National Research Corp (NRC) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2009 conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, May 6, 2009. I would now like to turn the conference over to Michael Hays, Chief Executive Officer. Please go ahead, sir.

Thank you, Tara and welcome, everyone, to National Research Corporation's first-quarter 2009 conference call. My name is Mike Hays, the Company's CEO and joining me on the call today is Pat Beans, our Chief Financial Officer.

Before we commence our remarks, I would like ask Pat to review conditions related to any forward-looking statements that may be made as part of today's call. Pat?

Thank you, Mike. This conference call includes forward-looking statements related to the Company that involve risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated.

These forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. For further information on the facts that could affect the Company's future results, please see the Company's filings with the Securities and Exchange Commission. With that, I will turn it back to you, Mike.

Thank you, Pat. And welcome again, everyone. Our quarterly financial performance over the past 10 odd years has covered the gamut from poor to great. I am happy to announce that the first quarter of 2009 was squarely in the record-breaking great category. As we celebrate record performance in what has been labeled uncertain times, we do so with respect and awareness that record performance should not be assumed quarter after quarter.

I would be remiss, however, to let the performance of our payer solution business unit in this past quarter go unrecognized. While every one of our six NRC business units showed positive earnings growth quarter over quarter, Payer Solutions clearly led the pack.

Let me now turn the call back to Pat before I provide some additional color on the organization and our trends going forward. Pat?

Thanks, Mike. For the three months ended March 31, 2009, the Company achieved record revenue of $16.7 million compared to $13.5 million in the same period in 2008, a 24% increase. For the three months ended March 31, 2009, net income from the Company was $2.7 million, or $0.39 per diluted share compared to $2 million or $0.29 per diluted share for the same period in 2008, a 34% increase.

The net income margin was 16% for the first quarter of 2009, which exceeds our model of 15% and was a 1% improvement over the 15% margin in the same period of 2008. Operating income improved by two percentage points, 26% of revenue for the quarter.

During the first quarter of 2009 and 2008, direct expenses as a percent of revenue were 44%. It is important to note, however, that the expense related to this segment of the salesforce, focusing exclusively on current clients, are loaded in the first quarter of 2009 direct expenses and were not in the prior year's first quarter.

During the first quarter of 2009, selling, general and administrative costs represented 24% of revenue, a two percentage point improvement compared to 26% in the first quarter of 2008. For the first quarter of 2009, we were within our model of 23% to 25%. Depreciation expense were 5% of revenue in the first quarter of 2009, the same as the first quarter of 2008. This includes the additional new amortization for the My InnerView acquisition in December 2008.

During the first quarter of 2009, the Company had $138,000 interest expense, up from the $44,000 in the first quarter of 2008. Net loans were paid down by $1.9 million during this period. Cash flow from operations for the first quarter of 2009 was $3.7 million compared to $2.1 million for the 2008 year. The increases from the quarter was the timing of collections, billings and estimated tax payments. Cash and short-term investments as of March 31, 2009 were $620,000. With that, I will turn it back over to you, Mike.

Thank you, Pat. Let me provide a few comments and additional color on our first-quarter performance overall, as well as that of each business unit before I turn the call over for your questions.

The first quarter ended with contract value of $59.2 million. Our growth in first-quarter net income, as I mentioned earlier, showed positive growth from all six NRC business units. The revenue growth we experienced was largely attributed to Healthcare Market Guide, My InnerView, Payer Solutions and NRC Picker Canada.

The net new sales for the first quarter of 2009 were $1.6 million compared to $1.9 million in the first quarter of 2008. The lower net new sales for the quarter was concerning to me until I noted that the single month of April 2009 almost equaled the first-quarter 2009 new sales number.

Focusing for a moment only on The Governance Institute, we saw the first quarter 2009, as was the case in the fourth quarter of 2008, a slightly lower growth in new TGI members. The Governance Institute has also seen fewer board members of TGI hospital organizations attending conferences due to travel restrictions. Even so, TGI showed positive growth in operating income for the quarter and in my view, will register positive top-line growth for the entire year.

For the first-quarter performance of NRC Picker, it tracked to the historical trends of that business unit over the past three or four quarters. First-quarter net new sales for NRC Picker US were lower in the first quarter of 2008, yet this business unit has today by far the largest pipeline of outstanding deals.

Healthcare Market Guide growth trends continued for the quarter with revenue more than doubling. This trend has been driven by last year's deferred revenue coming into this year and new ticker subscriptions for the first quarter of 2009. In fact, looking forward, Healthcare Market Guide looks strong if first-quarter renewal rates of 97% and higher sales in April of 2009 than in any month in the last two years are any indication.

Regarding NRC Picker Canada, we recently won a major contract in the province of Ontario suggesting our Canadian business unit will have a very positive 2009. My InnerView, for the first time, contributed to our organization's overall performance in the quarter and in order to begin capitalizing on the growth that we see in the senior healthcare provider space, we have recently added six sales associates to the newly created My InnerView sales team and will add another eight here in May. Our history of sales expansion has worked in the past and is now at work at My InnerView.

Given our record performance this last quarter, we are still not in my opinion at 100% peak performance. Looking back say over the last four or five quarters, I believe at any point in time, we have been performing well in four or so of our six business units. Not always just four, and never the same two units performing at lower comparable levels. All this to say is our portfolio of business has proven to be an interesting hedge for one another and of course, we are now focused on hitting on all six cylinders.

During our last earnings call, I provided much detail on how product development is helping grow our organization. During the first quarter, more innovative ideas were added to the development pipeline, as well as others moved through market test phase and are now being tested in the sales phase.

In addition, and ironically, it seems as though the economy continues to surface unique opportunities for us, whether it be in landing a new client by addressing their budget cuts or a historical competitor moving or in fact premeditated and electing to change directions, all of which provide new opportunities to which we are capitalizing upon.

Let me end my prepared remarks by saying while we completely understand record performance in the first quarter cannot always be duplicated, we nevertheless remain very positive about our growth path that we are currently on. Sarah, I would like to now open the call for questions and answers, please.

(Operator Instructions). Kristina Blaschek, William Blair.

Good morning, guys. Congratulations on a nice quarter. It is Kristina for Ryan Daniels this morning.

Good morning.

I had one quick follow-up question on your prepared remarks, Pat, from earlier. On the salesforce expenses that you mentioned earlier about current clients and loaded into the first quarter of '09, is that on the direct expense line or SG&A?

It is on the direct line. That used to be part of the SG&A.

Right.

This is what we changed in July of '08.

Okay. And that is in the direct expense line now and you said it was loaded into Q1 '09, correct?

Yes, it would have been in Q1 '09, but not in -- in Q1 of '08, it would have been down in SG&A.

Sure. Okay. Now do you still anticipate direct expenses for the remainder of the year to still kind of be within the 43% to 45% range?

Yes, I think they should stay in that range.

Okay, great. And then I guess, if I may, on the expenses. On the margin improvement during the quarter, was there anything else that was perhaps specific in the quarter that led to the improvement that maybe we wouldn't expect going forward?

I think probably the record revenue helped on all fronts as far as the margins on helping SG&A is pretty constant. And with the revenue that we had for the quarter, that allowed for that margin improvement. Our mark is still to try to be around the 15%, 25% operating.

Okay. That's helpful. And then I have one last question actually on revenue. Now when I think about the rest of the year, I guess if you could help me with modeling a little bit, is it fair to assume that we will not see the seasonality that we have in the past few years given you are recognizing the majority of Healthcare Market Guide revenue over a 12 month period versus annually now?

Clearly, the seasonality is less in the business. The two uniquenesses I guess that still represent seasonality is My InnerView typically has a lower Q2 and Healthcare Market Guide, not 100% of the subscribers converted to the ticker ongoing product. So some still are on the historical annual delivery, which happens in the third quarter. So it is less than it has been, but you will still see some evidence.

Okay, great. And then final question, do you anticipate your tax rate to stay at that 38% level for the remainder of the year?

Yes.

Okay, great. Well, congratulations again and nice quarter. That is all I have for now.

Thank you.

Adam Fisher, Burnham.

Hey, how are you?

Good morning.

Talk a little bit about the marketshare shifts you are seeing in Picker. It sounds like we may be gaining some share and that the pipeline, if it remains this robust, it could get us even farther. Talk a little bit about what you are seeing.

We are pressing pretty hard, as you might imagine, against competitors' large accounts, especially ones that we feel, through some level of evidence, that the hospital is running into budget pressures. We are clearly trying to go in and win that business. We had a pretty significant win last quarter. We didn't have as significant of a win this quarter, but the pipeline is robust with those kinds of opportunities. So we are actually taking the economic pressures and trying to turn it to our advantage and that of the disadvantage for a competitive set that might not be willing to be as aggressive as what we are in terms of capturing share. So it is a strategy that we have baked into the NRC Picker US side of the business and we will see how it unfolds over the course of the year.

How are the cross-selling efforts going?

Not very well quite frankly. We just had a session the other day with all the presidents of the business units and that still seems to elude us. We are tactically trying some different things at more the sales level within the business units and that seems to have a little more traction, a little cleaner line of sight to an activity and a payout. But we still are not doing well on that as well as I think we could and should.

Do you think you will see a turn maybe from some of the stuff you're working on now maybe later on this year or how are you thinking of it?

Anytime you put a group of salespeople that our commission-based against line of sight for revenue, it tends to happen or not happen fairly quickly. So I think we will have some visibility within the next quarter or so as to whether some of our strategies have any traction.

You mentioned, Mike, specifically GHS I guess had a particularly good quarter. I think it has been -- that is on the back of some weakness at the end of last year. What specifically drove that?

Ironically, Medicare Advantage enrollment has been trending down and that group, while remaining very profitable, has clearly had the most headwind against it. Yet first quarter of this year, Medicare Advantage enrollment disproportionately increased in comparison to what our expectations were. And because we have a very lean business unit in terms of the expense structure, that incremental revenue really kicked in to contribute to the bottom-line performance. So they did a great job. Whether or not that will continue of course, we still have the overall view that Medicare Advantage enrollment will decline over time, but right now, we will take it.

Yes, yes. On the My InnerView side, is that kind of within -- are they tracking to your expectations relative to when you first acquired the business?

The integration has gone okay. I don't think it has gone flawless, but it is far from being the opposite end of the bookend, so I think that is at expectations. We moved fairly rapidly, but never as rapidly as I would like, of course, on ginning up a sales grew. That is in place right now and I'm happy to say the person that we brought on to head up that sales team, Jason [Stevens], has a decade or more of experience in this particular space and managing sales teams. So we're out of the gate with strong leadership on the sale side. We have five on board, we have another eight I believe that comes on in two weeks. So I wish that would've happened sooner, but now that that is up and running, I think we will be on track to realize the trends, incremental revenue trends that we anticipated.

You mentioned specifically a Canadian contract. How much benefit do we have in the quarter and are there some additional opportunities there?

There was no benefit to the quarter in terms of revenue and there will not be, as I understand it, any revenue benefit in Q2. But through Q3 and 4 and then theoretically ongoing, there will be -- it ought to give that group probably a 10% increase in their overall revenue. So I would say $300,000 or $400,000, $450,000 worth of annualized revenue ought to be coming from that new contract, which doesn't sound like a lot, but for that business unit, it was a nice win.

And is it a one-off plan or do you think there is some other opportunities that we can build that on top of?

It is not a one-off, it is actually a broader expansion of a program that we had installed for only a few hospitals in Ontario that had proven success. And so they rolled it out to essentially 100% of the hospitals in Ontario. So it clearly wasn't a one-off; it was something that the group had been working on for the last year.

I don't know that there is a lot of add-on directly related to that particular contract other than it is an additional product and services that we are offering to essentially 100% of the hospitals in Ontario, which just gives us another touch point and makes the relationship stickier.

Okay. That's it for me. Thank you.

(Operator Instructions). And there are no further questions at this time.

Thank you, Sarah and thank you all for joining us today. As you can tell, we're moving forward on several different fronts and hopefully at an ever increasing pace. And as always, Pat and I look forward to keeping you abreast of our progress and we will talk you at the next earnings call. Thank you.