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00000704872025-04-25

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________ to ________

Commission File Number 001-35929

National Research Corporation

(Exact name of Registrant as specified in its charter)

Delaware		47-0634000
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

	1245 Q Street, Lincoln, Nebraska 68508
	(Address of principal executive offices) (Zip Code)

	(402) 475-2525
	(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value	NRC	The NASDAQ stock market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $.001 par value, outstanding as of April 25, 2025: 22,785,421

Table of Contents

NATIONAL RESEARCH CORPORATION

FORM 10-Q INDEX

For the Quarter Ended March 31, 2025

			Page No.

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements	2

		Condensed Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Income	3
		Condensed Consolidated Statements of Shareholders’ Equity	4
		Condensed Consolidated Statements of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	8-18

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-23

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

	Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

	Item 5.	Other Information	25

	Item 6.	Exhibits	26

	Signatures		27

Table of Contents

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement includes phrases such as National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), “believes,” “expects,” “may,” “could,” “anticipates,” “estimates,” “plans,” “creates,” “intends,” or the use of words such as “would,” “will,” “may,” “could,” “goal,” “focus,” or “should,” or other words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. In this Quarterly Report on Form 10-Q, statements regarding the value and utility of, and market demand for, our service offerings, future opportunities for growth with respect to new and existing clients, our future ability to compete and the types of firms with which we will compete, future consolidation in the healthcare industry, future adequacy of our liquidity sources, future revenue sources, future revenue, expenses, and margins, future revenue estimates used to calculate recurring contract value, the expected impact of economic factors, including interest rates and inflation, future capital expenditures including, without limitation, our headquarters renovation costs, and the timing, amount, and sources of cash to fund such capital expenditures, future stock repurchases and dividends, the expected impact of pending claims and contingencies, the future outcome of uncertain tax positions, our future use of owned and leased real property, the expected impact of the appointment of Trent Green as our Chief Executive Officer and as a director, both effective June 1, 2025, and the expected impact of global conflicts, among others, are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include, without limitation, the following factors:

●

The possibility of non-renewal of our client service contracts, reductions in services purchased or prices, and failure to retain key clients;

●

Our ability to compete in our markets, which are highly competitive with new market entrants, and the possibility of increased price pressure and expenses;

●

The possibility that our solutions and technology do not perform as expected

●

The possibility that our acquisitions and partnerships do not achieve the increased demand/profitability expected;

●

The likelihood that a pandemic will adversely affect our operations, sales, earnings, financial condition and liquidity;

●

The likelihood that global conflicts will adversely affect our operations, sales, earnings, financial condition and liquidity;

●

The effects of an economic downturn;

●

The impact of consolidation in the healthcare industry;

●

The impact of federal healthcare and budget legislation, executive orders, cost-saving measures, and other regulatory changes;

●

Our ability to attract and retain key managers and other personnel;

●

The possibility that our intellectual property and other proprietary information technology could be copied or independently developed by our competitors;

●

Our ability to maintain effective internal controls;

●

The possibility for failures or deficiencies in our information technology platform;

●

The possibility that we or our third-party providers could be subject to cyber-attacks, security breaches or computer viruses; and

●

The factors set forth under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, as such section may be updated or supplemented by Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this Report) and various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

Shareholders, potential investors and other readers are urged to consider these and other factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included are only made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as required by the federal securities laws.

Table of Contents

PART I – Financial Information

ITEM 1. Financial Statements

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

	March 31, 2025			December 31, 2024
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,502		$	4,233
Trade accounts receivable, less allowance for doubtful accounts of $40 and $40, respectively		11,326			11,054
Prepaid expenses		5,845			3,480
Income taxes receivable		141			141
Other current assets		588			692
Total current assets		20,402			19,600

Net property and equipment		40,390			38,269
Intangible assets, net		2,519			2,616
Goodwill		66,152			66,152
Operating lease right-of-use assets		1,497			1,627
Deferred contract costs, net		1,538			1,562
Other noncurrent assets		2,677			2,713
Total assets	$	135,175		$	132,539
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable, net of unamortized debt issuance costs	$	3,036		$	4,789
Revolving loan		3,500			-
Accounts payable		2,030			1,194
Accrued wages and bonuses		4,915			4,774
Accrued expenses		4,713			5,091
Dividends payable		2,735			2,770
Deferred revenue		15,507			15,786
Income taxes payable		274			353
Other current liabilities		1,064			1,101
Total current liabilities		37,774			35,858

Notes payable, net of current portion and unamortized debt issuance costs		58,669			57,895
Deferred income taxes		5,391			3,531
Other long-term liabilities		3,669			3,971
Total liabilities		105,503			101,255

Shareholders’ equity:
Preferred stock, $0.01 par value, authorized 2,000,000 shares, none issued		-			-
Common stock, $0.001 par value; authorized 110,000,000 shares, issued 31,082,158 in 2025 and 31,072,144 in 2024, outstanding 22,785,421 in 2025 and 23,083,116 in 2024		31			31
Additional paid-in capital		180,552			180,249
Retained earnings (accumulated deficit)		(14,012	)		(17,064	)
Treasury stock, at cost; 8,296,737 and 7,989,028 Common shares in 2025 and 2024, respectively		(136,899	)		(131,932	)
Total shareholders’ equity		29,672			31,284
Total liabilities and shareholders’ equity	$	135,175		$	132,539

See accompanying notes to condensed consolidated financial statements

Table of Contents

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except for per share amounts, unaudited)

	Three months ended March 31,
	2025			2024

Revenue	$	33,551		$	35,313

Operating expenses:
Direct		13,057			13,856
Selling, general and administrative		10,356			11,250
Depreciation and amortization		1,542			1,447
Total operating expenses		24,955			26,553

Operating income		8,596			8,760

Other income (expense):
Interest income		19			44
Interest expense		(899	)		(605	)
Other, net		7			(5	)

Total other expense		(873	)		(566	)

Income before income taxes		7,723			8,194

Provision for income taxes		1,936			1,835

Net income	$	5,787		$	6,359

Earnings Per Share of Common Stock:
Basic Earnings Per Share	$	0.25		$	0.27
Diluted Earnings Per Share	$	0.25		$	0.27

Weighted average shares and share equivalents outstanding:
Basic		22,972			23,868
Diluted		22,974			23,963

See accompanying notes to condensed consolidated financial statements

Table of Contents

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands except share and per share amounts, unaudited)

	Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Treasury Stock			Total
Balances at December 31, 2024	$	31	$	180,249	$	(17,064	)	$	(131,932	)	$	31,284
Purchase of 307,709 shares treasury stock		-		-		-			(4,967	)		(4,967	)
Issuance of 10,014 shares of common stock for the exercise of stock options		-		132		-			-			132
Non-cash stock compensation expense		-		171		-			-			171
Dividends declared of $0.12 per share of common stock		-		-		(2,735	)		-			(2,735	)
Net income		-		-		5,787			-			5,787
Balances at March 31, 2025	$	31	$	180,552	$	(14,012	)	$	(136,899	)	$	29,672

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands except share and per share amounts, unaudited)

	Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Treasury Stock			Total
Balances at December 31, 2023	$	31	$	178,213		$	(30,530	)	$	(98,759	)	$	48,955
Purchase of 417,855 shares treasury stock		-		-			-			(17,220	)		(17,220	)
Issuance of 75,283 shares of common stock for the exercise of stock options		-		1,752			-			-			1,752
Non-cash stock compensation expense		-		(36	)		-			-			(36	)
Dividends declared of $0.12 per share of common stock		-		-			(2,865	)		-			(2,865	)
Net income		-		-			6,359			-			6,359
Balances at March 31, 2024	$	31	$	179,929		$	(27,036	)	$	(115,979	)	$	36,945

See accompanying notes to condensed consolidated financial statements.

Table of Contents

NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Three months ended
	March 31
	2025			2024
Cash flows from operating activities:
Net income	$	5,787		$	6,359
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,542			1,447
Deferred income tax expense (benefit)		1,860			(246	)
Reserve for uncertain tax positions		76			133
Non-cash share-based compensation expense (benefit)		171			(36	)
Change in fair value of contingent consideration		31			-
Loss on extinguishment of debt		67			-
Amortization of debt issuance costs		15			9
Net changes in assets and liabilities:
Trade accounts receivable		(272	)		1,251
Prepaid expenses and other current and long-term assets		(2,419	)		(1,620	)
Deferred contract costs, net		24			199
Operating lease assets and liabilities, net		(26	)		(22	)
Accounts payable		627			(151	)
Accrued expenses, wages and bonuses		(472	)		2,482
Income taxes receivable and payable		(80	)		1,872
Deferred revenue		(285	)		360
Net cash provided by operating activities		6,646			12,037

Cash flows from investing activities:
Purchases of property and equipment		(2,986	)		(4,138	)
Net cash used in investing activities		(2,986	)		(4,138	)

Cash flows from financing activities:
Borrowings on notes payable		27,738			-
Payments on notes payable		(28,724	)		(1,621	)
Borrowings on revolving loan		8,000			13,000
Payments on revolving loan		(4,503	)		(6,000	)
Payment of debt issuance costs		(62	)		-
Payments on finance lease obligations		(2	)		(11	)
Proceeds from the exercise of share-based awards		132			-
Payment of payroll tax withholdings on share-based awards exercised		-			(317	)
Payment of acquisition contingent consideration		(280	)		-
Repurchase of shares for treasury		(4,920	)		(14,999	)
Payment of dividends on common stock		(2,770	)		(2,906	)
Net cash used in financing activities		(5,391	)		(12,854	)

Effect of exchange rate changes on cash and cash equivalents		-			1
Change in cash and cash equivalents		(1,731	)		(4,954	)
Cash and cash equivalents at beginning of period		4,233			6,653
Cash and cash equivalents at end of period	$	2,502		$	1,699

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

(In thousands)

	Three months ended
	March 31
	2025		2024
Supplemental disclosure of cash paid for:
Interest expense, net of capitalized amounts	$	774	$	521
Income taxes	$	80	$	78
Supplemental disclosure of non-cash investing and financing activities:
Stock tendered to the Company for cashless exercise of stock options in connection with equity incentive plans	$	-		1,752
Purchase of property and equipment in accounts payable and accrued expenses	$	2,131	$	2,664
Repurchase of shares for treasury in accounts payable and accrued expenses	$	47	$	152
Debt issuance costs included in accrued expenses	$	81		-
Debt extinguished with new debt	$	34,396		-
Noncash borrowings on long-term debt for accrued interest and debt issuance costs	$	351	$	-

See accompanying notes to condensed consolidated financial statements.

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NATIONAL RESEARCH CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business and basis of presentation

National Research Corporation, doing business as NRC Health (“NRC Health,” the “Company,” “we,” “our,” “us” or similar terms), is a leading provider of analytics and insights that facilitate measurement and improvement of the patient and employee experience while also increasing patient engagement and customer loyalty for healthcare organizations in the United States. Our purpose is to humanize healthcare and support organizations in their understanding of each person they serve not as point-in-time insights, but as an ongoing relationship. We believe that understanding the story is the key to unlocking the highest-quality and truly personalized care. Our end-to-end solutions enable health care organizations to understand what matters most to each person they serve – before, during, after, and outside of clinical encounters – to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships. Our portfolio of solutions represents a unique set of capabilities that individually and collectively provide value to our clients.

Our condensed consolidated balance sheet at December 31, 2024 was derived from our audited consolidated balance sheet as of that date. All other financial statements contained herein are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) that we consider necessary for a fair presentation of financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

Information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto that are included in our Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2025.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiary, National Research Corporation Canada, until it was dissolved in August 2024. All significant intercompany transactions and balances have been eliminated.

Revenue Recognition

We derive a majority of our revenues from our annually renewable subscription-based service agreements with our customers, which include performance measurement and improvement services, healthcare analytics and governance education services. Such agreements are generally cancelable on short or no notice without penalty. See Note 3 for further information about our contracts with customers. We account for revenue using the following steps:

	●	Identify the contract, or contracts, with a customer;
	●	Identify the performance obligations in the contract;
	●	Determine the transaction price;
	●	Allocate the transaction price to the identified performance obligations; and
	●	Recognize revenue when, or as, we satisfy the performance obligations.

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Our revenue arrangements with a client may include combinations of more than one service offering which may be executed at the same time, or within close proximity of one another. We combine contracts with the same customer into a single contract for accounting purposes when the contract is entered into at or near the same time and the contracts are negotiated together. For contracts that contain more than one separately identifiable performance obligation, the total transaction price is allocated to the identified performance obligations based upon the relative stand-alone selling prices of the performance obligations. The stand-alone selling prices are based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost-plus margin or residual approach. We estimate the amount of total contract consideration we expect to receive for variable arrangements based on the most likely amount we expect to earn from the arrangement based on the expected quantities of services we expect to provide and the contractual pricing based on those quantities. We only include some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We consider the sensitivity of the estimate, our relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. Our revenue arrangements do not contain any significant financing element due to the contract terms and the timing between when consideration is received and when the service is provided.

Our arrangements with customers consist principally of four different types of arrangements: 1) subscription-based service agreements; 2) one-time specified services performed at a single point in time; 3) fixed, non-subscription service agreements; and 4) unit-priced service agreements.

Subscription-based services – Services that are provided under subscription-based service agreements are usually for a twelve- month period and represent a single promise to stand ready to provide reporting, tools and services throughout the subscription period as requested by the customer. These agreements are renewable at the option of the customer at the completion of the initial contract term for an agreed upon price increase each year. These agreements represent a series of distinct monthly services that are substantially the same, with the same pattern of transfer to the customer as the customer receives and consumes the benefits throughout the contract period. Accordingly, subscription services are recognized ratably over the subscription period. Subscription services are typically billed either annually or quarterly in advance but may also be billed on a monthly basis.

One-time services – These agreements typically require us to perform a specific one-time service in a particular month. We are entitled to a fixed payment upon completion of the service. Under these arrangements, we recognize revenue at the point in time we complete the service and it is accepted by the customer.

Fixed, non-subscription services – These arrangements typically require us to perform an unspecified amount of services for a fixed price during a fixed period of time. Revenues are recognized over time based upon the costs incurred to date in relation to the total estimated contract costs. In determining cost estimates, management uses historical and forecasted cost information which is based on estimated volumes, external and internal costs and other factors necessary in estimating the total costs over the term of the contract. Changes in estimates are accounted for using a cumulative catch-up adjustment which could impact the amount and timing of revenue for any period.

Unit-price services – These arrangements typically require us to perform certain services on a periodic basis as requested by the customer for a per-unit amount which is typically billed in the month following the performance of the service. Revenue under these arrangements is recognized over the time the services are performed at the per-unit amount.

Revenue is presented net of any sales tax charged to our clients that we are required to remit to taxing authorities. We recognize contract assets or unbilled receivables related to revenue recognized for services completed but not invoiced to the clients. Unbilled receivables are classified as receivables when we have an unconditional right to contract consideration. A contract liability is recognized as deferred revenue when we invoice clients in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when we have satisfied the related performance obligation.

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Deferred Contract Costs

Deferred contract costs, net is stated at gross deferred costs less accumulated amortization. We defer commissions and incentives, including payroll taxes, if they are incremental and recoverable costs of obtaining a renewable customer contract. Deferred contract costs are amortized over the estimated term of the contract, including renewals, which generally ranges from three to five years. The contract term was estimated by considering factors such as historical customer attrition rates and product life. The amortization period is adjusted for significant changes in the estimated remaining term of a contract. An impairment of deferred contract costs is recognized when the unamortized balance of deferred contract costs exceeds the remaining amount of consideration we expect to receive net of the expected future costs directly related to providing those services. We have elected the practical expedient to expense contract costs when incurred for any nonrenewable contracts with a term of one year or less. We deferred incremental costs of obtaining a contract of $354,000 and $114,000 in the three-month periods ended March 31, 2025 and 2024, respectively. Deferred contract costs, net of accumulated amortization was $1.5 million and $1.6 million at March 31, 2025 and December 31, 2024, respectively. Total amortization by expense classification for the three-month periods ended March 31, 2025 and 2024 was as follows:

	2025		2024
	(In thousands)
Direct expenses	$	20	$	67
Selling, general and administrative expenses	$	356	$	213
Total amortization	$	376	$	280

Additional expense included in selling, general and administrative expenses for impairment of costs capitalized due to lost clients was $2,000 and $34,000 for the three-month periods ended March 31, 2025 and 2024, respectively.

Trade Accounts Receivable

The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable, determined based on our historical write-off experience, current economic conditions and reasonable and supportable forecasts about the future. We review the allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The following table provides the activity in the allowance for doubtful accounts for the three-month periods ended March 31, 2025 and 2024 (in thousands):

Balance at

Beginning of

Period

Bad Debt

Expense

(Benefit)

Write-offs

Recoveries

Balance at

End of

Period

Three months ended March 31, 2025

Three months ended March 31, 2024

(48

)

Leases

We determine whether a lease is included in an agreement at inception. We recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for our operating leases under which we are lessee. Operating lease ROU assets are included in operating lease right-of-use assets in our condensed consolidated balance sheet. Finance lease assets are included in property and equipment. Operating and finance lease liabilities are included in other current liabilities and other long-term liabilities. Certain lease arrangements may include options to extend or terminate the lease. We include these provisions in the ROU asset and lease liabilities only when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in direct expenses and selling, general and administrative expenses. Our lease agreements do not contain any residual value guarantees.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments during the lease term. ROU assets and lease liabilities are recorded at lease commencement based on the estimated present value of lease payments. Because the rate of interest implicit in each lease is not readily determinable, we use our estimated incremental collateralized borrowing rate at lease commencement, to calculate the present value of lease payments. When determining the appropriate incremental borrowing rate, we consider our available credit facilities, recently issued debt and public interest rate information.

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Due to remote working arrangements, we reassessed our office needs and subleased our Seattle location under an agreement considered to be an operating lease beginning in May 2021. We have not been legally released from our primary obligations under the original lease and therefore we continue to account for the original lease separately. Rent income from the sublessee is included in the statement of operations on a straight-line basis as an offset to rent expense associated with the original operating lease included in other expenses.

Fair Value Measurements

Our valuation techniques are based on maximizing observable inputs and minimizing the use of unobservable inputs when measuring fair value. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The inputs are then classified into the following hierarchy: (1) Level 1 Inputs—quoted prices in active markets for identical assets and liabilities; (2) Level 2 Inputs—observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar or identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data; (3) Level 3 Inputs—unobservable inputs.

The following details our financial assets and liabilities measured at fair value on a recurring basis within the fair value hierarchy (in thousands):

	Level 1		Level 2		Level 3		Total
As of March 31, 2025
Financial Assets:
Money Market Funds	$	2,063	$	-	$	-	$	2,063
Total Cash Equivalents	$	2,063	$	-	$	-	$	2,063
Financial Liabilities:
Contingent Consideration Liability	$	-	$	-	$	610	$	610

As of December 31, 2024
Financial Assets:
Money Market Funds	$	4,199	$	-	$	-	$	4,199
Total Cash Equivalents	$	4,199	$	-	$	-	$	4,199
Financial Liabilities:
Contingent Consideration Liability	$	-	$	-	$	859	$	859

There were no transfers between levels during the three months ended March 31, 2025 and 2024.

Our contingent consideration liability relates to potential future payments to the former owners of Nobl Health (“Nobl”), which was acquired in the third quarter of 2024. The potential future payments are contingent upon the achievement of certain customer contract metrics. Contingent consideration is remeasured at each reporting date at its estimated fair value. The remeasured fair value could differ materially from the initial estimate and uses significant unobservable inputs classified as Level 3 inputs. We measured fair value using a discounted cash flow model based on the present value of expected future payments, which considers the likelihood of meeting contract thresholds at future payment dates. Significant increases or decreases to any of the inputs in isolation could result in a significantly higher or lower liability. The change to the contingent consideration liability from the acquisition date, at each reporting date and the final amount paid, which is capped at $1.0 million, will be recognized in earnings.

The following summarizes the changes in the fair value of our contingent consideration liability during the three months ended March 31, 2025:

	In thousands
Contingent Consideration Liability, December 31, 2024	$	859
Increase to fair value included in selling, general & administrative expenses		31
Payments made		(280	)
Contingent Consideration Liability, March 31, 2025	$	610

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Our long-term debt described in Note 4 is recorded at amortized cost. The fair value of our variable rate long-term debt is believed to approximate the carrying value because we believe the current rate reasonably estimates the current market rate for our debt.

The following are the carrying amount and estimated fair values of variable rate long-term debt (in thousands):

	Level 1		Level 2		Total Fair Value		Carrying Amount
As of March 31, 2025	$	62,164	$	-	$	62,164	$	62,164
As of December 31, 2024	$	62,801	$	-	$	62,801	$	62,801

The carrying amounts of accounts receivable, revolving loan, accounts payable, and accrued expenses approximate their fair value. All non-financial assets that are not recognized or disclosed at fair value in the financial statements on a recurring basis, which includes ROU assets, property and equipment, goodwill, intangibles and cost method investments, are measured at fair value in certain circumstances (for example, when there is evidence of impairment). As of March 31, 2025 and December 31, 2024, there was no indication of impairment related to these assets.

Commitments and Contingencies

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. Legal fees, net of estimated insurance recoveries, are expensed as incurred. We do not believe the final disposition of claims at March 31, 2025 will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

(2)

CONTRACTS WITH CUSTOMERS

The following table disaggregates revenue for the three-month periods ended March 31, 2025 and 2024 based on timing of revenue recognition (in thousands):

	2025		2024
Subscription services recognized ratably over time	$	31,042	$	33,271
Services recognized at a point in time		1,741		1,421
Fixed, non-subscription recognized over time		645		495
Unit price services recognized over time		123		126
Total revenue	$	33,551	$	35,313

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands):

	March 31, 2025		December 31, 2024
Trade accounts receivables	$	11,326	$	11,054
Contract assets included in other current assets	$	86	$	186
Deferred revenue, current portion	$	15,507	$	15,786
Noncurrent deferred revenue included in other long-term liabilities	$	210	$	216

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Significant changes in contract assets and contract liabilities during the three-month periods ended March 31, 2025 and 2024 are as follows (in thousands):

	2025						2024
	Contract Asset			Deferred Revenue			Contract Asset			Deferred Revenue
	Increase (Decrease)
Revenue recognized that was included in deferred revenue at beginning of year due to completion of services	$	-		$	(7,649	)	$	-		$	(7,303	)
Increases due to invoicing of client, net of amounts recognized as revenue		-			7,377			-			7,672
Decreases due to completion of services (or portion of services) and transferred to accounts receivable		(152	)		-			(39	)		-
Change due to cumulative catch-up adjustments arising from changes in expected contract consideration		-			(13	)		-			(9	)
Increases due to revenue recognized in the period with additional performance obligations before invoicing		52			-			32			-

We have elected to apply the practical expedient to not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Total remaining contract revenue for contracts with original duration of greater than one year expected to be recognized in the future related to performance obligations that are unsatisfied at March 31, 2025 approximated $127.8 million, of which $37.1 million, $46.9 million, $31.4 million, $6.6 million, $4.4 million and $1.4 million are expected to be recognized during 2025, 2026, 2027, 2028, 2029 and 2030, respectively.

(3)

INCOME TAXES

The effective tax rate was 25% and 22% for the three-month periods ended March 31, 2025 and 2024, respectively. The effective tax rate increased mainly due to decreased tax benefits from the exercise of share-based compensation awards and higher state income taxes which fluctuate based on various apportionment factors and rates for the states we operate in.

(4)

NOTES PAYABLE

Our long-term debt consists of the following:

	March 31, 2025			December 31, 2024
	(In thousands)
Delayed Draw Term Loan	$	62,164		$	48,533
Former Term Loan		-			14,268
Less: current portion		(3,036	)		(4,789	)
Less: unamortized debt issuance costs		(459	)		(117	)
Notes payable, net of current portion	$	58,669		$	57,895

In February 2025, we entered a new credit agreement (the “Credit Agreement”) with a group of lenders that amended and restated the terms of our then existing credit agreement, as amended. We recognized a loss on extinguishment of debt of $67,000 for the unamortized debt issuance costs related to our previous long-term debt, which is included in other expense. The Credit Agreement includes (i) a $30.0 million revolving credit facility (the “Revolving Loan”) and (ii) a $110.0 million delayed draw-down term facility (“the “Delayed Draw Term Loan” and, together with the Revolving Loan, the “Credit Facilities”). The Delayed Draw Term Loan includes an accordion feature that, so long as no event of default exists or would exist after giving effect to such increase, allows us to request an increase in the Delayed Draw Term Loan of up to the lesser of (x) $25.0 million and (y) our EBITDA as of the preceding four fiscal quarters, exercisable in increments of $10.0 million (or the remaining available amount of the accordion, if less). We may use the Delayed Draw Term Loan to fund permitted future business acquisitions, repurchases of our common stock, capital expenditures or payment of dividends and the Revolving Loan to fund ongoing working capital needs and for other general corporate purposes.

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Interest accrues and is payable monthly at a floating rate equal to the one-month Term SOFR plus a percentage per annum determined by our cash flow leverage ratio, ranging from 2.25% to 2.75% (6.67% at March 31, 2025).

Principal amounts outstanding under the Delayed Draw Term Loan are due and payable monthly during the term of the Delayed Draw Term Loan, in equal monthly installments to amortize the aggregate outstanding principal balance by (i) 5% during each of the first three years and (ii) 7.5% during each of the fourth and fifth years following the date of such loan. All outstanding principal and interest on the Delayed Draw Term Loan are due and payable in full at the maturity date, February 6, 2030. We had the availability to borrow an additional $47.6 million on the Delayed Draw Term Loan at March 31, 2025.

Principal amounts outstanding under the Revolving Loan are due and payable in full at maturity at February 6, 2028. As of March 31, 2025, we had $3.5 million of borrowings outstanding and the availability to borrow $26.5 million on the Revolving Loan. Our weighted average short-term borrowings for the three month periods ended March 31, 2025 and 2024 were $2.0 million and $9.1 million, respectively. The weighted average interest rate on short-term borrowings during the three month periods ended March 31, 2025 and 2024 was 6.67% and 7.69%, respectively.

We are obligated to pay ongoing unused commitment fees quarterly in arrears at a percentage per annum determined by our cash flow leverage ratio, ranging from 0.15% to 0.30%, based on the actual daily unused portions of the Revolving Loan and the Delayed Draw Term Loan, respectively.

The Credit Agreement is collateralized by substantially all of our assets, subject to permitted liens and other agreed exceptions, and contains customary representations, warranties, affirmative and negative covenants (including financial covenants) and events of default. The negative covenants include, among other things, restrictions regarding the incurrence of indebtedness and liens, repurchases of our common stock and acquisitions, subject in each case to certain exceptions. Pursuant to the Credit Agreement, we are required to maintain a minimum fixed charge coverage ratio of 1.10x for all testing periods throughout the terms of the Credit Facilities, which calculation excludes, unless our liquidity falls below a specified threshold, (i) any cash dividend in a fiscal quarter that, together with all other cash dividends paid or declared during such fiscal quarter, exceeds $5.5 million in total cash dividends paid or declared, (ii) the portion of the purchase price for any permitted share repurchase of our shares paid with cash on hand, (iii) the portion of any acquisition consideration for a permitted acquisition paid with cash on hand, and (iv) up to $32.5 million of costs associated with our building renovation from or after January 1, 2023. We are also required to maintain a cash flow leverage ratio of 3.50x or less for all testing periods throughout the term of the Credit Facilities. As of March 31, 2025, we were in compliance with our financial covenants.

(5)

SHARE-BASED COMPENSATION

We measure and recognize compensation expense for all share-based payments based on the grant-date fair value of those awards. All of our existing stock option awards and unvested stock awards have been determined to be equity-classified awards. We account for forfeitures as they occur.

Our 2004 Non-Employee Director Stock Plan, as amended (the “2004 Director Plan”), is a nonqualified plan that provides for the granting of options with respect to 3.0 million shares of our common stock. The 2004 Director Plan provides for grants of nonqualified stock options to each of our directors who we do not employ. On the date of each annual meeting of shareholders, options to purchase shares of common stock equal to an aggregate grant date fair value of $100,000 are granted to each non-employee director that is elected or retained as a director at each such meeting. Stock options vest approximately one year following the date of grant and option terms are generally the earlier of ten years following the date of grant, or three years from the termination of the outside director’s service. At March 31, 2025, there were 616,402 shares of common stock available for issuance pursuant to future grants under the 2004 Director Plan.

Our 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”), as amended, provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of 1.8 million shares of our common stock. Stock options granted may be either incentive stock options or nonqualified stock options. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. We do, in certain limited situations, grant options with exercise prices that exceed the fair value of the common stock on the date of grant. At March 31, 2025, there were 467,097 shares of common stock available for issuance pursuant to future grants under the 2006 Equity Incentive Plan.

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Service-Based Stock Option Awards

We grant stock options to directors and selected executives with vesting based on specified service periods. Vesting terms vary with each grant and option awards are generally five to ten years following the date of grant. We recognize compensation expense on a straight-line basis over the service period specified in the award. We granted 11,021 service-based stock option awards during the three-month period ended March 31, 2025. No service-based stock options were awarded in three-month period ended March 31, 2024.

The fair value of service-based stock options granted in 2025 was estimated using a Black-Scholes valuation model with the following weighted average assumptions:

	2025
Expected dividend yield at date of grant		3.86	%
Expected stock price volatility		33.75	%
Risk-free interest rate		4.72	%
Expected life of options (in years)		8.0

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of our stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years we estimate that options will be outstanding. We consider groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes service-based stock option activity under the 2006 Equity Incentive Plan and the 2004 Director Plan for the three-month period ended March 31, 2025:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2024		470,321	$	35.38
Granted		11,021	$	17.34
Exercised		10,014	$	13.17
Expired		59,965	$	24.70
Forfeited		-
Outstanding at March 31, 2025		411,363	$	36.99		6.23	$	-
Exercisable at March 31, 2025		268,174	$	38.03		5.34	$	-

Performance-Based Stock Option Awards

We also grant stock options to selected executives with vesting contingent upon meeting certain Company-wide performance goals. The performance goals for options issued in 2024 are based on reaching a total recurring contract value target, measured at the end of the performance period, December 31, 2026. Vesting is also dependent upon remaining in our employment through the performance period. The performance awards issued in 2024 have a six-year contractual term. We recognize compensation expense prospectively from the date it is deemed probable that the performance goal will be met through the end of the performance period. We did not recognize compensation expense related to performance-based awards in 2024 or 2025 since achieving the performance goals was not deemed probable. We granted 404,833 performance-based stock option awards during the three-month period ended March 31, 2024. No performance-based stock options were awarded in 2025.

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The following table summarizes performance-based stock option activity under the 2006 Equity Incentive Plan for the three-month period ended March 31, 2025:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2024		404,833	$	39.54
Granted		-
Exercised		-
Forfeited		100,000	$	39.54
Outstanding at March 31, 2025		304,833	$	39.54		4.80	$	-
Exercisable at March 31, 2025		-

As of March 31, 2025, the total unrecognized compensation cost related to non-vested performance-based and service-based stock option awards was approximately $5.0 million which was expected to be recognized over a weighted average period of 2.0 years.

There was $132,000 of cash received from stock options exercised during the three-month period ended March 31, 2025. No cash was received from stock options exercised during the three-month period ended March 31, 2024. We recognized $171,000 and ($49,000) of non-cash compensation expense (benefit) for three-month periods ended March 31, 2025 and 2024, respectively, which is included in selling, general and administrative expenses.

Non-vested Stock Awards

There were no non-vested shares of common stock granted during the three-month periods ended March 31, 2025 and 2024 and no non-vested shares of common stock outstanding at March 31, 2025 or December 31, 2024. We recognized non-cash compensation expense of $13,000 for the three-month periods ended March 31, 2024 related to non-vested stock, which is included in selling, general and administrative expenses.

(6)

GOODWILL AND OTHER INTANGIBLE ASSETS

The following represents the carrying amount of goodwill at March 31, 2025:

Gross

Accumulated

Impairment

Net

(In thousands)

Balance at March 31, 2025

66,866

(714

)

66,152

Intangible assets consisted of the following:

	March 31, 2025			December 31, 2024
	(In thousands)
Non-amortizing intangible assets:
Indefinite trade name	$	1,191		$	1,191
Amortizing intangible assets:
Customer related		9,772			9,772
Technology		2,790			2,790
Trade names		1,572			1,572
Total amortizing intangible assets		14,134			14,134
Accumulated amortization		(12,806	)		(12,709	)
Other intangible assets, net	$	2,519		$	2,616

(7)

PROPERTY AND EQUIPMENT

	March 31, 2025		December 31, 2024
	(In thousands)
Property and equipment	$	77,218	$	73,653
Accumulated depreciation		36,828		35,384
Property and equipment, net	$	40,390	$	38,269

(8)

EARNINGS PER SHARE

Basic net income per share was computed using the weighted-average shares of common stock outstanding during the period.

Diluted net income per share was computed using the weighted-average shares of common stock and, if dilutive, the potential common stock outstanding during the period. Potential shares of common stock consist of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method.

We had 427,838 and 271,670 options of common stock for the three-month periods ended March 31, 2025 and 2024, respectively, which have been excluded from the diluted net income per share computation because their inclusion would be anti-dilutive.

	For the Three Months Ended March 31, 2025		For the Three Months Ended March 31, 2024
	(In thousands)
Numerator for net income per share – basic:	$	5,787	$	6,359
Net income
Allocation of distributed and undistributed income to unvested restricted stock shareholders		-		(1	)
Net income attributable to common shareholders		5,787		6,358
Denominator for net income per share – basic:
Weighted average shares of common stock outstanding – basic		22,972		23,868
Net income per share – basic	$	0.25	$	0.27

Numerator for net income per share – diluted:
Net income attributable to common shareholders for basic computation		5,787		6,358
Denominator for net income per share – diluted:
Weighted average shares of common stock outstanding – basic		22,972		23,868
Weighted average effect of dilutive securities – stock options		2		95
Denominator for diluted earnings per share – adjusted weighted average shares		22,974		23,963
Net income per share – diluted	$	0.25	$	0.27

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(9)

Segment Information

We assess segment reporting in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting, each reporting period, including evaluating the reporting package provided and reviewed by the Chief Operating Decision Maker (“CODM”). We have concluded that our Chief Executive Officer is our CODM.

Based on the way our business is managed and reported to our CODM, we believe we have a single operating segment. We also have one reportable segment. Our revenue is primarily derived and our long-lived assets are primarily held in the United States and our business is managed on a consolidated basis. All of our solutions within our one reporting segment provide analytics and insights that facilitate the measurement and improvement of patient and employee experience for healthcare organizations related to marketing, experience, reputation and governance.

The accounting policies for our operating segment are consistent with those described in the summary of significant accounting policies. The CODM assesses performance of our segment and allocates resources based on revenue and associate expenses based on three team categories: delivery, growth and support. The CODM uses net income, cash balances and debt availability to make decisions related to dividend distributions, acquisitions, and stock repurchases. Our segment results for our one reportable segment are the same as presented in our Consolidated Statements of Income. We do not have intra-entity sales or transfers. The measure of segment assets is reported on our consolidated balance sheet as total consolidated assets.

The table below presents our segment results, including other significant expenses reported to our CODM and other information related to our segment for the three-month periods ended March 31, 2025 and 2024 (in thousands):

	2025			2024
Revenue	$	33,551		$	35,313
Less:
Delivery associate expense		4,683			5,955
Delivery other operating expenses		7,907			7,298
Delivery total operating expenses		12,590			13,253
Growth associate expenses		6,049			5,948
Growth other operating expenses		814			1,553
Growth total operating expenses		6,863			7,501
Support associate expenses		1,340			1,639
Support other operating expenses		4,162			4,160
Support total operating expenses		5,502			5,799
Operating income		8,596			8,760
Interest income		19			44
Interest expense		(899	)		(605	)
Other non-operating income (expense)		7			(5	)
Provision for income taxes		(1,936	)		(1,835	)
Net income	$	5,787		$	6,359
Other significant expenses provided to CODM*
Variable direct expenses	$	5,521		$	5,254
Fixed direct expenses		7,536			8,602
IT operational expenses		4,527			4,808

Total expenditures for purchases of long-lived assets**	$	3,566		$	4,736

Other significant expenses are also included within the team expenses captions such as associate and other operating expenses.

Long-lived assets include property and equipment, right of use assets, intangible assets and goodwill, including those acquired in business combinations.

	2025		2024
Other significant noncash items*
Depreciation and amortization expense	$	1,542	$	1,447
Deferred income tax expense (benefit)		1,860		(246	)
Reserve for uncertain tax positions		76		133
Share-based compensation expense (benefit)		171		(36	)
Change in fair value of contingent consideration		31		-

Other significant expenses are also included within the team expenses captions such as associate and other operating expenses.

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ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our results of operations and financial conditions should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Our purpose is to humanize healthcare and support organizations in their understanding of each unique individual. Our commitment to Human Understanding® helps leading healthcare systems get to know each person they serve not as point-in-time insights, but as an ongoing relationship. Our end-to-end solutions enable our clients to understand what matters most to each person they serve – before, during, after, and beyond clinical encounters – to gain a longitudinal understanding of how life and health intersect, with the goal of developing lasting, trusting relationships. Our ability to measure what matters most and systematically capture, analyze, and deliver insights based on self-reported information from patients, families, and consumers is critical in today’s healthcare market. We believe access to and analysis of our extensive consumer-driven information is increasingly valuable as healthcare providers need to better understand and engage the people they serve to create long-term relationships and build loyalty.

Our portfolio of subscription-based solutions provides actionable information and analysis to healthcare organizations across a range of mission-critical, constituent-related elements, including patient experience, service recovery, care transitions, employee engagement, reputation management, and brand loyalty. We partner with clients across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as evolving payment models drive healthcare providers and payers towards a more collaborative and integrated service model.

On February 26, 2025, our Board of Directors appointed Trent Green as our Chief Executive Officer and to serve as a director, both effective June 1, 2025. Mr. Green brings more than 25 years of healthcare leadership experience, most recently serving as Chief Executive Officer of Amazon One Medical and previously as Chief Operating Officer of Legacy Health. Upon the effectiveness of Mr. Green’s appointment as Chief Executive Officer, Mr. Hays will transition to the role of Chairman.

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Results of Operations

The following table sets forth, for the periods indicated, selected financial information derived from our condensed consolidated financial statements and the percentage change in such items versus the prior comparable period, as well as other key financial metrics. The discussion that follows the information should be read in conjunction with our condensed consolidated financial statements.

Three Months Ended March 31, 2025, Compared to Three Months Ended March 31, 2024

	(In thousands, except percentages) Three Months Ended March 31,						Percentage Increase (Decrease)
	2025			2024			2025 over 2024
Revenue	$	33,551		$	35,313			(5	)
Direct expenses		13,057			13,856			(6	)
Selling, general, and administrative		10,356			11,250			(8	)
Depreciation and amortization		1,542			1,447			7
Operating income		8,596			8,760			(2	)
Total other expense		(873	)		(566	)		54
Provision for income taxes		1,936			1,835			6
Effective Tax Rate		25	%		22	%		3
Operating margin		26	%		25	%		1
Recurring Contract Value	$	134,371		$	139,548			(4	)
Cash provided by operating activities		6,646			12,037			(47	)

Revenue. Revenue in the 2025 period decreased compared to the 2024 period by $1.8 million. This was mainly from decreased recurring revenue of $2.1 million in our existing client base, partially offset by an increase in revenue from new clients of $353,000. We view total Recurring Contract Value, or TRCV, a measure of revenue under all renewable contracts for their respective annual renewal periods, as a leading indicator of revenue expectations. TRCV declined for several quarters prior to the fourth quarter of 2024, when it increased slightly and increased further sequentially in the first quarter 2025. We believe the expansion of our product and services portfolio during 2024, along with a broader sales effort, led to improved sales and retention in the fourth quarter compared with the prior several quarters. Despite this sequential quarterly improvement, TRCV was lower for the first quarter of 2025 compared to the first quarter of 2024. There is a lag between changes in TRCV (next twelve months) and revenue (trailing twelve months). Generally, if we are able to sustain growth in TRCV, we would expect revenue growth to follow within the next few quarters (and vice versa). However, intervening events may affect this general expectation.

Direct expenses. Variable expenses increased $267,000 in the 2025 period compared to the 2024 period primarily due to higher conference costs due to more conferences in the 2025 period than the 2024 period, partially offset by lower data collection expenses. Variable expenses as a percentage of revenue were 17% and 15% in the 2025 and 2024 periods, respectively. Fixed expenses decreased $1.1 million primarily due to decreased salary and benefit costs from workforce reduction and automation implemented in the fourth quarter of 2024 partially offset by increased contracted services to support investments in our Human Understanding solutions. We expect to continue to invest in providing innovative solutions to our clients, which could cause direct expenses to fluctuate as a percentage of revenue.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased in the 2025 period compared to the 2024 period primarily due to decreased marketing expenses of $688,000 and reduced legal and accounting fees of $259,000. While we continue to invest in product development and sales, our goal is to drive efficiencies and savings in overall costs to offset such investments. Selling, general and administrative expenses are expected to increase due to increased compensation expense related to certain executives and our new CEO. We expect a $3.6 million (based on the price of our common stock at April 25, 2025) charge during the second quarter of 2025 for Mr. Green's signing bonus and quarterly non-cash charges of approximately $447,000 (based on the price of our common stock on April 25, 2025) for Mr. Green's equity grant beginning in June 2025 and continuing through the third anniversary of the grant. Additionally, in light of Mr. Green’s appointment, two other executives were awarded similar compensation arrangements, which will result in a charge of $1.7 million in April 2025 for cash bonuses and quarterly non-cash charges of $207,000 beginning in April 2025 and continuing through March 2028. In consideration for the foregoing compensation, the long-term cash incentive plan was terminated and the unvested performance awards were forfeited for these two executives.

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Depreciation and amortization. Depreciation, amortization and impairment expenses increased in 2025 compared to the 2024 period due to increased software investment amortization and intangible amortization from the Nobl acquisition partially offset by less building, furniture and computer equipment depreciation. We expect our depreciation and amortization to increase slightly given continued software and intangible amortization, as well as depreciation on the building renovations when completed in 2025.

Operating income and margin. Operating income decreased in the 2025 period compared to the 2024 period primarily due to the decline in revenue, but operating margin increased in the 2025 period compared to the 2024 period due to the decrease in marketing expenses, legal and accounting, and salary and benefit costs partially offsetting the reduction in revenue. In the near term, we expect operating income and margin to increase due to revenue and cost initiatives, excluding the impact of the executive compensation charges described above.

Total other expense. Total other expense increased in the 2025 period compared to the 2024 period primarily due to higher interest expense of $294,000 mainly from higher borrowings outstanding on our Delayed Draw Term Loan, partially offset by lower average borrowings and interest rates on the Revolving Loan. Other expense is expected to increase in future periods due to additional borrowings on our Delayed Draw Term Loan and Revolving Loan.

Provision for income taxes and effective tax rate. The effective tax rate increased in the 2025 period compared to the 2024 period primarily due to decreased tax benefits from share-based compensation awards, an increase in the effective rate related to state income taxes which fluctuates based on various apportionment factors and rates for the states we operate in. The provision for income taxes increased due to the increase in the effective tax rate partially offset by the decrease in income before income taxes.

Recurring Contract Value. Recurring contract value at March 31, 2025 was lower compared to March 31, 2024 primarily due to the lack of growth in new contracts to replace losses. Our retention rate remained fairly consistent from prior years. Recurring contract value increased at March 31, 2025 compared to December 31, 2024 as year-to-date new sales surpassed year-to-date losses. Our recurring contract value metric represents the total revenue projected under all renewable contracts for their respective next annual renewal periods, assuming no upsells, downsells, price increases, or cancellations, measured as of the most recent quarter end.

Liquidity and Capital Resources

Our Board of Directors has established priorities for capital allocation, which prioritize funding of innovation and growth investments, including merger and acquisition activity as well as internal projects. The secondary priority is capital allocation for quarterly dividends and share repurchases.

As of March 31, 2025, our principal sources of liquidity included $2.5 million of cash and cash equivalents, up to $26.5 million of unused borrowings under our Revolving Loan and an additional $47.6 million on our Delayed Draw Term Loan.

Our cash flows from operating activities consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation, reserve for uncertain tax positions, loss on extinguishment of debt, change in fair value of contingent consideration, and the effect of working capital changes. Cash provided by operating activities decreased primarily due to working capital changes, mainly consisting of changes in trade accounts receivable primarily due to timing of initial billings and collections for new and renewal contracts, prepaid expenses and other current assets primarily due to the timing of our annual business insurance and other service agreements, accrued expenses, wages and bonuses, deferred revenue and income taxes payable and receivable mainly due to the timing of payments, partially offset by changes in accounts payable. Cash provided by operating activities was also partially offset by an increase in net income net of non-cash items.

See the Condensed Consolidated Statements of Cash Flows included in this report for the detail of our operating cash flows.

We had a working capital deficit of $17.4 million and $16.3 million on March 31, 2025 and December 31, 2024, respectively. The change was primarily due to decreases in cash and cash equivalents and increases in the borrowings outstanding on our Revolving Loan and accounts payable. These were partially offset by increases in accounts receivable and prepaid expenses primarily due to the timing of our annual business insurance payment and other service agreements and decreases in the current portion of our long-term debt, accrued expenses and deferred revenue. Cash and cash equivalents decreased mainly due to the repurchase of shares of our common stock for treasury. We also borrowed on our Revolving Loan to fund the share repurchases. Accounts payable and accrued expenses vary due to the timing of payments. Trade accounts receivable increased due to timing of billing and collections. Our working capital is significantly impacted by our large deferred revenue balances which will vary based on the timing and frequency of billings on annual agreements. Notwithstanding our working capital deficit on March 31, 2025, we believe that our existing sources of liquidity, including cash and cash equivalents, borrowing availability, and operating cash flows will be sufficient to meet our projected capital and debt maturity needs for the foreseeable future.

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Cash used in investing activities primarily consisted of purchases of property and equipment including computer software and hardware, building improvements, and furniture and equipment.

Cash used in financing activities consisted of payments for debt issuance costs and payments on our notes payable related to our extinguishment of debt and new credit agreement, payments on our Revolving Loan and finance lease obligations. We also used cash to pay contingent consideration related to our 2024 acquisition of Nobl Health, repurchase shares of our common stock for treasury, to pay dividends on common stock and for payment of payroll tax withholdings on options exercised. This was partially offset by cash provided from borrowings on our notes payable under our new credit agreement and Revolving Loan and proceeds from the exercise of stock options.

Our material cash requirements include the following contractual and other obligations:

Cash dividends of $2.8 million were paid in the three months ended March 31, 2025. Dividends of $2.7 million were declared in the three months ended March 31, 2025 and paid in April 2025. The dividends were paid from cash on hand and borrowings on our Revolving Loan. Our Board of Directors considers whether to declare a dividend and the amount of any dividends declared on a quarterly basis.

Capital Expenditures

We paid cash of $3.0 million for capital expenditures in the three months ended March 31, 2025. These expenditures consisted mainly of computer software development for our Human Understanding solutions and building renovations to our headquarters. We estimate future costs related to our headquarters building renovations to be $3.7 million in 2025, which we expect to fund through operating cash flows and borrowings on the Revolving Loan and Delayed Draw Term Loan.

Debt

Our Credit Agreement includes (i) a $30.0 million revolving credit facility (the “Revolving Loan”) and (ii) a $110.0 million delayed draw-down term facility (“the “Delayed Draw Term Loan” and, together with the Revolving Loan, the “Credit Facilities”). The Delayed Draw Term Loan includes an accordion feature that, so long as no event of default exists or would exist after giving effect to such increase, allows us to request an increase in the Delayed Draw Term Loan of up to the lesser of (x) $25.0 million and (y) our EBITDA as of the preceding four fiscal quarters, exercisable in increments of $10.0 million (or the remaining available amount of the accordion, if less). We may use the Delayed Draw Term Loan to fund permitted future business acquisitions, repurchases of our common stock, capital expenditures or payment of dividends and the Revolving Loan to fund ongoing working capital needs and for other general corporate purposes.

The outstanding balance on the Delayed Draw Term Loan was $62.2 million at March 31, 2025. Principal amounts outstanding are due and payable monthly during the term of the Delayed Draw Term Loan, in equal monthly installments to amortize the aggregate outstanding principal balance by (i) 5% during each of the first three years and (ii) 7.5% during each of the fourth and fifth years following the date of such loan. All outstanding principal and interest on the Delayed Draw Term Loan are due and payable in full at the maturity date, February 6, 2030. We had the availability to borrow an additional $47.6 million on the Delayed Draw Term Loan at March 31, 2025.

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Leases

We have lease arrangements for certain computer, office, printing and inserting equipment as well as office and data center space. As of March 31, 2025, we had fixed lease payments of $574,000 and $10,000 for operating and finance leases, respectively payable within 12 months.

Taxes

The liability for gross unrecognized tax benefits related to uncertain tax positions was $2.2 million as of March 31, 2025. See Note 3, "Income Taxes", to the Condensed Consolidated Financial Statements contained in this report for income tax related information.

Stock Repurchase Program

In May 2022, our Board of Directors authorized the repurchase of 2.5 million shares of common stock (the “2022 Program”). Under the 2022 Program we are authorized to repurchase from time-to-time shares of our outstanding common stock on the open market or in privately negotiated transactions. There are no remaining shares that can be purchased under the 2022 Program at March 31, 2025.

In April 2025 our Board of Directors approved a new stock repurchase authorization of up to 1.0 million shares of our common stock (the “2025 Program”). We are authorized to repurchase shares of our outstanding common stock from time-to-time on the open market or in privately negotiated transactions, provided that the maximum dollar amount repurchased shall not exceed $20 million without further consent. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions as well as corporate and regulatory considerations. The stock repurchase authorization may be suspended, modified, or discontinued at any time and we have no obligation to repurchase any amount of our common stock in connection with the repurchase authorization. The repurchase authorization has no set expiration date. The new authorization follows our recent repurchase of all shares remaining under the 2022 Program.

During the three months ended March 31, 2025, we repurchased 307,709 shares of our common stock under the 2022 Program for an aggregate of $5.0 million.

Critical Accounting Estimates

There have been no changes to our critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2024 that have a material impact on our Condensed Consolidated Financial Statements and the related Notes.

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ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

There are no material changes to the disclosures regarding our market risk exposures made in its Annual Report on Form 10-K for the year ended December 31, 2024.

ITEM 4.

Controls and Procedures

Our management, with the participation of our Chief Executive Officer (who services as our principal executive officer and our principal financial officer), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and our Chief Executive Officer (who serves as our principal executive officer and our principal financial officer) have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving its control objectives.

We have confidence in our internal controls and procedures. Nevertheless, our management, including our Chief Executive Officer (who serves as our principal executive officer and our principal financial officer), does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – Other Information

ITEM 1.

Legal Proceedings

From time to time, we are involved in certain claims and litigation arising in the normal course of business. Management assesses the probability of loss for such contingencies and recognizes a liability when a loss is probable and estimable. For additional information, see Note 1, under the heading “Commitments and Contingencies,” to our condensed consolidated financial statements. Regardless of the final outcome, any legal proceedings, claims, inquiries and investigations, however, can impose a significant burden on management and employees, may include costly defense and settlement costs, and could cause harm to our reputation and brand, and other factors.

ITEM 1A.

Risk Factors

The significant risk factors known to us that could materially adversely affect our business, financial condition, or operating results are described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024.

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ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In May 2022 our Board of Directors authorized the 2022 Program.

Our Credit Agreement provides that, in order for us to pay dividends or repurchase our common stock, there must be no default or event of default existing or that would result from such payment and we must show that we would comply with the Credit Agreement’s fixed charge coverage ratio and consolidated cash flow leverage ratio after giving pro forma effect to such payment.

The table below summarizes repurchases of common stock during the three months ended March 31, 2025.

Period	Total Number of Shares Purchased		Average Price Paid per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽³⁾

Jan 1 – Jan 31, 2025		26,894		16.87		26,894		280,815
Feb 1 – Feb 28, 2025		120,704		16.92		120,704		160,111
Mar 1 – Mar 31, 2025		160,111		15.14		160,111		-
Total		307,709				307,709

(1)	The average price paid per share excludes excise tax incurred on stock repurchases. For the quarter ended March 31, 2025, excise tax expense totaled $47,435.
(2)	Shares were repurchased pursuant to the 2022 Program.
(3)	In April 2025 our Board of Directors approved a new stock repurchase authorization of up to 1.0 million shares of our common stock (the “2025 Program”). We are authorized to repurchase shares of our outstanding common stock from time-to-time on the open market or in privately negotiated transactions, provided that the maximum dollar amount repurchased shall not exceed $20 million without further consent. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions as well as corporate and regulatory considerations. The stock repurchase authorization may be suspended, modified, or discontinued at any time and we have no obligation to repurchase any amount of our common stock in connection with the repurchase authorization. The repurchase authorization has no set expiration date. The new authorization follows our recent repurchase of all shares remaining under the Board of Director’s 2022 Program authorization.

ITEM 5.

Other Information

During the first quarter of 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.

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ITEM 6.

Exhibits

The exhibits listed in the exhibit index below are filed as part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX

Exhibit Number	Exhibit Description

(3.1)	Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K filed on July 2, 2021 (File No. 001-35929)]

(3.2)	Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporation’s Current Report on Form 8-K filed on July 2, 2021 (File No. 001-35929)]

(4.1)	Certificate of Incorporation of National Research Corporation, effective June 30, 2021 [Incorporated by reference to Exhibit 3.3 to National Research Corporation’s Current Report on Form 8-K filed on July 2, 2021 (File No. 001-35929)]

(4.2)	Bylaws of National Research Corporation, as amended to date [Incorporated by reference to Exhibit 3.4 to National Research Corporation’s Current Report on Form 8-K filed on July 2, 2021 (File No. 001-35929)]

(10.1)	Credit Agreement dated February 6, 2025, between National Research Corporation, each lender from time to time party thereto, and First National Bank of Omaha, as Administrative Agent. [Incorporated by reference to Exhibit 10.1 to National Research Corporation’s Current Report on Form 8-K filed on February 10, 2025 (File No. 001-35929)]

(10.2)#**	Trent Green Offer Letter dated February 26, 2025

(31)**	Certification by the Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

(32)***	Written Statement of the Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) pursuant to 18 U.S.C. Section 1350

(101) **	Financial statements from the Quarterly Report on Form 10-Q of National Research Corporation for the quarter ended March 31, 2025, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Notes to Condensed Consolidated Financial Statements, and (vi) document and entity information.

(104) **	Cover Page Interactive Data File (formatted in the Inline XBRL and contained in Exhibit 101).

** Filed herewith

*** Furnished herewith

# Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NATIONAL RESEARCH CORPORATION


Date: May 9, 2025	By:	/s/ Michael D. Hays
		Michael D. Hays
		Chief Executive (Principal Executive Officer and Principal Financial Officer)

NATIONAL RESEARCH CORP 10-Q