cash received from stock options exercised for the same period in 2022. We recognized $264,000 and $99,000 of non-cash compensation for three months ended September 30, 2022 and 2021, respectively, and $828,000 and $285,000 of non-cash compensation for the nine-month periods ended September 30, 2022 and 2021, respectively, related to options, which is included in direct fixed and selling, general and administrative expenses.

 

We granted 12,698 non-vested shares of Common Stock under the 2006 Equity Incentive Plan during the nine months ended September 30, 2021. No shares were granted during the nine months ended September 30, 2022. As of September 30, 2022, we had 12,698 non-vested shares of Common Stock outstanding under the 2006 Equity Incentive Plan. These shares vest over five years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. We recognized $27,000 of non-cash compensation for each of the three-month periods ended September 30, 2022 and 2021, respectively, and $82,000 and ($10,000) of non-cash compensation for the nine-month periods ended September 30, 2022 and 2021, respectively, related to this non-vested stock, which is included in direct fixed and selling, general and administrative expenses. The following table summarizes information regarding non-vested stock granted to associates under the 2006 Equity Incentive Plan for the three months ended September 30, 2022:

 

  

Common Shares

Outstanding

  

Weighted

Average

Grant Date Fair

Value

Per Share

 

Outstanding at December 31, 2021

  12,698  $42.92 

Granted

  -   - 

Vested

  -   - 

Forfeited

  -   - 

Outstanding at September 30, 2022

  12,698  $42.92 

 

As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock awards was approximately $354,000 and is expected to be recognized over a weighted average period of 3.25 years.

 

17

   
 

(7)

GOODWILL AND OTHER INTANGIBLE ASSETS

 

The following represents the carrying amount of goodwill at September 30, 2022 and December 31, 2021:

 

  

Gross

  

Accumulated

Impairment

  

Net

 
  

(In thousands)

 

Balance at September 30, 2022 and December 31, 2021

 $62,328   (714

)

 $61,614 

 

Intangible assets consisted of the following:

 

  

September 30,

2022

  

December 31,

2021

 
  

(In thousands)

 

Non-amortizing intangible assets:

        

Indefinite trade name

 $1,191  $1,191 

Amortizing intangible assets:

        

Customer related

  9,426   9,445 

Technology

  1,959   1,959 

Trade names

  1,572   1,572 

Total amortizing intangible assets

  12,957   12,976 

Accumulated amortization

  (12,498

)

  (12,377

)

Other intangible assets, net

 $1,650  $1,790 

 

 

(8)

PROPERTY AND EQUIPMENT

 

  

September 30,

2022

  

December 31,

2021

 
  

(In thousands)

 

Property and equipment

 $52,182  $45,599 

Accumulated depreciation

  (36,421

)

  (33,208

)

Property and equipment, net

 $15,761  $12,391 

 

18

 
 

(9)

EARNINGS PER SHARE

 

Basic net income per share was computed using the weighted-average number of common shares outstanding during the period.

 

Diluted net income per share was computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

 

We had 343,414 and 145,736 options of Common Stock for the three-month periods ended September 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive. We had 306,446 and 122,171 options of Common Stock for the nine-month periods ended September 30, 2022 and 2021, respectively which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

 

  

For the Three Months Ended

September 30

  

For the Nine Months Ended

September 30

 
  

2022

  

2021

  

2022

  

2021

 
  

(In thousands, except per share data)

 

Numerator for net income per share – basic:

 $8,298  $9,657  $25,159  $27,833 

Net income

                

Allocation of distributed and undistributed income to unvested restricted stock shareholders

  (4

)

  (5

)

  (12

)

  (14

)

Net income attributable to common shareholders

  8,294   9,652   25,147   27,819 

Denominator for net income per share – basic:

                

Weighted average common shares outstanding – basic

  24,716   25,427   25,014   25,423 

Net income per share – basic

 $0.34  $0.38  $1.01  $1.09 

Numerator for net income per share – diluted:

                

Net income attributable to common shareholders for basic computation

  8,294   9,652   25,147   27,819 

Denominator for net income per share – diluted:

                

Weighted average common shares outstanding – basic

  24,716   25,427   25,014   25,423 

Weighted average effect of dilutive securities – stock options

  131   223   133   232 

Denominator for diluted earnings per share – adjusted weighted average shares

  24,847   25,650   25,147   25,655 

Net income per share - diluted

 $0.33  $0.38  $1.00  $1.08 

 

 

(10) 

RELATED PARTY

 

Mr. Hays, our Chief Executive Officer and director, is an owner of approximately 13% of the equity interests of Nebraska Global Investment Company LLC (“Nebraska Global”).  We purchased certain services from Don’t Panic Labs, LLC, which was a subsidiary of Nebraska Global for a portion of the six-month period ended June 30, 2022.  The total value of these purchases was $196,000 in the six-month period ended June 30, 2022.

 

19

 
 

(11)

Geographic Information

 

The tables below present entity-wide information regarding our revenue and assets by geographic area (in thousands):

 

  

Three months ended September 30,

  

Nine months ended September 30,

 
  

2022

  

2021

  

2022

  

2021

 

Revenue:

                

United States

 $37,691  $37,106  $112,631  $107,324 

Canada

  -   661   793   2,332 

Total

 $37,691  $37,767  $113,424  $109,656 

 

  

September 30, 2022

  

December 31, 2021

 

Long-lived assets:

        

United States

 $85,849  $83,722 

Canada

  29   111 

Total

 $85,878  $83,833 
         

Total assets:

        

United States

 $132,003  $153,879 

Canada

  2,980   3,661 

Total

 $134,983  $157,540 

 

 

ITEM 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our results of operations and financial conditions should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

 

Our purpose is to enable human understanding. We believe that understanding the story is the key to unlocking the highest-quality and truly personalized care. We are a leading provider of analytics and insights that facilitate measurement and improvement of patient engagement and customer loyalty for healthcare organizations. Our heritage, proprietary methods, and holistic approach enable our partners to better understand the people they care for and design experiences that inspire loyalty and trust, while also facilitating regulatory compliance and the shift to population-based health management. Our end-to-end solutions enable our clients to understand what matters most to each person they serve – before, during, after, and outside of clinical encounters – to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships. Our ability to measure what matters most and systematically capture, analyze and deliver insights based on self-reported information from patients, families and consumers is critical in today’s healthcare market. We believe that access to and analysis of our extensive consumer-driven information is becoming more valuable as healthcare providers increasingly need to more deeply understand and engage the people they serve to build customer loyalty.

 

Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, health risk assessments, employee engagement, reputation management, and brand loyalty. We partner with clients across the continuum of healthcare services. We believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.

 

The outbreak of COVID-19, and the associated responses, have impacted our business in a variety of ways. Governments have implemented business and travel restrictions and recommended social distancing and other guidelines. Many businesses, including many of our clients, have de-emphasized external business opportunities and restricted in-person meetings while shifting their attention toward addressing COVID-19 planning, business disruptions, higher costs, and revenue shortfalls. At NRC, the vast majority of our associates are working remotely, and to date we have been capable of providing our services without significant disruption. We made our facilities available for associates to return to work effective July 1, 2021 at their discretion. The duration and severity of the COVID-19 pandemic and associated impacts on our business, including the impact on our revenue, expenses, and cash flows, cannot be predicted at this time. Like many other companies, we have experienced higher attrition and higher costs to attract, train and retain these associates. Attrition in our sales and service areas can also impact our ability to retain and attract new business. Based on the foregoing, we do not expect our recent revenue and earnings growth to be indicative of future expectations. We do, however, expect to have adequate sources of liquidity to meet our current and expected needs for the foreseeable future. 

 

 

Results of Operations

 

The following tables set forth, for the periods indicated, selected financial information derived from our consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics. The discussion that follows the information should be read in conjunction with our consolidated financial statements.

 

Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021

 

 

   

(In thousands, except percentages)
Three Months Ended September 30,

   

Percentage

Increase

(Decrease)

 
   

2022

   

2021

   

2022 over 2021

 

Revenue

  $ 37,691     $ 37,767       (0.2

)

Direct expenses

    14,524       13,707       6.0  

Selling, general, and administrative

    10,762       9,523       13.0  

Depreciation, amortization and impairment

    1,296       1,399       (7.4

)

Operating income

    11,109       13,138       (15.4

)

Total other income (expense)

    (262

)

    (514

)

    (49.0

)

Provision for income taxes

    2,549       2,967       (14.1

)

Effective Tax Rate

    23.5

%

    23.5

%

    -  
                         

Operating margin

    29.5

%

    34.8

%

    (15.2

)

 

 

 

Revenue. Revenue in the 2022 period decreased compared to the 2021 period primarily due to the elimination of Canadian revenue of $660,000 due to the scheduled closure of the Canadian office in the 2022 period. Revenue in the US increased by $584,000 consisting of growth in recurring revenue in our existing client base of $2.9 million and non-recurring revenues of $103,000. This was partially offset by a decrease in US recurring revenue from new customer sales of $2.4 million.  We do not expect Canadian revenues in the future due to the closure of the Canadian office.

 

Direct expenses. Variable expenses decreased $8,000 in the 2022 period compared to the 2021 period primarily from lower survey and other subscription services of $324,000 due to lower volumes partially offset by increased conference expenses of $296,000 due to higher room rental and audio-visual costs. Variable expenses as a percentage of revenue were 15.3% in the 2022 and 2021 periods. Fixed expenses increased $825,000 primarily as a result of increased salary and benefit costs to attract and retain associates of $674,000 and contracted services to support our clients and invest in workforce automation of $277,000.

 

Selling, general and administrative expenses. Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to new marketing initiatives of $1.0 million to expand brand recognition and support sales development.

 

 

Depreciation, amortization and impairment. Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to certain software development and intangible assets being fully amortized after the 2021 period.

 

Operating income and margin. Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new benefit addition, as well as additional investments in our workforce automation tools and new marketing initiatives.

 

Total other income (expense). Total other income (expense) decreased in the 2022 period compared to the 2021 period primarily due to lower interest expense from the declining balance on our term loan of $125,000 and a reduction in intercompany revaluation adjustments from changes in the Canadian to U.S. dollar foreign exchange rate of $84,000 due to closure of the Canadian office.

 

Provision for income taxes and effective tax rate. Provision for income taxes decreased in the 2022 period compared to the 2021 period primarily due to decreased taxable income as the effective tax rate remained consistent between periods.

 

 

Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

 

   

(In thousands, except percentages)
Nine Months Ended September 30,

   

Percentage

Increase

(Decrease)

 
   

2022

   

2021

   

2022 over 2021

 

Revenue

  $ 113,424     $ 109,656       3.4  

Direct expenses

    43,062       38,184       12.8  

Selling, general, and administrative

    32,159       29,060       10.7  

Depreciation, amortization and impairment

    3,902       5,016       (22.2

)

Operating income

    34,301       37,396       (8.3

)

Total other income (expense)

    (958

)

    (1,266

)

    (24.3

)

Provision for income taxes

    8,184       8,297       (1.4

)

Effective Tax Rate

    24.5

%

    23.0

%

    6.5  
                         

Operating margin

    30.2

%

    34.1

%

    (11.4

)

Recurring Contact Value

  $ 148,036     $ 151,525       (2.3

)

Cash provided by operating activities

    28,161       34,270       (17.8

)

 

 

Revenue. Revenue in the 2022 period increased compared to the 2021 period due to an increase in US revenue of $5.3 million partially offset by decreased Canadian revenue of $1.5 million due to the scheduled closure of the Canadian office in the 2022 period. US revenue increased due to growth in recurring revenue in our existing client base of $11.5 million partially offset by decreases in US recurring revenue from new customer sales of $5.9 million and non-recurring revenues of $246,000.  We do not expect Canadian revenues in the future due to the closure of the Canadian office.

 

Direct expenses. Variable expenses increased $525,000 in the 2022 period compared to the 2021 period due to growth in conference expenses of $1.4 million due to additional conferences being held in the 2022 period compared to the 2021 period and the shift to allow live or virtual attendance at conferences partially offset by lower survey and other subscription services of $906,000. Variable expenses as a percentage of revenue were 14.4% in the 2022 and 2021 periods. Fixed expenses increased $4.4 million primarily as a result of increased salary and benefit costs to attract and retain associates of $3.4 million, contracted services to support our clients and invest in workforce automation of $656,000 and increased travel costs of $326,000 due to COVID travel restrictions being lifted.

 

Selling, general and administrative expenses. Selling, general and administrative expenses increased in the 2022 period compared to the 2021 period primarily due to innovation investments to support further development of our Human Understanding Solutions of $1.3 million, new marketing initiatives of $1.4 million, increased travel costs of $500,000 due to COVID travel restrictions being lifted, new associate coaching benefit expense of $372,000, as well as increased business insurance costs of $303,000, partially offset by decreases in public company and other legal and accounting costs of $969,000.

 

 

Depreciation, amortization and impairment. Depreciation, amortization and impairment expenses decreased in the 2022 period compared to the 2021 period primarily due to additional depreciation expense in 2021 from shortening the estimated useful lives of certain building assets of $403,000, incurring an ROU asset impairment of $324,000 from subleasing a remote office location in 2021 and a decrease of $392,000 due to certain software development and intangible assets being fully amortized after the 2021 period.

 

Operating income and margin. Operating income and margin decreased in the 2022 period compared to the 2021 period due to growth in salary and benefit costs to attract and retain associates including a new associate benefit, as well as additional investments in our Human Understanding Solutions, workforce automation tools and marketing initiatives.

 

Total other income (expense). Total other income (expense) decreased in the 2022 period compared to the 2021 period primarily due to lower interest expense from the declining balance on our term loan of $345,000.

 

Provision for income taxes and effective tax rate. Provision for income taxes decreased in the 2022 period compared to the 2021 period primarily due to decreased taxable income. The effective tax rate increased in the 2022 period compared to the 2021 period mainly due to decreased tax benefits from the exercise and vesting of share-based compensation awards of $316,000 and a 0.6% increase in our state tax rate which fluctuates based on the various apportionment factors and rates for the states we operate in.

 

Recurring Contact Value. Recurring contract value declined in the 2022 period compared to the 2021 period in part due to our strategy to focus on growing our digital core solutions, resulting in the elimination of certain legacy offerings. Our core digital solutions had 2.2% positive recurring contract value growth at September 30, 2022 compared to September 30, 2021. In addition, sales declined due to the difficulties of selling to our clients during the COVID-19 pandemic as well as increased turnover within our sales force. Our recurring contract value metric represents the total revenue projected under all renewable contracts for their respective next annual renewal periods, assuming no upsells, downsells, price increases, or cancellations, measured as of the most recent quarter end.

 

Cash provided by operating activities. Cash provided by operating activities decreased mainly due changes in deferred revenue primarily due to timing of initial billings on new and renewal contracts, changes in income taxes receivable and payable due to the timing of income tax payments and decreased net income net of non-cash items. See the Consolidated Statements of Cash Flows included in this report for the detail of our operating cash flows.

 

 

Liquidity and Capital Resources

 

Our Board of Directors has established priorities for capital allocation, which prioritize funding of innovation and growth investments, including merger and acquisition activity as well as internal projects. The secondary priority is capital allocation for quarterly dividends and share repurchases. We believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.

 

As of September 30, 2022, our principal sources of liquidity included $28.4 million of cash and cash equivalents, up to $30 million of unused borrowings under our line of credit and up to $75 million on our delayed draw term note. Of this cash, $2.7 million was held in Canada. The delayed draw term note can only be used to fund permitted future business acquisitions or repurchasing our Common Stock.

 

 

Our cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation and related taxes, reserve for uncertain tax positions, loss on disposal of property and equipment and the effect of working capital changes. Cash provided by operating activities decreased mainly due changes in deferred revenue, changes in income taxes receivable and payable and decreased net income net of non-cash items. These were partially offset by changes in trade accounts receivable which fluctuate with the timing of billing and collections and deferred contract costs due to a reduction in deferral of these costs which increased cash flow from operating activities.

 

We had a working capital surplus of $8.0 million and $33.3 million on September 30, 2022 and December 31, 2021, respectively. The change was primarily due to decreases in cash and cash equivalents and increases in dividends payable, partially offset by increases in trade accounts receivable and decreases in accrued wages and bonuses and accrued expenses. Cash and cash equivalents decreased mainly due to repurchase of shares of our Common Stock for treasury. Dividends payable increased due to timing of declarations and payments of dividends. Trade accounts receivable increased due to timing of billing and collections. Accrued wages and bonuses decreased due to timing and growth of the year-end bonus. Accrued expenses decreased mainly due to payment of the deferred acquisition consideration. Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements.

 

Cash used in investing activities consisted of purchases of property and equipment including computer software and hardware, building improvements and furniture and equipment.

 

Cash used in financing activities consisted of payments for borrowings under the term note and finance lease obligations. We also used cash to pay the deferred acquisition consideration, repurchase shares of our Common Stock for treasury, to pay dividends on Common Stock and to pay employee payroll tax withholdings on share-based awards exercised.

 

Our material cash requirements include the following contractual and other obligations:

 

Dividends

 

Cash dividends of $15.0 million were paid in the nine months ended September 30, 2022. Dividends of $5.9 million were declared in the three months ended September 30, 2022 and paid in October 2022. The dividends were paid from cash on hand. Our board of directors considers whether to declare a dividend and the amount of any dividends declared on a quarterly basis.

 

Acquisition Consideration

 

On January 4, 2021, we acquired substantially all assets and assumed certain liabilities of PatientWisdom, Inc., a company with a health engagement solution that will further our purpose of operationalizing human understanding through tangible and actionable insights. $3.0 million of the total $5.0 million all-cash consideration was paid at closing. We paid the remaining $2.0 million in January 2022. All payments were made with cash on hand.

 

Capital Expenditures

 

We paid cash of $7.9 million for capital expenditures in the nine months ended September 30, 2022. These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters of $2.5 million and $3.5 million, respectively. We estimate future costs related to our headquarters building renovations to be $3.1 million and $16.4 million in 2022 and 2023, respectively, which we expect to fund through operating cash flows.

 

 

Debt

 

Our amended and restated credit agreement (the “Credit Agreement”) with First National Bank of Omaha (“FNB”) was amended and restated on September 30, 2022 and includes (i) a $30,000,000 revolving credit facility (the “Line of Credit”), (ii) a $23,412,383 term loan (the “Term Loan”) and (iii) a $75,000,000 delayed draw-down term facility (the “Delayed Draw Term Loan” and, together with the Line of Credit and the Term Loan, the “Credit Facilities”). We may use the Delayed Draw Term Loan to fund any permitted future business acquisitions or repurchases of our Common Stock and the Line of Credit to fund ongoing working capital needs and for other general corporate purposes.

 

The Term Loan has an outstanding balance of $23.4 million and is payable in monthly installments of $462,988 through May 2027. The Term Loan bears interest at a fixed rate per annum of 5%.  

 

Borrowings under the Line of Credit and the Delayed Draw Term Loan, if any, bear interest at a floating rate equal to the 30-day Secured Overnight Financing Rate (“SOFR”) plus 235 basis points (4.53% at September 30, 2022). Interest on the Line of Credit accrues and is payable monthly. Principal amounts outstanding under the Line of Credit are due and payable in full at maturity, in May 2025. As of September 30, 2022, the Line of Credit did not have a balance. There were no borrowings on the Line of Credit during the nine-month periods ended September 30, 2022 or 2021. There have been no borrowings on the Delayed Draw Term Loan since origination.

 

We are obligated to pay ongoing unused commitment fees quarterly in arrears pursuant to the Line of Credit and the Delayed Draw Term Loan facility at a rate of 0.20% per annum based on the actual daily unused portions of the Line of Credit and the Delayed Draw Term Loan facility, respectively.

 

The Credit Agreement contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our Common Stock and acquisitions, subject in each case to certain exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the term(s) of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5,500,000 in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, and (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand. We are also required to maintain a cash flow leverage ratio of 3.00x or less for all testing periods throughout the term(s) of the Credit Facilities. All obligations under the Credit Facilities are to be guaranteed by each of our wholly owned domestic subsidiaries, if any, and, to the extent required by the Credit Agreement, direct and indirect wholly owned foreign subsidiaries. As of September 30, 2022, we were in compliance with our financial covenants.

 

The Credit Facilities are secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of our and our guarantors’ present and future assets (including, without limitation, fee-owned real property, and limited, in the case of the equity interests of foreign subsidiaries, to 65% of the outstanding equity interests of such subsidiaries).

 

Leases

 

We have lease arrangements for certain computer, office, printing and inserting equipment as well as office and data center space. As of September 30, 2022, we had fixed lease payments of $581,000 and $420,000 for operating and finance leases, respectively payable within 12 months.

 

 

Taxes 

 

The liability for gross unrecognized tax benefits related to uncertain tax positions was $1.4 million as of September 30, 2022. See Note 4, "Income Taxes", to the Consolidated Financial Statements contained in this report for income tax related information.

 

As of September 30, 2022, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act of 2017 (the Act”) was $164,000, which we expect to pay by the end of 2022.

 

Stock Repurchase Programs

 

On May 19, 2022 our Board of Directors approved a new stock repurchase authorization of 2,500,000 shares of Common Stock (the “2022 Program”). Under the 2022 Program we are authorized to repurchase from time-to-time shares of our outstanding Common Stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions as well as corporate and regulatory considerations. The 2022 Program may be suspended, modified, or discontinued at any time and we have no obligation to repurchase any amount of Common Stock in connection with the 2022 Program. The 2022 Program has no set expiration date.

 

During the three months ended September 30, 2022, we repurchased 87,135 shares of our Common Stock under the 2022 Program for an aggregate of $3.1 million. As of September 30, 2022, the remaining number of shares of Common Stock that could be purchased under the 2022 Program was 1,987,517 shares.

 

 

Critical Accounting Estimates

 

There have been no changes to our critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2021 that have a material impact on our Condensed Consolidated Financial Statements and the related Notes.

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

 

There are no material changes to the disclosures regarding our market risk exposures made in its Annual Report on Form 10-K for the year ended December 31, 2021.

 

 

ITEM 4.

Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

 

We have confidence in our internal controls and procedures. Nevertheless, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – Other Information

 

ITEM 1.

Legal Proceedings

 

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. For additional information, see Note 1, under the heading “Commitments and Contingencies,” to our consolidated financial statements. Regardless of the final outcome, any legal proceedings, claims, inquiries and investigations, however, can impose a significant burden on management and employees, may include costly defense and settlement costs, and could cause harm to our reputation and brand, and other factors.

 

ITEM 1A.

Risk Factors

 

The significant risk factors known to us that could materially adversely affect our business, financial condition, or operating results are described in Part I, Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2021.

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

In May 2022,our Board of Directors authorized the repurchase of up to 2,500,000 shares of Common Stock (the “2022 Program”).

 

Our Credit Agreement provides that, in order for us to pay dividends or repurchase our Common Stock, there must be no default or event of default existing or that would result from such payment and we must show that we would comply with the Credit Agreement’s fixed charge coverage ratio and consolidated cash flow leverage ratio after giving pro forma effect to such payment.

 

The table below summarizes repurchases of Common Stock during the three months ended September 30, 2022.

 

Period

 

Total Number

of Shares

Purchased

   

Average Price

Paid per Share

   

Total Number of Shares

Purchased as Part of

Publicly Announced

Plans or Programs(1)

   

Maximum Number of

Shares that May Yet Be

Purchased Under the

Plans or Programs

 
                                 

Jul 1 – Jul 31, 2022

    -       -       -       2,074,652  

Aug 1 – Aug 31, 2022

    72,149       36.02       72,149       2,002,503  

Sep 1 – Sep 30, 2022

    14,986       35.69       14,986       1,987,517  

Total

    87,135               87,135          

 

(1)

We announced the 2022 Program on May 20, 2022, it provided for the repurchase of up to 2,500,000 shares of Common Stock, and it has no expiration date.

 

 

ITEM 6.

Exhibits

 

The exhibits listed in the exhibit index below are filed as part of this Quarterly Report on Form 10-Q.

 

EXHIBIT INDEX  

 

Exhibit
Number

Exhibit Description

   

(3.1)

Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporations Current Report on Form 8-K dated June 29, 2021, and filed on July 2, 2021 (File No. 001-35929)]

   

(3.2)

Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporations Current Report on Form 8-K dated June 29, 2021 and filed on July 2, 2021 (File No. 001-35929)]

   

(4.1)

Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporations Current Report on Form 8-K dated June 29, 2021, and filed on July 2, 2021 (File No. 001-35929)]

   

(4.2)

Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporations Current Report on Form 8-K dated June 29, 2021 and filed on July 2, 2021 (File No. 001-35929)]

   

(10.1)**

First Amendment to Amended and Restated Credit Agreement between National Research Corporation and First National Bank of Omaha dated September 30, 2022

   

(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 September 30, 2022, formatted in Inline eXtensible Business Reporting Language (iXBRL): (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.

   

(104) **

Cover Page Interactive Data File (formatted in the Inline XBRL and contained in Exhibit 101).

 

 

** Filed herewith

 

 

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 thereunto duly authorized.

 

 

 

NATIONAL RESEARCH CORPORATION

 
     
       

Date: November 4, 2022

By:

/s/ Michael D. Hays 

 
   

Michael D. Hays

 
   

Chief Executive Officer (Principal

Executive Officer)

 
       
       
       

Date: November 4, 2022 

By:

/s/ Kevin R. Karas

 
   

Kevin R. Karas

Senior Vice President Finance,

Treasurer, Secretary and Chief

Financial Officer (Principal Financial

and Accounting Officer)

 

 

31