Hello, and welcome to the National Research Corporation Fourth Quarter 2022 Earnings Call. My name is Elliot and I'll be coordinating your call today. [Operator Instructions]. I would now like to hand over to Kevin Karas. The floor is yours. Please go ahead..

Thank you, Elliot, and welcome everyone to National Research Corporation's 2022 fourth quarter earnings call. My name is Kevin Karas, the company's CFO. And joining me on the call today is Linda Stacy, our Vice President of Finance.

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

Linda?.

Thank you, Kevin. This conference call includes forward-looking statements related to the company that involve risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated.

These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For further information about the facts that could affect the company's future results, please see the company's filings with the Securities and Exchange Commission. With that, I'll turn it back to you, Kevin..

Thanks, Linda. And again, welcome everyone. For almost 42 years, NRC Health has been committed to humanized healthcare and support organizations in their understanding of each unique individual.

NRC Health's commitment to human understanding helps leading healthcare systems get to know each person they serve, not as point in time insight, but as an ongoing relationship that builds trust and loyalty.

Over time, NRC Health has consistently led the industry with innovative and transformative solutions, including patient-centered care, market insights, real-time feedback, and online ratings and reviews. Last week, it was announced that NRC Health received the Best in KLAS 2023 Award for Patient Experience Improvement.

This recognition affirms our leadership position and focus on transforming the healthcare industry with the human first approach. Let me turn the call back over to Linda to review our financial performance and then open up to questions..

Thank you, Kevin. Revenue for the fourth quarter 2022 decreased slightly compared to the fourth quarter of 2021, primarily due to the scheduled closure of our Canadian location.

Revenue growth and core offerings year-over-year was 7% partially offset by the phase out of our Canadian operations and other non-core offerings resulting in a net 2% increase in revenue for 2022 over the prior year.

Our operating income was also impacted by expense increases in 2022 due to some inflationary pressure as well as intentional resource allocation towards retaining and developing talent, solution innovation, process automation and marketing programs. Operating income decreased by 5% and 7% respectively for the fourth quarter and full-year of 2022.

Fourth quarter other expense increased primarily due to a $2.6 million reclassification of the cumulative foreign currency translation adjustment into earnings from substantial liquidation of our investment in our Canadian subsidiary.

Effective tax rate in the fourth quarter of 2022 was 30% compared to 23% in 2021, primarily due to the non-deductible cumulative translation adjustment. We ended the year with $146.8 million in TRCV.

Our TRCV metric represents the total revenue projected under all renewable contracts for the respective next annual renewal periods, assuming no upsells down sales price increases or cancellations measured as of the most recent quarter end.

The company's Board of Directors has established priorities for capital allocation with funding of innovation and growth investments, including both M&A activity and internal projects as a preferred use of capital.

The company funded $12.2 million for innovation and growth purposes for the year-end December 31, 2022, in addition to quarterly dividend payments to shareholders totaling $21 million and $27.6 million for share repurchases. That concludes my comments for this morning. I'll now turn the call back to Kevin..

Thank you, Linda. This completes our prepared remarks. So Elliot, I would now ask that you open the call to any questions..

Thank you. [Operator Instructions]. Our first question today comes from George D'Angelo from Alpine Peaks Capital. Your line is open..

Hi, good morning, Kevin and Linda.

I was hoping you guys could comment on the uptake of human understanding broadly across your client base in the last quarter?.

Good morning, George. Yes. As we mentioned in the press release, we've continued to increase adoption. We had recent new client additions during the second half of the year. During fourth quarter specifically, we added four new organizations, two of those were new clients and two were conversion of existing customers.

So at year-end, at this point, we've cumulatively reached 11 organizations have adopted the program, and about a third of those are new client additions and the other two-thirds were conversion over from existing clients..

Okay. Thanks.

And on the core offering increase of 7%, can you give a little bit of a breakdown in terms of pricing of cross-sells and new clients? What's driving that?.

It's a combination of all three. The majority, and as we mentioned, our total recurring contract value growth rate has declined this year due to lower new client sales. So the majority of the growth rate within the core solutions the 7% is attributed to price increase and upsells and cross-sells to our existing client base.

And on average, I don't know what our exact price increase impact was for 2022. But generally, that will average somewhere between 2.5% to 3% per year. So that's what compromised the 7%..

Okay. Thanks.

And can you guys comment on capital expenditure expectations for 2023?.

Sure. We allocated a significant amount in 2022 to share repurchases. That will continue, but it slowed down as our share prices increase. So, so far in Q1, there's been significantly less activity, although that's still one of the priorities from the Board.

The dividend payment is always a quarter-to-quarter Board decision, but that is also one of the priorities for capital allocation.

And then in terms of investment in innovation and other capital expenditures, that number will probably increase, partly because of the increased renovation expenses that we'll have in 2023 for the renovation of our corporate headquarters building in Lincoln.

That work started really back in 2021 and has progressed and we'll see more activity in 2023. So that will increase our capital expenditures for this year..

[Operator Instructions]. This concludes our Q&A. I'll now hand back to Kevin for any final remarks..

Thank you again, everyone, for attending today's call, and we look forward to sharing our results again next quarter..

Today's call has now concluded. We like to thank you for your participation. You may now disconnect your lines..