Q4 2023 National Research Corp Earnings Call

Participants

Kevin Karas; Chief Financial Officer, Senior Vice President - Finance, Treasurer, Secretary; National Research Corp

Linda Stacy; VP of Finance; National Research Corp

Presentation

Operator

Welcome to the National Research Corporation. Fourth-quarter and year-end 2023 earnings call. My name is Jerry, 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 to register a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by zero. At this time. I would like to turn the conference over to Kevin Karas, Chief Financial Officer.

Kevin Karas

Please go ahead when you're ready for to 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. And 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

Kevin fixed window. And again, welcome everyone today to First, we'll talk about our strategies and addressable market, then will cover financial details regarding the fourth quarter and provide a few thoughts about our outlook for 2024 before opening for Q&A is 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 doubling our total addressable market across market insights, patient experience, customer experience and employee experience solutions being essential to our clients' success by combining our unparalleled healthcare DNA and frontline coaching with innovative new technologies to deliver solutions with return on investment, helping more patients and health care providers by aggressively ramping up our sales efforts to gain market share, improving our associates' careers by automating routine tasks and focusing them on their most rewarding and productive activities and delivering more to stockholders through growth, margin expansion and returning excess capital.
National Research Corporation has achieved significant milestones against each of these goals. We have expanded our employee experience and consumer experience capabilities. Core revenue is over 90% of total revenue since mid 2022. The sales team has grown by over 20% while at the same time. Overall, associate headcount has been reduced by 16%. Our sales pipeline exceeds $100 million and recurring new sales were up 18% in the fourth quarter of 2023 compared with the fourth quarter of 2022. From a productivity standpoint, our revenue per FTE. was up 10% this year over last year. Our operating margin has improved throughout the year. Our customer NPS, or Net Promoter Score hit 75 on the last quarter, which is our highest ever and notable among the world's most respected brands, $55 million in dividends and stock repurchases were returned to stockholders in 2023, helping boost return on equity to 51%. And we've distributed another $18 million stockholders in January of 2024 metrics are important, but success in the market is the real test, our recent win and Advocate Health. Now our largest client emphasized our ability to win a broad based experience RFP. that aligned with insights from customers, patients and employee experiences. We would not have won without the breadth of solutions, deep health care, DENA and value add distinguish ENRC from other competitors.
Looking ahead, our outlook only gets better. In January, we added a new Chief Revenue Officer, Chief Product Technology Officer and Chief Corporate Development Officer to accelerate the plan. Going forward, the executive team has endorsed aggressive plan based on technology pace and delivering value to customers.
In summary, we believe NRC is well positioned in the market with the right team and strategy to drive meaningful growth and value.
And I'll now turn it over to Linda to discuss the financial results and outlook.

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 sales for 2023 grew 24% or $3 million over 2022. New sales were offset by 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 noncore 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., or TRC 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 adjustments 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 nondeductible foreign currency translation adjustments.
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 adjustments. Diluted earnings per share have increased for each quarter in 2023 from expanded operating margins and lower share count 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 31st, 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 number one, expanding our total addressable market to serve customer needs across experience continuum as they seek to constantly improve their strategies and execution relative to customer service care delivery and employee satisfaction. Number two, using technology, including AI to regular regularly launch innovative products that generate return on investment for our customers through new customer acquisition, patient loyalty, reimbursement rates, retention and other outcomes. Number three, accelerating sales pipeline growth and conversion, and number four, expanding efficiency and automation throughout our business to minimize leveraging our associate talent to create more opportunity.
From a financial perspective, we expect 2024 earnings revenue and earnings trends to start relatively flat year over year. Higher technology sales and executive expenses will weigh on sequential margin performance until our expanded product suite and sales pipeline convert to revenue, which is expected to be later in the year. As our plan matures beyond 2024. Our goal is to produce double digit revenue growth and expanded margins. From a capital allocation perspective, we purchased $15 million of stock and paid $3 million in dividends in January of 2024. For the remainder of the year, we expect to focus on growth and innovation investments, including the building renovation as well as regular quarterly dividends. That concludes my comments for this morning, and I will turn the call back to you, Kevin.

Kevin Karas

Thank you, Linda. And 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 or Drew. I will now ask you to open the call to any questions.

Question and Answer Session

Operator

Thank you. We will now start the Q&A portion of today's call. If you would like to ask a question, please press star followed by one on your telephone keypad. Now if you change your mind, please press star followed by two. We have no questions registered at this time, so I'll hand back over to Kevin for any closing remarks.

Kevin Karas

Well, thank you, everyone, for attending our call today, and the Company looks forward to sharing results again next quarter. Thank you.

Operator

Concludes today's National Research Corporation Fourth Quarter and Year End 2023 earnings call. You may now disconnect your lines.