Q2 2020 National Research Corp Earnings Call

Greetings and welcome to the second quarter 2020 conference call. During the presentation, all participants will be in listen only mode. Afterwards, he will conduct a question and answer session at that time if you.

The question. Please press the one followed by the 400 telephone if at any time during the conference teach reaching operator, Please press the star zero.

As a reminder, this conference is being recorded Wednesday August 2020, I would now like turn the conference over to Kevin Cohen, Chief Financial Officer. Please go ahead.

Thank you Christine and welcome everyone to National Research corporations, 2022nd quarter earnings call again, My name is it's Kevin Charisma I'm, the Chief Financial Officer.

For continuing I would like to review conditions related to any forward looking statements that may be made as part of today's call.

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 vaccine 95.

Further information about the facts.

That could affect the company's future results.

Please see the company's filings with the Securities Exchange Commission.

Before reviewing second quarter 2020 performance on behalf of all NRC Associates I would like to extend our heartfelt. Thank you.

Our customers and frontline caregivers around the world, who continue to work tirelessly to save lives and keep community safe during the Kobin 19 pandemic.

As we're all aware this public health crisis continues to have an extended financial impact on many sectors of the economy, including health care.

We have no unique perspective, which would allow us to forecast the depth duration or specific impact on our clients.

Our on Intercity health given us uncertainty are only assumption is that the company sales revenue and margins are unlikely to follow the growth trends for the past.

Regarding our Q2 performance recurring contract value at the end of the second quarter of 2020 ended at 142.8 million representing 11% grows over the same period in the prior year.

Health care system clients with agreements for multiple solutions represented 28% of our client base.

At the end of second quarter of 2020.

Up from 26% at the same time last year.

Recurring contract value for our digital voice to the customer platform solutions increased to 106.9 million compared to 82 million at the end of second quarter 2019.

In response to special circumstances, among clients hit hard by Cobot 19.

We elected to provide uncompensated services, which reduced revenue without a corresponding offsetting in expenses and therefore also reducing operating income in Q2.

All of these impacted clients have resumed compensated services as planned to date and many have extended contract terms in recognition of the support provided by NRC health, resulting we believe in a stronger long term partnership.

Second quarter revenue was 31.2 million a decrease of 0.8% over the second quarter 2019.

Consolidated operating income for the second quarter of 2020 was 9.3 million.

Or 30% of revenue compared to 10.1 million or 32% of revenue for the same period last year.

Total operating expenses of 21.9 million for the second quarter increased by 3% compared to the second quarter of 2019.

Total operating expenses of 21.3 million.

Our direct expenses increased to 11.6 million for the second quarter of 2020 compared to 11.5 million for the second quarter 2019.

Direct expenses remained at 37% of revenue in both the second quarter 2020, and 29 team.

Direct expenses increased primarily due to an increase in fixed expenses offset by decrease in our variable expenses.

<unk> expenses increased primarily due to higher salary and benefit costs and contracted services in the customer service and information technology areas.

Offset by lower travel and milk costs due to restricted travel associated with cobot 19.

Variable costs are lower due in large part to the continued shift of our revenue mix from legacy solutions to voice of the customer platform revenue as well as decreased conference expenses due to rescheduling of events due to covert 19.

Variable direct expenses that percentage of revenue decreased 13% for the second quarter 2020.

And 17% in the second quarter 2019.

Selling general and administrative expenses increased 8.9 million for the second quarter 2020, compared to 8.3 million for the same period in 2019.

Primarily due to higher salary and benefit costs increased software platform hosting expenses and additional contract services.

Selling general and administrative expenses were 28% of revenue for the second quarter of 2020 compared to 26% of revenue for the second quarter 2019.

Depreciation and amortization expense was 1.4 million for both second quarter 2020 and 2019.

Other income expense change to $718000 of other net expense in the second quarter 2020, compared to $664000 of other net expense in the second quarter 2019.

The increase was primarily due to the revaluation on intercompany transactions due to changes in foreign exchange rate.

Which was partially offset by decreased interest expense due to the declining balance on our term loan.

The company had an income tax provision of $842000 for the second quarter 2020, compared to 2.1 million in.

In 2019.

Effective tax rate was 10% for the second quarter 2020, compared to 22% for the same period in 2019.

Primarily due to increased tax benefits.

2020 from the exercise and vesting of share based compensation awards.

Partially offset by higher state income taxes since we are now filing in more states.

Net income for the second quarter 2020 was 7.7 million.

Compared to 7.4 million in 2019.

This completes their prepared remarks.

Christy I will now ask you to open the call at 20 questions.

Thank you if you would like to register for a question today. Please press. The one followed by the four on your telephone you will share three Tom Tom to acknowledge your request. If your question has been answered and you would like to withdraw registration. Please press. The one followed by this story.

Once again asked a question please press one <unk>.

Our first question comes from the line of John Lewis with Willis Investment Council. Please go ahead. Your line is open.

Good morning, Kevin I. Appreciate you taking the question I was just curious if what do you guys given complimentary services to some of your customers are there any risk in the receivables that they may not be collected.

Yeah. Thanks, John Oh, that's a good question you know we did see.

An increase in our accounts receivable days sales outstanding.

At the end of the second quarter compared to.

Our historical trends and.

Part of the discussions with our customers worst situations, where they had requested.

Deferred payment terms or an adjustment and payment terms.

Which we did agree too so.

In cases, where we felt that was appropriate we made that accommodation.

I would say that we.

Expect that.

All of the deferred for a pass through amounts will ultimately be collected with minimal increase in our bad debt expense.

We have not seen a situation, where we have customers you know declaring bankruptcy or any.

Anything that would give us the indication that that those accounts receivable will not ultimately be collected you know at a rate that we historically have seen.

Just going to take a little bit longer.

Right understood not make sense. So in Q more generally could can you give me any more information just in trends that may be happening in the industry are we moving further towards consolidation brought on by coded is some of the smaller players suffer more than the bigger players can you give anything there.

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Sure.

I think the macro trends that we've been saying for several years continue to hold true and potentially some acceleration with cobot, we have seen significant consolidation and the healthcare system market.

More and more it's it's a smaller number of large healthcare systems that provide a large percentage the care across the country.

And.

You know I cannot say that I have significant data points over the last 60 or 90 days, where there's been any increase in M&A I think because providers have been so focused on.

Just trying to prepare for cobot, but there there could potentially as a result to this third there could be some acceleration and what was already.

A trend of consolidation.

That makes sense I really appreciate you taking the questions.

Okay, you're welcome.

Thank you once again as a reminder, if he would like to register for a question today. Please press one filler.

And there are no further questions at this time.

Okay. Thank you Christine just in closing I'd say it goes without saying that cobot 19 is far from behind Us and.

Again, our thoughts and supported with those who are on the front lines battling this pandemic.

And with that thank you for your time today and that's the end of the call.

That does conclude the conference call for today. Thanks for your participation. Please disconnect your line.

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