National Research Corp (NRC) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the National Research Corporation Second Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, August 2, 2017. I'd now like to turn it over to Mr. Michael Hays, Chief Executive Officer. Please go ahead, sir.

Thank you, Keith, and welcome, everyone to National Research Corporation's Second Quarter Earnings Call for 2017. My name is Mike Hays, the company's CEO. And joining me on the call today is Kevin Karas, our Chief Financial Officer.

I'd like now for Kevin to review forward-looking statements that may be made as part of today's call. Kevin?

Thank you, Mike. This conference call includes forward-looking statements related to the company that involve risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the facts that could affect the company's future results, please see the company's filings with the Securities and Exchange Commission.

Mike?

Thanks, Kevin, and again, welcome, everyone. What I'd like to do is just turn the call right back to Kevin and jump into the review of our second quarter and year-to-date 2017 performance. Kevin?

Thanks, Mike. Our total contract value at the end of the second quarter totaled $121.7 million, representing 7% growth over the same period last year. Our healthcare system clients with agreements for multiple solutions represented 20% of our client base at the end of the second quarter of 2017, up from 18% at the same time last year. Subscription-based revenue agreements at the end of the second quarter represented 91% of our total recurring contract value.

Second quarter 2017 revenue was $28.4 million, an increase of 9% over the second quarter of 2016, with the increase being comprised entirely of organic growth from adding new clients and increasing contract value for existing clients. Consolidated operating income for the second quarter of 2017 was $8.5 million or 30% of revenue compared to $7 million or 27% of revenue for the same period last year.

Total operating expenses increased by 5% to $20 million for the second quarter of 2017 compared to $19.1 million for the same period last year. Our direct expenses increased 11% to $11.9 million for the second quarter of 2017, up from $10.7 million for the same period last year. Direct expenses, as a percent of revenue, increased to 42% for the second quarter in 2017 compared to 41% in 2016. Our variable direct expenses, as a percent of revenue, decreased compared to last year as incremental variable cost of product expenses from revenue growth in the quarter were offset by decreased costs from changes in data collection methodologies. At the same time, our fixed direct expenses were increased as we added additional resources for client services.

Selling, general and administrative expenses decreased to $6.9 million for the second quarter 2017 compared to $7.3 million for the same period last year. The decrease in SG&A expenses is primarily due to lower salary and benefit costs, including lower share-based compensation expense. SG&A expenses were 24% of revenue for the second quarter of 2017 compared to 28% of revenue for the same period in 2016. Depreciation and amortization expenses stayed consistent at $1.1 million for both second quarters of 2017 and 2016. The provision for income taxes totaled $2.7 million for the second quarter of 2017 compared to $2.5 million for the same period last year. Our effective tax rate was 32.1% for the second quarter of 2017 compared to 35.2% for the same period in 2016. The decrease in our effective rate was mainly due to higher tax benefits in 2017 from the exercise of options and the tax benefit of dividends paid to nonvested shareholders. Net income for the second quarter was $5.8 million in 2017 compared to $4.6 million in 2016. Our diluted earnings per share increased to $0.13 for Class A shares and $0.80 for Class B shares for the quarter ended June 30, 2017, up from $0.11 for Class A shares and $0.64 for Class B shares for the same quarter last year.

With that, I'll turn the call back to Mike.

Thank you, Kevin, for reviewing the performance. That completes our prepaid remarks. So Keith, I'd like to open the call for questions now, please.

(Operator Instructions) And we have a question from the line of Rob Munnings with William Blair.

He disconnected. I apologize. We have a question from the line of Frank Sparacino with First Analysis.

Kevin, can you just elaborate a little bit more on the change of data collection methodology that similarly relates to more of the survey moving to online e-mail versus traditional methods?

Frank, yes. This is Kevin. There has been a shift. It's a slow shift, but we've seen more usage of digital means of collecting data over where we were a year ago.

And Mike, can you just comment on the macro environment and value sales did pick up this quarter. But any thoughts on kind of hospital sort of spending which seems to be -- continuing to be challenging?

Good question. I don't know that a lot has changed. Our sales for this quarter were lower than Q2 last year, but sequentially, higher than Q1 of this year. The environment, I think, is pretty much the same. It's always a tough market, as we know. I don't know that it's getting any different than that. So I think, it's really just pretty much all the same. Not seeing any major shifts.

(Operator Instructions) Look's like no other questions.

That's fine. Thank you, everyone, for your time today. And Kevin and I look forward to reporting our progress next quarter. Thank you.

Ladies and gentlemen, that will conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.