Earnings Transcript for NRC - Q4 Fiscal Year 2023

Operator: Good day, everyone, and welcome to the National Research Corporation Fourth Quarter and Year-End 2023 Earnings Call. My name is Drew, and I'll be the operator on today's call. All participants will be in a listen-only mode. There will be a Q&A. [Operator Instructions] At this time, I would like to turn the conference over to Kevin Karas, Chief Financial Officer. Please go ahead when you are ready.

Kevin Karas: Thank you, Drew, and welcome, everyone, to today's National Research Corporation Earnings Call. Joining me on the call today is Linda Stacy, our Vice President of Finance. Before we continue, I would like to ask Linda to review conditions related to any forward-looking statements that may be made as part of today's call. Linda?

Linda Stacy: Thank you, Kevin. 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'll turn it back to you, Kevin.

Kevin Karas: Thanks, Linda, and again, welcome, everyone. Today, first, we'll talk about our strategy and addressable market. Then we'll cover financial details regarding the fourth quarter and provide a few thoughts about our outlook for 2024 before opening for Q&A. As an opening matter, I'd say the past few quarters have been relatively flat from a top and bottom line perspective, but a lot has been going on behind the scenes, and we're very excited about the base we're building and the direction of our strategic plan. Several quarters ago, we reset our strategy to address client demand for expanded market coverage, value-added solutions and greater strategic impact. Key principles of our plan include

Linda Stacy: Thanks, Kevin. From a revenue perspective, our total revenue decreased slightly for both the fourth quarter and year ended 2023 compared to 2022. Year-to-date, recurring new sales for 2023 grew 24%, or $3 million, over 2022. New sales were offset by a reduction in non-core revenue and slightly higher non-renewals. The chart posted on our website shows the growth of core revenue and reduction in non-core revenue over the past few years, which is largely complete now. We've achieved sequential operating margin expansion over the past three quarters. Operating margin grew by 5% over the third quarter of 2023, primarily due to slight revenue growth and cost alignment changes implemented during the second half of 2023. The chart posted on our website reflects the sequential trend. Despite the sequential improvement, operating income decreased by 4% and 14% for the fourth quarter and year ended 2023 compared to 2022, respectively. This was primarily due to the lack of revenue growth combined with investments in marketing expenses to expand brand recognition and support sales development, technology investments and higher data collection expenses. We ended the quarter with $142 million in TRCV. Our TRCV has declined primarily due to our focus on our core digital solutions and lower net sales, although that trend did improve later in 2023. Other expense decreased in the fourth quarter and for the year ended 2023 because the 2022 – because of the 2022 period included expensing the 2.6 cumulative foreign currency translation adjustment previously carried on our balance sheet due to the substantial liquidation of our Canadian subsidiary in 2022. The effective tax rate in the fourth quarter of 2023 was 23% compared to 26% in 2022 and 22% for the year ended in 2023 compared to 26% in 2022, primarily due to lower state income taxes and the non-deductible foreign currency translation adjustment. Diluted earnings per share increased to $0.36 in the fourth quarter of 2023 compared to $0.27 in 2022 and decreased to $1.25 for the year ended 2023 compared to $1.27 in 2022. The 2022 period was impacted by $0.10 per share due to the cumulative foreign currency translation adjustment. Diluted earnings per share have increased for each quarter in 2023 from expanded operating margins and lower share counts attributable to share repurchases. In 2023, we followed our capital allocation priorities to fund organic innovation and growth investments, dividends and share repurchases. For the full year in 2023, we funded $14 million for innovation and growth, including facilities improvements and the company returned $55 million to stockholders through dividends and stock repurchases. Return on average equity improved to 51% in 2023 from 40% in 2022, primarily resulting from returning capital to stockholders through dividends and stock repurchases. At December 31, 2023, we had approximately $30 million of net debt, $30 million available on the line of credit and $56 million available under the Delayed Draw Term Loan facility. For 2024, from a business perspective, our goals include

Kevin Karas: Thank you, Linda. Before opening Q&A, I'd like to say this is likely my last earnings call. It has been a pleasure serving as CFO for the past 13 years and keeping our investors informed about the company. We have a really strong team in place, so you should have a very smooth transition. This completes our prepared remarks. So Drew, I will now ask you to open the call to any questions.

Operator:

Operator: We have no questions registered at this time. So I'll hand back over to Kevin for any closing remarks.

Kevin Karas: No, thank you, everyone, for attending our call today and the company looks forward to sharing results again next quarter. Thank you.

Operator: That concludes today's National Research Corporation fourth quarter and year-end 2023 earnings call. You may now disconnect your lines.