MIKE
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Thank you and welcome to NRC's 1st quarter 2003 review. My name is Mike Hays,
CEO of National Research Corporation. Joining me on our call today is Pat Beans
our CFO. We are excited to review with you our performance for the quarter.
Before we begin, I would ask Pat to review the forward-looking statement. Pat.
PAT
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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. With that I will turn it back to you Mike.
MIKE
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Thank you Pat,
First quarter financial performance resulted in record revenue for the quarter,
up 50% from the 1st quarter 2002. Our first quarter performance builds upon
record revenue levels also achieved in the 2nd, 3rd and 4th quarters 2002, which
has generated top line growth in our core business of 38% over the last four
quarters. Along with the top line growth, the company generated EPS of $.13 this
past quarter, in line with our guidance and double the EPS reported for first
quarter 2002. The past four quarters has seen tripling of EPS driven in large
part by growth in our core business.
A key driver to NRC's revenue growth is the increased demand for our performance
measurement and improvement products which we believe will continue. I would at
this time ask Pat to review in more detail this part quarter's financial
performance. Pat.
PAT
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Thank you Mike.
During the 1st quarter of 2003, NRC produced a very solid revenue and EPS. The
revenue for the 1st quarter of 2003 increased 50% over the 1st quarter of 2002,
with revenues growing from $4.0 million in 2002 to $6.1 million this year. This
revenue growth is the outcome of an increase in demand for our products which
resulted in the addition of new clients last year, each of which carried revenue
into this year, 2003.
The EPS for the 1st quarter of 2003 was a great start for the year at $0.13
cents per share. The first quarter net income was $921,000 compared to $293,000
during the same period in 2002. This puts us on track towards meeting our goal
of $0.66 cents per share for 2003.
Our direct expenses as a percentage of revenue were 46% for the quarter. As we
had stated in our last conference call, direct expenses as a percent of revenue
will increase in the 1st quarter of 2003 compared to the 4th quarter of 2002.
This is normal and has been the trend for the last few years. It was also
slightly higher due to one project and the startup of the Canada projects. The
annualized percentage for the year 2003 should be similar to what we achieved in
2002.
The Selling, General and Administrative expenses, along with depreciation and
amortization, improved again this year as a percentage of revenue compared to
2002. As a percent of revenue, we had projected the combined range for these
expenses for 2003 would be between 28 and 29 percent. For the 1st quarter of
2003, SG&A was at 28.6% and as a percent of revenue, this was a great
improvement compared to 2002.
We have been managing our costs along with higher revenue which have resulted in
growth of net earnings. We expect the net earnings to continue to grow as we
reaffirm our goal of earnings per share for 2st quarter of 2003, of $0.16 and
our annual EPS for the year 2003 to $0.66 cents per share, a 22% increase year
over year.
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The company again continues to improve its strong financial position. The
balance sheet is excellent and should improve even more during this quarter.
Cash flow from operations for the 1st quarter 2003 was $2.6 million. Cash and
short-term investments as of March 31, 2003, were over $12 million or $1.67 per
share. The net cash and short-term investments improved by $1.1 million during
1st quarter of 2003. March was the highest billing month in the history of the
company which is why the accounts receivable have increased slightly since our
December report. The strong revenue and earnings growth has the momentum to
continue improving our financial position.
I will now turn it back over to Mike for additional discussions.
MIKE
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Thank you, Pat.
Before I open the call to questions, I would like to provide an update on a few
topics.
First off is HEALTHSOUTH. HEALTHSOUTH, as many of you know, has been rocked by
an accounting scandal. Last year HEALTHSOUTH represented 8% of NRC's revenue.
Given our revenue growth, the percentage HEALTHSOUTH represents of 2003 revenue
will be less, and by all indications, we will carry forward working with this
client. However, the situation is clearly fluid. As of today, we continue to do
work for HEALTHSOUTH and all receivables are current.
I am happy to report the federal government's program to establish a national
standard for the measurement and public reporting of patient experience is on
track with national implementation strategy and dates to be finalized this
September as previously planned. While many of our competitors have publicly
suggested that this program will result in a virtual monopoly for NRC/Picker, I
caution any of us on assuming such an event will take place. We will need to
work hard each and every day to capitalize on the opportunity, which is exactly
what we have been doing. Our plans and products are well
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in place and to date we've seen positive market reaction and clearly marked
increases in proposal activity.
As you know, the exact growth NRC will realize from the national standard is
impossible to forecast at this point in time. Consequently, we are unable today
to add to our four-quarter rolling guidance in a way that would accurately
incorporate the national standard. We do know that our core business growth
should remain strong, producing growth in the 25% range. Once the exact date for
implementation of the national standard is established, we will better
understand the revenue flow and will be in a position to provide EPS guidance
for 2004. Again, we would assume that information would be available in
September.
In February, we completed a transaction to acquire a company in Canada and also
added a new sales associate in Montreal, which we believe, will provide for a
more rapid expansion across Canada than we had originally planned. Various
provinces in Canada are establishing standardized measurement and public
reporting of the patient experience and we expect many to select our Picker
family of surveys as the exclusive standard as has already been done in Ontario.
On another topic, registration for the Picker Symposium is way ahead of last
year's at this point in time, with the attendee levels for 2002 already
achieved. Acceptance of our other education and improvement products and service
are also finding marketplace acceptance which will position and further
differentiate NRC/Picker from others.
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I would now like to open the call for Q &A.
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In summary, our past 4-quarters growth rate speaks to the acceptance of our
unique product offerings, and we look forward to building upon that trend by
capitalizing on the emerging events that are beginning to expand our category. I
thank you for your time today and look forward to updating you again in a few
months.
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