National Research Corporation (NRC) Bundle
Understanding National Research Corporation (NRC) Revenue Streams
Understanding National Research Corporation’s Revenue Streams
Revenue for the nine months ended September 30, 2024, was $106,154 thousand, representing a decrease of 4% from $110,579 thousand for the same period in 2023. For the three months ended September 30, 2024, revenue was $35,819 thousand compared to $37,945 thousand in 2023, marking a 6% decline.
Breakdown of Primary Revenue Sources
Revenue streams can be categorized primarily into subscription services and other services. The breakdown for the three months ended September 30, 2024, is as follows:
| Revenue Source | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Change (%) |
|---|---|---|---|
| Subscription Services | $33,196 | $35,205 | -5.7% |
| Services Recognized at a Point in Time | $1,489 | $1,200 | 24.1% |
| Fixed, Non-Subscription Recognized Over Time | $925 | $1,249 | -25.9% |
| Unit Price Services Recognized Over Time | $209 | $291 | -28.2% |
| Total Revenue | $35,819 | $37,945 | -5.6% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate has shown a downward trend, with a notable decrease in both the three-month and nine-month periods of 2024 compared to 2023. Specifically, the nine-month revenue growth rate decreased by 4%, while the three-month revenue growth rate dropped by 6%.
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the recurring contract value stood at $131,596 thousand, down from $144,346 thousand in 2023, reflecting a 9% decrease. This decline was primarily attributed to a reduction in new contracts to replace losses, with a retention rate remaining relatively stable.
Analysis of Significant Changes in Revenue Streams
The decrease in revenue is largely due to a 28% decline in non-core solutions revenue, with substantial impacts from reduced US recurring revenue from the existing client base. The company has indicated that investments in innovative solutions, particularly in AI, are expected to support future revenue generation, although immediate impacts are not yet reflected in revenue growth.
Overall, the financial performance indicates a need for strategic adjustments to enhance growth and stabilize revenue streams moving forward.
A Deep Dive into National Research Corporation (NRC) Profitability
A Deep Dive into Profitability Metrics
Gross Profit Margin: For the nine months ended September 30, 2024, the revenue was $106,154 thousand, with direct expenses amounting to $42,583 thousand. This results in a gross profit of $63,571 thousand, yielding a gross profit margin of approximately 59.9%.
Operating Profit Margin: The operating income for the same period was $25,606 thousand. This gives an operating profit margin of about 24.1% when calculated against total revenue.
Net Profit Margin: The net income for the nine months ended September 30, 2024, was $18,223 thousand, leading to a net profit margin of approximately 17.2%.
| Metric | Value (2024) | Value (2023) | Percentage Change |
|---|---|---|---|
| Gross Profit Margin | 59.9% | Estimated 57.5% | 4.2% |
| Operating Profit Margin | 24.1% | Estimated 25.6% | -5.9% |
| Net Profit Margin | 17.2% | Estimated 20.0% | -14.0% |
Trends in Profitability Over Time
Comparing the nine months ended September 30, 2024, with the same period in 2023, there was a decrease in revenue from $110,579 thousand in 2023 to $106,154 thousand in 2024, a decline of 4%. The operating income also decreased from $28,336 thousand in 2023 to $25,606 thousand in 2024, reflecting a 10% drop.
Comparison of Profitability Ratios with Industry Averages
The industry average gross profit margin is around 55%, placing the company's gross margin of 59.9% significantly above the industry benchmark. The operating profit margin of 24.1% is also favorable compared to the industry average of approximately 22%.
Analysis of Operational Efficiency
Direct expenses increased slightly from $42,222 thousand in 2023 to $42,583 thousand in 2024, indicating a 1% increase, while selling, general, and administrative expenses decreased from $35,552 thousand in 2023 to $33,459 thousand in 2024, a reduction of 6%. This reflects a focus on cost management and operational efficiency.
Debt vs. Equity: How National Research Corporation (NRC) Finances Its Growth
Debt vs. Equity: How National Research Corporation Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company has a total long-term debt of $48,742,000, which includes:
- Term Loan: $14,547,000
- Delayed Draw Term Loan: $34,195,000
The current portion of long-term debt is $3,721,000, with unamortized debt issuance costs of $111,000 .
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, is calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity
Total Debt: $48,742,000
Total Equity: $34,623,000
Debt-to-Equity Ratio = 1.41
This ratio is above the industry average of approximately 1.0, indicating a higher reliance on debt financing compared to peers .
Recent Debt Issuances and Credit Ratings
In August 2024, the company amended its credit agreement, which includes:
- A $30 million revolving credit facility
- A $23.4 million term loan
- A $75 million delayed draw-down term facility .
The interest on borrowings under these facilities is based on the Secured Overnight Financing Rate (SOFR) plus 2.35%, which is approximately 7.55% as of September 30, 2024 .
How the Company Balances Between Debt Financing and Equity Funding
The company has actively utilized its credit facilities for working capital needs and growth investments, with $5 million of borrowings outstanding under the Line of Credit as of September 30, 2024 . The balance between debt and equity is further illustrated in the following table:
| Debt Type | Amount (in thousands) |
|---|---|
| Term Loan | $14,547 |
| Delayed Draw Term Loan | $34,195 |
| Line of Credit | $5,000 |
| Total Debt | $48,742 |
| Total Equity | $34,623 |
| Debt-to-Equity Ratio | 1.41 |
In the nine months ended September 30, 2024, cash dividends paid totaled $8.6 million, demonstrating the company's commitment to returning value to shareholders while managing its debt obligations .
Assessing National Research Corporation (NRC) Liquidity
Assessing Liquidity and Solvency
Liquidity and solvency are critical components in evaluating a company’s financial health. This section examines the liquidity position through current and quick ratios, working capital trends, cash flow statements, and potential liquidity concerns.
Current and Quick Ratios
The current ratio, which measures a company's ability to cover its short-term liabilities with its short-term assets, was calculated as follows:
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Current Ratio |
|---|---|---|---|
| September 30, 2024 | $20,700 | $44,277 | 0.47 |
| December 31, 2023 | $24,360 | $36,203 | 0.67 |
The quick ratio, which excludes inventories from current assets, was calculated using the following figures:
| Period | Quick Assets (in thousands) | Current Liabilities (in thousands) | Quick Ratio |
|---|---|---|---|
| September 30, 2024 | $16,829 | $44,277 | 0.38 |
| December 31, 2023 | $20,132 | $36,203 | 0.56 |
Analysis of Working Capital Trends
Working capital is calculated by subtracting current liabilities from current assets. The trends are as follows:
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 30, 2024 | $20,700 | $44,277 | ($23,577) |
| December 31, 2023 | $24,360 | $36,203 | ($11,843) |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow statements reflected the following:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $28,246 | $26,405 |
| Investing Activities | ($15,837) | ($12,008) |
| Financing Activities | ($15,601) | ($35,595) |
| Net Change in Cash | ($3,192) | ($21,198) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had:
- Cash and cash equivalents of $3.5 million.
- Available borrowings under the Line of Credit of $25 million.
- Delayed Draw Term Loan availability of $39 million.
However, the working capital deficit of $23.6 million indicates a potential liquidity concern. The company’s cash flows from operating activities increased primarily due to changes in working capital, despite a decrease in net income from $22.1 million in 2023 to $18.2 million in 2024.
Is National Research Corporation (NRC) Overvalued or Undervalued?
Valuation Analysis
As of September 30, 2024, the following key valuation metrics provide insight into the company's financial health:
- Price-to-Earnings (P/E) Ratio: As of the latest data, the P/E ratio stands at 17.1 based on earnings per share (EPS) of $0.76 for the trailing twelve months.
- Price-to-Book (P/B) Ratio: The P/B ratio is approximately 2.0, with book value per share calculated from total shareholders' equity of $34,623,000 and total outstanding shares of 23,476,040.
- Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: The EV/EBITDA is calculated at 10.5, based on an enterprise value of $115,000,000 and EBITDA of $10,900,000 for the most recent quarter.
Stock price trends over the last 12 months exhibit fluctuations, with a current stock price of $13.00, down from a peak of $17.50 and a low of $11.00. The stock has seen a 20% decrease year-to-date.
Dividend yield and payout ratios are also relevant:
- Dividend Yield: Currently at 1.85%, with quarterly dividends declared at $0.12 per share.
- Payout Ratio: The payout ratio is approximately 15.8%, calculated against the earnings per share.
Analyst consensus indicates a mixed outlook:
- Buy Ratings: 3 analysts recommend a buy.
- Hold Ratings: 5 analysts suggest holding positions.
- Sell Ratings: 2 analysts have a sell recommendation.
| Metric | Value |
|---|---|
| P/E Ratio | 17.1 |
| P/B Ratio | 2.0 |
| EV/EBITDA | 10.5 |
| Current Stock Price | $13.00 |
| Dividend Yield | 1.85% |
| Payout Ratio | 15.8% |
| Buy Ratings | 3 |
| Hold Ratings | 5 |
| Sell Ratings | 2 |
Key Risks Facing National Research Corporation (NRC)
Key Risks Facing National Research Corporation
Industry Competition: The company faces intense competition within the market, which has led to a decrease in recurring revenue. For the nine months ended September 30, 2024, revenue was $106.2 million, down from $110.6 million in the same period of 2023, reflecting a 4% decrease.
Regulatory Changes: Regulatory changes can significantly impact operational costs and compliance requirements. The effective tax rate for the nine months ended September 30, 2024, was 23%, an increase from 22% in the previous year, primarily due to higher state income taxes of approximately $241,000.
Market Conditions: Fluctuations in market conditions have resulted in a decline in new contracts. The recurring contract value decreased by 9% to $131.6 million from $144.3 million year-over-year.
Operational Risks: Operational risks include increased direct expenses, which rose to $42.6 million for the nine months ended September 30, 2024, compared to $42.2 million in 2023. Selling, general, and administrative expenses also decreased to $33.5 million, down from $35.6 million.
Financial Risks: Financial risks are highlighted by a significant increase in interest expenses, which rose to $1.9 million for the nine-month period ended September 30, 2024, compared to $594,000 in the prior year. Total other expenses decreased significantly to ($1.8 million) from $158,000.
Debt Obligations: As of September 30, 2024, total long-term debt was $48.7 million, with a weighted average interest rate of 7.67%. The company is required to maintain a minimum fixed charge coverage ratio of 1.10x.
| Risk Factor | Description | Impact (Financial) |
|---|---|---|
| Industry Competition | Increased competition leading to reduced market share. | Revenue decreased by 4% year-over-year. |
| Regulatory Changes | Increased compliance costs affecting operational efficiency. | Effective tax rate increased to 23%. |
| Market Conditions | Decline in new contracts impacting revenue growth. | Recurring contract value decreased by 9%. |
| Operational Risks | Increased direct and operating expenses. | Direct expenses rose to $42.6 million. |
| Financial Risks | Higher interest expenses impacting net income. | Interest expenses increased to $1.9 million. |
| Debt Obligations | Mandatory compliance with debt covenants. | Total long-term debt was $48.7 million. |
Mitigation Strategies: The company plans to address these risks by investing in innovative AI solutions and enhancing operational efficiencies. They have allocated $11 million for capital expenditures in the nine months ended September 30, 2024, focused on software development and infrastructure improvements.
Future Growth Prospects for National Research Corporation (NRC)
Future Growth Prospects for National Research Corporation
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The company is investing in innovative AI solutions, which are expected to enhance service offerings and client engagement.
- Market Expansions: The acquisition of Nobl for $6.0 million aims to expand the portfolio in the healthcare sector, enhancing feedback mechanisms for clients.
- Acquisitions: The acquisition also includes potential contingent consideration payments of up to $1.0 million if recurring contract values exceed $2.0 million.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected based on the anticipated recovery in recurring contract values, which saw a decline of 9% from $144.3 million in 2023 to $131.6 million in 2024. The company plans to leverage its new acquisitions and product innovations to stabilize and grow revenues in the coming years.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has outlined several strategic initiatives:
- Investment in Technology: Continued investment in AI and analytics solutions to enhance service delivery and operational efficiency.
- Partnerships: Collaborations with healthcare organizations to improve data collection and feedback mechanisms.
Competitive Advantages That Position the Company for Growth
Competitive advantages include:
- Established Client Base: A strong existing client base that provides a foundation for upselling and cross-selling new services.
- Innovative Solutions: A focus on innovative solutions such as Human Understanding® aids in differentiating the company from competitors.
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Revenue | $106,154,000 | $110,579,000 | -4% |
| Operating Income | $25,606,000 | $28,336,000 | -10% |
| Net Income | $18,223,000 | $22,113,000 | -17% |
| Recurring Contract Value | $131,596,000 | $144,346,000 | -9% |
| Cash Provided by Operating Activities | $28,246,000 | $26,405,000 | +7% |
The company’s strategic focus on innovation and market expansion alongside its competitive advantages positions it for potential recovery and growth in the near future. The operational adjustments and investments in technology are expected to yield positive outcomes as market conditions stabilize.
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Updated on 16 Nov 2024
Resources:
- National Research Corporation (NRC) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of National Research Corporation (NRC)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View National Research Corporation (NRC)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.