Q1 2024 National Research Corp Earnings Call
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Good morning, all productive and welcome to the National Research Corporation first quarter earnings call. My name is out there.
Operator: Good morning, all, and welcome to the National Research Corporation First Quarter Earnings Call. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor to Linda Stacy to begin, so Linda, please go ahead when you are ready.
Linda Stacy: Adobe references today.
Linda Stacy: You'd like to ask a question during the Q&A portion of today's call you may do so by pressing star followed by one on your telephone keypad.
Operator: The floater Linda Stacy chicken cylinder. Please go ahead when you're ready.
Linda Stacy: Thank you Adam and welcome everyone to National Research Corporation's 2024 first quarter earnings call. My name is Linda Stacy the company's principal financial officer, and joining me on the call today are Mark Scutter from our executive leadership team and Helen <unk>, our chief customer officer.
Linda Stacy: Thank you, Adam, and welcome, everyone, to National Research Corporation's 2024 First Quarter Earnings Call. My name is Linda Stacy, the company's Principal Financial Officer, and joining me on the call today are Mark Scudder from our Executive Leadership Team and Helen Hurdy, our Chief Customer Officer. Before we continue, I'd like to point out that 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.
Linda Stacy: Before we continue I'd like to point out. 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.
Linda Stacy: 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.
Mark Scudder: These forward looking statements are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1095 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 over to Mark.
Adam: Thanks Linda.
Mark Scudder: Today we'll talk about markets and strategy, then organizational changes and investments, and then our financial results and outlook. To start, we have big financial goals over the next several years, first doubling our total addressable market through portfolio additions, acquisitions, and partnerships, and second, double-digit annual revenue growth. Third, expanding our margins, and fourth, creating significant value for investors. The leadership team is highly aligned with these goals, and we're very motivated to deliver.
Linda Stacy: Today, we will talk about markets and strategy and then the organizational changes and investments and then our financial results and outlook.
Mark Scudder: To start we have big financial goals over the next several years first doubling our total addressable market through portfolio additions acquisitions and partnerships.
Mark Scudder: Second double digit annual revenue growth.
Mark Scudder: Third expanding our margins and fourth creating significant value for investors.
Mark Scudder: The leadership team is highly aligned to these goals and we're very motivated to deliver.
Mark Scudder: And the strategy for doing that is to combine historical strength, Healthcare DNA founded on decades of benchmarks and trusted thought leadership, and unrivaled client service at a mission-driven organization, with an expanding portfolio of products and innovative new technology. We think the combination of technology and specific healthcare insights is important in our market and to enhance outcomes and experiences for everyone in the health care journey while improving our clients' bottom lines. Our clients generally come from the top 400 healthcare systems in the United States. They're under enormous pressure to improve health outcomes, control costs, retain qualified employees, and expand market share, all while dealing with increasing regulation.
Mark Scudder: And the strategy for doing that is to combined historical strengths.
Mark Scudder: Healthcare DNA founded on decades of benchmarks and trusted thought leadership.
Mark Scudder: Unrivaled client service at a mission driven organization.
Mark Scudder: With an expanding portfolio of products and innovative new technologies.
Mark Scudder: Yes.
Mark Scudder: We think the combination of technology and.
Mark Scudder: Specific health care insights is important in our market and to enhance outcomes and experiences for everyone in the health care journey, while improving our clients' bottom lines.
Mark Scudder: Our clients generally come from the top 400 health care systems in the United States.
Mark Scudder: They are under enormous pressure to improve health outcomes.
Mark Scudder: <unk> costs and retain qualified employees and expand market share.
Mark Scudder: All while dealing with increasing regulation.
Mark Scudder: The challenge for patients and consumers of health care is no less significant.
Mark Scudder: The challenge for patients and consumers of healthcare is no less significant, as all of us navigate the changing landscape for our clients. The projected value of a patient has never been higher, measuring both estimated lifetime spend and as an influencer of other consumers' choice of their provider. At the same time, the cost of losing qualified caregiving associates is never greater.
Mark Scudder: As all as all of us navigate the changing landscape.
Mark Scudder: For our clients.
Mark Scudder: The projected value of patients has never been higher.
Mark Scudder: Measuring both estimated lifetime spend and is an influencer of other consumers choice of their provider.
Mark Scudder: At the same time the cost of losing qualified caregiving associates has never been greater.
Mark Scudder: On the other hand, they have competition among healthcare systems and from new entrants like never before. There are correlations between consumer, patient, and associate experiences that impact loyalty, outcomes, and reputation. Therefore, the insights we deliver can improve lives and our clients' revenue and costs. We've talked with our clients, and the way we're going to do that is through a broader customer perspective, greater strategic alignment, innovation, and actionable insights that deliver more value. To deliver on these goals, we are filling portfolio gaps, providing enterprise-wide experience solutions, offering clear thought leadership at a strategic level, applying a generative AI overlay across all of our solutions, and aggressively building our sales team and sales approach.
Mark Scudder: Meanwhile, they have competition among health care systems and from new entrants like never before.
Mark Scudder: There are correlations between consumer patient and associate experiences that impact loyalty outcomes and reputation.
Mark Scudder: Therefore, the insights we deliver can improve lives and our clients revenue and costs.
Mark Scudder: We've talked with our clients and.
Mark Scudder: The way, we're going to do that.
Mark Scudder: Is through a broader experience perspective, great.
Mark Scudder: Greater strategic alignment innovation and actionable insights that deliver more value to deliver on these goals. We are filling portfolio gaps to provide enterprise wide experience solutions.
Mark Scudder: Offering clear thought leadership at a strategic level.
Mark Scudder: Flying a generative AI overlay across all of our solutions.
Mark Scudder: And aggressively building, our sales team and sales approach.
Mark Scudder: We're already making progress on these goals, we will soon be in the market with new tools and insights across patient customer and employee experience solutions.
Mark Scudder: We're already making progress on these goals, and we'll soon be in the market with new tools and insights across patient, customer, and employee experience solutions. Our AI and product teams are working with customers to prioritize and roll out a new generation of solutions to enhance care and improve experiences, and we expect to be in the market with AI-enhanced healthcare-specific solutions later this year. We also have exciting developments in our associate team, which Helen will cover in a few minutes. And one last thing I'd like to mention is pace.
Mark Scudder: Our AI and product teams are working with customers to prioritize and rollout of new generation of solutions to enhance care and improve experiences.
Mark Scudder: And we expect to be in the market with AI enhanced health care specific solutions later this year.
Mark Scudder: We also have exciting developments at our associate team, which Helen will cover in a few minutes.
Mark Scudder: And one last thing I'd like to mention this pace one of our key organizational themes is now we're accelerating decision, making and streamlining as many processes as possible. This benefits our clients and our associates as more resources are devoted to high value activities and successes compound.
Mark Scudder: One of our key organizational themes is now. We're accelerating decision making and streamlining as many processes as possible. This benefits our clients and our associates as more resources are devoted to high-value activities, and the successes compound. With the changes and investments we're making, we believe we're well-positioned to capitalize on all of our goals. Now, I'll turn it over to Helen.
Helen: With the changes and investments, we're making we believe we are well positioned to capitalize on all of our goals.
Mark Scudder: And now I'll turn it over to Helen.
Helen Hurdy: Thanks Mark. We had an exciting first quarter.
Helen: Thanks Mark.
Helen L. Hrdy: An exciting first quarter. This was the quarter transformation with the groundwork was laid for us to achieve new benchmarks and providing customer value engineering excellence and operational agility.
Helen Hurdy: This was a quarter of transformation where the groundwork was laid for us to achieve new benchmarks in providing customer value, engineering excellence, and operational agility. Our revenue team has moved under the executive leadership of Jason Hahn. During the quarter, we've added several new leaders and sales associates, restructured compensation plans, changed territory coverage, and implemented new training programs. We think these additional investments and focused expertise will help accelerate pipeline growth and conversion. All service functions are under my leadership.
Helen Hurdy: Our revenue team has moved under the executive leadership of Jason Hahn during the quarter. We've added several new leaders and sales associates restructured compensation plans changed territory coverages and implemented new training programs. We think these additional investments and focused.
Helen Hurdy: Expertise will help accelerate pipeline growth and conversion.
Helen Hurdy: All service functions are under my leadership.
Helen Hurdy: The restructure allows the team members to have more time to focus on strategy with their client base, and it gives them the opportunity to increase their interaction levels and depth of contacts within the client organization. We've also expanded our executive rounding. We previously announced the addition of Jennifer Barron, who will be joining us soon from serving as the Chief Experience Officer at UC Davis Health. Jennifer will be instrumental in expanding our thought leadership programs and providing peer-level executive support to our clients.
Helen Hurdy: The restructure allows the team members to have more time to focus on strategy with their client base and it gives them the opportunity to increase their interaction levels and depths of contacts within the client organization.
Helen Hurdy: We've also expanded our executive rounding.
Helen Hurdy: We previously announced the addition of Jennifer Barron, who will be joining us from serving as the chief experience officer at UC Davis Health, Jennifer will be instrumental in expanding our thought leadership programs and providing peer level executive support to our clients.
Helen Hurdy: Christophe <unk> is the executive executive leader of our product and technology teams. Our technology teams have been reorganized into small nimble teams with defined product domains that allow full autonomy and customer Centricity. We've also invested a new AI and.
Helen Hurdy: Christophe Louvion is the executive leader of our product and technology team. Our technology teams have been reorganized into small, nimble teams with defined product domains that allow for autonomy and customer centricity. We've also invested in new AI and product leadership to ensure we will be delivering innovative AI solutions to our clients at a pace unmatched before. As a leadership team, we've developed company-wide goals and objectives that align with our strategic goals. The company is working together to streamline, automate, innovate, and create operational excellence. I'll now turn it back to Linda to discuss the financial results and outlook.
Helen Hurdy: Product leadership to ensure we will be delivering innovative AI solutions to our clients at a pace unmatched before.
Helen Hurdy: As a leadership team, we've developed companywide goals and objectives that align with our strategic goals. The company is working together to streamline automate innovate and create operational excellence.
Helen Hurdy: I'll now turn it back to Linda to discuss the financial results and outlook.
Helen Hurdy: Hello.
Linda Stacy: Our financial results were consistent with our expectations and relatively flat year-over-year. Our focus remains on executing our strategic plan. The main levers for revenue and expenses are reaching an expanded TAM, or Total Addressable Market, by broadening our CX, PX, and EX solutions as a portfolio across all of health care, as well as a generative AI overlay across all of our products. We expect this to double our TAM. As part of this effort, we expect to increase our IT investment, especially in AI, rolling out new products developed through internal innovation, acquisitions, and partnerships through an expanded sales force that we expect to grow substantially with a steady build over the next two to three years.
Linda Stacy: Actual results were consistent with our expectations and relatively flat year over year.
Linda Stacy: Our focus remains on executing our strategic plan. The main levers for revenue and expenses are reaching an expanded tam or total addressable market by broadening our CX PX <unk> solutions as a portfolio across all of health care as well as the generated AI overlay across all of our products.
Linda Stacy: We expect us to double our Tam as part of this effort, we expect to increase our investment, especially in AI over several quarters.
Linda Stacy: Rolling out new products developed through internal innovation acquisitions and partnerships through an expanded sales force that we expect to grow substantially with a steady build over the next two to three years.
Linda Stacy: From a revenue perspective, given the sales cycle and the multi-year contract model prevalent in our industry, we expect sales from new products and additional sales associates to ramp a few quarters behind the initial cost but to generate TRCV of several times the annual investment. Our goal will be to offset as much of the ramp-up cost as possible through a combination of internal process improvement, AI to replace manual tasks, and tightly managed procurement.
Linda Stacy: From a revenue perspective, given the sales cycle in multiyear contract model prevalent in our industry, we expect sales from new products and additional sales associates.
Linda Stacy: A few quarters behind the initial cost but to generate tier city of several times the annual investment.
Linda Stacy: Our goal will be to offset as much of the ramp up ramp up cost as possible through a combination of internal process improvement.
Linda Stacy: Hi to replace manual tasks and tightly manage procurement.
Linda Stacy: From a balance sheet perspective, as of March 31, 2024, we had approximately $40 million of net debt, $23 million available on the line of credit, and $56 million available under the Delayed Draw Term Loan Facility. We expect net debt to increase over the balance of the year for the reasons explained above, but to remain at a comfortable level. We are continuing to follow our capital allocation priorities to fund organic innovation and growth.
Linda Stacy: From a balance sheet perspective as of March 31, 2024, we had approximately $40 million of net debt.
Linda Stacy: $3 million available on our line of credit and $56 million available under the delayed draw term loan facility.
Linda Stacy: We expect net debt to increase over the balance of the year for the reasons explained above that to remain at a comfortable level.
Linda Stacy: We are continuing to follow our capital allocation priorities to fund organic innovation and growth investments.
Linda Stacy: Dividends and Shared Repurchase. For the first quarter of 2024, our operating cash flows increased to $12 million, compared to $8 million in 2023. During the quarter, we funded $4 million for innovation and growth, including facilities improvements, and the company returned $18 million to stockholders through dividends and stock repurchases. We retain flexibility to be opportunistic with our capital decisions. With approximately $11 million remaining in our facilities investment to be funded over the next three to four quarters, we will gain additional flexibility beginning early in 2025 as those investments are completed.
Linda Stacy: Dividends and share repurchases for the first quarter of 2024, our operating cash flows increased to $12 million compared to $8 million in 2023.
Linda Stacy: During the quarter, we funded $4 million for innovation and growth, including facilities improvement and the company returned $18 million to stockholders through dividends and stock repurchases.
Linda Stacy: We retain flexibility to be opportunistic with our capital decisions with approximately $11 million remaining in our facilities investment to be funded over the next three to four quarters, we will gain additional flexibility beginning early in 2025 and those investments are completed.
Linda Stacy: Overall, we are making good progress with our plan and remain committed to developing the solutions our clients want and providing the high level of service they have come to expect. That concludes my comments for this morning. Thank you for your time today. Operator, I will now ask you to open the call to any questions. Of course. As a reminder, if you would like to ask a question...
Linda Stacy: Overall, we are making good progress on our plan and remain committed to developing the solutions, our clients want and providing a high level of service they've come to expect.
Linda Stacy: That concludes my comments for this morning.
Speaker Change: Thank you for your time today.
Speaker Change: Operator, I will now ask you to open the call to any questions.
Operator: Of course. As a reminder, if you would like to ask a question today, please press star followed by one on your telephone keypad now to enter the queue. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. Final call for questions. As we have no questions, I'll hand the call back to the management team for any closing remarks.
Speaker Change: As a reminder, if you would like to ask a question today. Please press star followed by one on your telephone keypad now turn to the queue.
Speaker Change: I'll ask two questions. Please and should go ahead, such fully booked in and on mute locally.
Operator: Final quick question Star one on your telephone keypad.
Operator: As we have no questions I'll hand, the call back to the management team for any closing remarks.
Speaker Change: Thank you Adam Thank you all for joining our call today, we look forward to sharing our results again next quarter.
Linda Stacy: Thank you, Adam. Thank you all for joining our call today. We look forward to sharing our results again next quarter.
Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Operator: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
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Operator: Okay.
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