Greetings and welcome to the First Quarter 2020 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, May 6, 2020.

I would now like to turn the conference over to Kevin Karas, Chief Financial Officer. Please go ahead..

Thank you, Kelly. And welcome everyone to National Research Corporation's 2020 first quarter earnings call. My name is Kevin Karas, the Company's Chief Financial Officer. I'll be handling the call myself today from my home like many of you.

Before continuing, I'd like to review conditions related to any forward-looking statements that may be made as part of today's call. 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.

Before reviewing first quarter performance, I would like on behalf of all NRC associates to extend a heartfelt thank you to our customers and frontline caregivers around the world for working tirelessly to save lives and keep community safe during the COVID-19 pandemic.

As we are all aware, this public health crisis is likely to have an extended financial impact on most sectors of the economy and healthcare is no exception.

We have no unique perspective, which will allow us to forecast the depth, duration or specific impact on our clients or the Company and we'll refrain on this in future communication with investors from speculating.

Given this uncertainty, our only assumption is that the Company's sales, revenue and margin expansion are unlikely to follow the growth trends of the past.

Regarding the facts of our first quarter performance, recurring contract value at the end of the first quarter 2020 ended at $140.4 million, representing an 11% growth over the same period last year.

Health care system clients with agreements for multiple solutions represented 28% of our client base at the end of the first quarter of 2020, up from 25% at the same time last year.

Recurring contract value for our Digital Voice of the Customer platform solutions increased to $102.9 million compared to $77.6 million at the end of the first quarter of 2019. First quarter 2020 revenue was $33.9 million, an increase of 8% over the first quarter 2019.

First quarter revenue for our Digital Voice of the Customer platform solutions increased to 69% of our total revenue compared to 58% of total revenue in the first quarter of 2019. Consolidated operating income for first quarter 2020 was $11.2 million or 33% revenue compared to $10.7 million or 34% of revenue for the same period last year.

Total operating expenses of $22.7 million for the first quarter of 2020 increased by 9% compared to prior year. Direct expenses increased 8% to $12.5 million for the first quarter 2020 compared to $11.7 million for the same period last year. Direct expenses remained at 37% of revenue in both the first quarter of 2020 and of 2019.

Our direct expenses increased primarily due to an increase in fixed expenses, partially offset by a decrease in variable expenses. Fixed expenses increased primarily due to higher salary and benefit costs in contracted services and the customer service and information technology areas.

Variable costs were lower due in large part to the continued shift of our revenue mix from legacy solutions to Voice of the Customer platform revenue. Variable direct expenses as a percent of revenue decreased to 15% for the first quarter of 2020 compared to 18% in the first quarter of 2019.

Selling, general and administrative expenses increased to $8.7 million for the first quarter of 2020 compared to $7.7 million for the same period in 2019. Selling, general and administrative expenses were 26% of revenue for the first quarter of 2020 compared to 24% of revenue for the first quarter of last year.

Selling, general and administrative expenses increased in 2020 primarily due to higher salary and benefit costs, increased software and platform hosting expenses and additional legal and accounting costs primarily due to -- insurance refund received in 2019 for legal expenses associated with the recapitalization.

Our depreciation and amortization expense remained at $1.4 million for both the first quarter of 2020 and of 2019. Our other income and expense changed to $176,000 of other net income in the first quarter of 2020 compared to $844,000 of other net expense in the first quarter of 2019.

This change was primarily due to the revaluation on intercompany transactions due to changes in the foreign exchange rate, and decreased interest expense due to the declining balance on our term loan. The Company had an income tax benefit of $385,000 for the first quarter of 2020 compared to $1.7 million of expense in 2019.

The effective tax rate was a 3% benefit for the first quarter of 2020 compared to 17% effective rate in the same period of 2019, primarily due to increased tax benefits from the exercise investing of share-based compensation awards, partially offset by higher projected state taxes in 2020.

Net income for the first quarter 2020 was $11.8 million compared to $8.2 million in 2019. This completes the prepared remarks. Kelly, I will now ask you to open the call to questions..

Operator:.

Okay. Thank you, Kelly. In closing, I would just like to say until our next call, our thoughts and support are with those who are on the front lines battling this pandemic. Thank you for your time today..

That does occlude the conference call for today. We thank you for your participation and we ask that you please disconnect your line..