National Research Corp (NRC) 2009 Q4 法說會逐字稿

Welcome to the National Research Corporation fourth-quarter and end of year 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 today, Wednesday, February 10, 2010. I would now like to turn the conference over to Mr. Michael Hays, Chief Executive Officer, National Research Corporation. Please go ahead, sir.

Thank you, Operator. And welcome, everyone, to National Research Corporation's year-end 2009 conference call. My name is Mike Hayes, the Company's CEO, and joining me on the call today is our Chief Financial Officer, Pat Beans. Before we commence our remarks I would 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 about the facts that could affect the Company's future results, please see the Company's filings with the Securities and Exchange Commission. With that I'll turn it back to you, Mike.

Thank you, Pat. Again, welcome. And first let me highlight a couple of items before we review the fourth-quarter and year-end 2009 financial results.

As we have previously reported, NRC Picker is materially increasing its salesforce. As of today NRC Picker's salesforce headcount stands at 26, a fourfold increase from early 2009. While these new associates are of course far from up to speed, NRC Picker nevertheless registered a vast improvement this past quarter with fourth-quarter net new contracts surpassing the first three quarters combined.

The growth trajectory of NRC Picker will be enhanced further given our planned change to its business model, which will involve moving from a transaction-based pricing to an ongoing annual or multi-year subscription model. Furthermore this subscription-based pricing strategy envisions annual enhancements to deliverables with corresponding systematic price increases.

Our desire is to duplicate the revenue stability, visibility and systematic upside in pricing we experience in our other subscription-based business units. I will now turn the call back to Pat to review financial performance for the fourth quarter and year end.

Thank you, Mike. Fourth-quarter results showed vastly improved growth rates over the past few quarters. Revenue was $13.8 million, up 14% compared to the prior year. Operating margin was 24% with an operating income at $3.3 million, up 12% over the prior year. Net income was $2.2 million, up 18%. And diluted earnings per share were $0.33, up 18%.

Growth was driven by double-digit revenue and operating income growth in our Healthcare Market Guide and NRC Picker Canada division along with the addition of the 2008 acquisition of MIV division. In addition, as stated during the last call, we started the expansion of NRC Picker's sales team and will continue to invest in the sales expansion program across the Company.

Healthcare Market Guide's great third-quarter sales contributed to the 52% revenue growth for the division in the fourth quarter. Picker had strong fourth-quarter sales as well adding 32 new clients, double what they had added during any previous quarter during 2009.

Much of the revenue from these new clients will be recognized in the calendar year 2010 highlighting the revenue momentum and margin expansion going forward. NRC Picker Canada, also with double-digit revenue growth, did not only in this quarter but for the year driven by new clients and expansion of service to existing clients.

In addition to the units just highlighted, My InnerView registered 21% topline growth during the year. During the fourth quarter we also saw improvements due to stabilization in revenue for both NRC Picker and the TGI division, which we believe reflects a change in the economic environment.

Operating expenses were $10.5 million for the quarter, up $1.3 million or 14% compared to the fourth quarter of 2008. This is largely a result of the addition of MIV. Moving forward we expect to see some additional leverage with any increase in revenue. Our operating margin was 24% for the quarter, the same as the third quarter of 2009. Our goal is 25% operating margin.

The direct expense costs for the quarter were $5.5 million or 40% of revenue, which is down slightly from the prior quarter in both absolute dollars and as a percent of revenue. Lower direct costs as a percent of revenue are in part driven by MIV's lower level of direct expense as a percent of revenue and the margin expansion achieved in the ticker division. All of these divisions have done well and a good job of reducing or holding direct cost as a percent of revenue.

The selling, general and administrative expenses for the quarter were $4 million or 29% of revenue. This is up $1.3 million compared to the prior year, 70% of which is driven by the acquisition of MIV and only a small part of MIV's expenses were reflected in the last year's expenses, and the expansion of MIV's salesforce. On an annual basis SG&A expenses are 2 percentage points higher as a percent of revenue compared to 2008.

Depreciation and amortization expenses for the quarter were $928,000 or 7% of revenue. The drivers of the increase in the depreciation and amortization were the acquisition of MIV and the related amortization of intangible assets and depreciation of equipment in the amount of $176,000. Interest expense increased $70,000 during the quarter compared to the same period in 2008, also related to the acquisition of MIV.

This brings us to net income which for the year increased to $8.5 million, up 14%. Diluted earnings per share increased to $0.33 for the quarter, up 18% over the prior year's same quarter. For the year diluted earnings were $1.26, up 16%. Cash flow from operations for the year 2009 was $13.7 million. The Company had an ending cash balance at December 31, 2009 of $2.5 million.

In review of the year 2009 we have increased both our topline revenue and earnings per share, but have not attained our goal. That said, we're optimistic that NRC Picker and TGI will register growth rates in 2010. This optimism is founded in part on TGI's increased conference attendees, which is returning to the 2008 levels and NRC's sales expansion which has been referred to above. With that I'll turn it back to you, Mike.

Thank you, Pat. With the year 2009 now closed and 2010 out of the gate, let me briefly highlight the major agenda items for each business unit for this calendar year.

As mentioned, NRC Picker, our largest business unit, will maintain a 30 person sales team representing a fourfold increase over the year 2009. In addition, NRC Picker will evolve to a subscription-based model representing incremental revenue from current clients while creating a unique offering for the market at large.

Our Payer Solutions business unit will likely result in lower Medicare Advantage or health risk assessment revenues in the year 2010. However, by capitalizing on this group's experience and now capacity we will in the second quarter launch a major new product now being tested with community hospitals and academic medical centers.

Our ticker division will likely continue to expand rapidly by adding new enhancements that will drive increased spend from current subscribers as well as increased market share from its current 21% penetration of its addressable market.

My InnerView's primary focus for the year centers on simplifying and repackaging its offerings. Once completed and rolled out the subscription-based pricing will represent a 20% annual price increase on average across its 8,000 client facilities.

And finally, The Governance Institute will rollout a good-better-best membership offering tailored to various market segments so as to increase its penetration from its current 20% share.

None of the agenda items highlighted represent new ideas. Rather each are tangible initiatives currently resourced that are rolling out in the year 2010. A few common threads you'll obviously notice are packaging, enhanced value and new product development. I have spoken many times before about our highly refined methods of listening to the market and our talented associates that bring solutions to life. Throughout the year 2010 we will witness the fruits of many of these efforts.

At a corporate service level we continue to focus on optimizing and developing talent. To this end we have added depth to our leadership bench with Amy Ostermeyer joining the Company. Amy is charged with talent management and will become a critical resource for business units, leadership development and talent acquisition efforts.

At the corporate level, as you know, we also allocate capital and will remain focused in the year 2010 on maintaining a prudent balance of organic growth, acquisitions, share repurchase and returning shareholder income via dividends.

In closing and before I open the call for your questions, I want to announce that this week I have gifted 2.5 million shares of my personal holdings of NRC stock to a two-year Granter Remaining Annuity Trust, or GRAT. As you know, GRAT is a common estate planning method for assets one believes will have material appreciation going forward and SEC filings will be registered this week. Operator, I would like to now open the call to questions.

(Operator Instructions). Ryan Daniels, William Blair & Co.

Hey, guys, this is actually Andy O'Hara in for Ryan today. A couple of quick questions for you. So in terms of the Picker salesforce ramp up, when do you expect these guys to be up to full speed?

It elongates over a period of approximately 24 months with each subsequent six-month period roughly doubling the previous six months. So we just are now out of the gate, as you know, and we would anticipate most if not all to be close to full quota within a two year period.

Excellent. And then can you give us an update on cross-selling efforts specifically with salesforce incentives?

We still have many programs in place, but quite frankly they aren't producing the results that we felt they would. We have an increasing number of clients of one division doing work with other business units more so than ever before, but we're far from where we want to be. So we continue to struggle on that front, quite frankly.

Do you have for us this quarter the exact percentage that say buy from only one division and say buy from all your divisions?

I don't have the exact percentages. But it would be well under 5% of all 1,800 client facilities for the acute care hospital side that do work with all divisions.

Okay. And what would you say is your target within say the next year or two for that number?

We really haven't established a target.

Okay, okay. And then in terms of the revenue growth outlook for 2010. Do you have a range you could give me?

We don't necessarily provide growth ranges, but we would anticipate that given the momentum we're coming out of the year 2009 with we should be north of where we were last year.

Okay. And then in terms of direct expenses trending there, anything you're expecting?

Like I said, I think we're still working to get an operating margin of 25%, we ended at 24%. So I think the expense structure should stay within that framework and hopefully work towards the 25%.

All right, excellent. Thanks a lot, guys.

(Operator Instructions). There are no further questions at this time. Mr. Hays, I will turn the conference back over to you.

Thank you, Operator. And thank you, everybody, for today spending the time with us. Pat and I look forward, as usual, to speaking with you again next quarter. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.