NRC HEALTH

Previous wording

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 customers across the continuum of healthcare services and believe this cross-continuum positioning is a unique and an increasingly important capability as the evolving healthcare landscape drives its constituents towards a more collaborative and integrated service model.

Current wording

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 customers across the continuum of healthcare services and believe this cross-continuum positioning is a unique and increasingly important capability as the evolving healthcare landscape drives its constituents towards a more collaborative and integrated service model.

Previous wording

Direct expenses. Direct expenses consist primarily of salaries and employee benefits, employee travel and lodging, materials, contract labor, third party software subscription costs, hosted customer conferences, and other direct expenses associated with revenue. Personnel costs within direct expenses are associated with individuals in product delivery, customer support, thought leadership, conference support, technology infrastructure, and product development. Direct expenses represented 38% of revenue for both the 2026 and 2025 periods. Direct expenses increased to $13.6 million for the 2026 period from $13.0 million for the same period in 2025, primarily driven by higher survey delivery services and increased spending on contractor services and computer subscription costs related to continued investments in technology and development.

Current wording

Direct expenses. Direct expenses consist primarily of salaries and employee benefits, employee travel and lodging, materials, contract labor, third party software subscription costs, hosted customer conferences, and other direct expenses associated with revenue. Personnel costs within direct expenses are associated with individuals in product delivery, customer support, thought leadership, conference support, technology infrastructure, and product development. Direct expenses were $15.4 million for the three months ended September 30, 2026, compared to $12.4 million for the same period in 2025. The increase was primarily driven by approximately $1.5 million of costs associated with our annual Human Understanding Beyond ("HUB") conference, which was held in the third quarter of 2026 compared to the fourth quarter of 2025. The increase also reflects higher survey delivery services expense and increased spending on contractor services and software subscriptions related to continued investments in technology and development.

Previous wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses consist of salaries and employee benefits, commissions and amortization of deferred commissions, stock-based compensation, employee travel and lodging, third party software subscription and platform costs, marketing costs, facility expenses, office expenses, fees for professional services, provision for credit losses, and other operational expenses. Personnel costs within selling, general, and administrative expenses are associated with individuals in sales, marketing, finance, accounting, business development, human resources, administrative, product development, internal information systems, and executive management. Selling, general, and administrative expenses increased to $22.9 million for the 2026 period, from $17.7 million for the same period in 2025. The increase was primarily driven by $7.1 million of higher stock-based compensation expense related to executive leadership. This increase in stock-based compensation expense primarily related to previously disclosed amendments to certain executive equity awards. We do not expect similar amendments to be recurring events. Accordingly, the increase in stock-based compensation expense in the reported period is not necessarily indicative of such expense in future periods. The increase was also driven by approximately $0.5 million of higher salary expense for executives who were not present for the same period in 2025. These increases were partially offset by $3.2 million of lower executive leadership transition bonus expense compared to the prior-year period. The remaining increase was attributable to higher travel and computer software subscription expenses to support continued investment in technology.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expenses consist of salaries and employee benefits, commissions and amortization of deferred commissions, stock-based compensation, employee travel and lodging, third party software subscription and platform costs, marketing costs, facility expenses, office expenses, fees for professional services, provision for credit losses, and other operational expenses. Personnel costs within selling, general and administrative expenses are associated with individuals in sales, marketing, finance, accounting, business development, human resources, administrative, product development, internal information systems, and executive management. Selling, general and administrative expenses were $12.0 million for the three months ended September 30, 2026, compared to $12.3 million for the same period in 2025. The decrease was primarily attributable to a $1.1 million reduction in stock-based compensation expense, including the completion of amortization related to previously disclosed executive equity award amendments and the forfeiture of awards associated with the departure of the Company's former Chief Financial Officer. These decreases were partially offset by increased marketing expenditures, higher software subscription costs related to ongoing technology investments, and increased travel expenses.

Previous wording

*Depreciation and amortization.*Depreciation and amortization expenses increased in the 2026 period compared to the 2025 period due to the completion of our headquarters building renovations in June 2025.

Current wording

Depreciation and amortization. Depreciation and amortization expenses decreased in the 2026 period compared to the 2025 period due to lower amortization expense resulting from a finite-lived intangible asset becoming fully amortized.

Previous wording

Total other expense.Total other expense increased in the 2026 period compared to the 2025 period due to higher interest expense on a higher balance on long term debt.

Current wording

Total other expense. Total other expense increased in the 2026 period compared to the 2025 period because of higher interest expense from a higher balance on long-term debt.

Previous wording

Provision for income taxes and effective tax rate. Provision for income taxes changed to a benefit in the 2026 period from an expense in the 2025 period, primarily due to a pre-tax loss in the 2026 period compared to pre-tax income in the 2025 period. The effective tax rate decreased in the 2026 period primarily because the 2025 rate reflected a small pre-tax income base that magnified the impact of nondeductible items, specifically executive compensation subject to nondeductible executive compensation under IRC Section 162(m), whereas in the 2026 period, the pre-tax loss minimized the impact of these nondeductible items.

Current wording

Provision for income taxes and effective tax rate. Provision for income taxes increased compared to the prior-year period primarily due to an increase in operating income and increase in the rate impacted by non-deductible executive compensation under IRC Section 162(m).

Previous wording

*Selling, general, and administrative expenses.*Selling, general, and administrative expenses increased $8.3 million to $36.4 million for the 2026 period, from $28.1 million for the same period in 2025. The primary driver was salaries and benefits due to $8.5 million of higher stock-based compensation related to executive leadership. Consistent with the discussion above for the three-month period, this increase in stock-based compensation primarily related to previously disclosed amendments to certain executive equity awards, which are not expected to recur. Accordingly, the increase in stock-based compensation expense for the six-month period is not necessarily indicative of such expense in future periods. The increase was also driven by $1.1 million of higher salary expense for executives who were not present for the same period in 2025, partially offset by $3.3 million of lower bonus expense paid as part of our executive leadership transition. The remaining increase was attributable to higher computer subscription expenses to support continued investment in technology, increased travel, regulatory-related accruals, and the timing of corporate‑related expenses.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expenses increased $8.0 million to $48.4 million for the nine months ended September 30, 2026, from $40.4 million for the same period in 2025. The primary driver was salaries and benefits expense due to $7.4 million of higher stock-based compensation related to executive leadership. The increase in stock-based compensation primarily related to previously disclosed amendments to certain executive equity awards, partially offset by the completion of amortization associated with those awards and the forfeiture of equity awards related to the departure of the Company's former Chief Financial Officer. These impacts are not expected to recur and, accordingly, the increase in stock-based compensation expense for the nine-month period is not necessarily indicative of such expense in future periods. The increase was also driven by $1.1 million of higher salary expense for executives who were not present during the same period in 2025, partially offset by $3.3 million of lower bonus expense associated with the executive leadership transition. The remaining increase was attributable to higher software subscription expenses supporting continued investments in technology, increased travel, regulatory-related accruals, and the timing of corporate-related expenses.

Previous wording

Total other expense. Total other expense increased in the 2026 period compared to the 2025 period due to higher interest expense due to a higher balance on long term debt.

Current wording

*Total other expense.*Total other expense increased in the 2026 period compared to the 2025 period because of higher interest expense from a higher balance on long-term debt.

Previous wording

Total recurring contract value (TRCV). TRCV at June 30, 2026 was higher compared to June 30, 2025, primarily due to sales to new and existing customers. We view TRCV as a leading indicator of our future revenue trends. TRCV represents the total annualized contract value of recurring amounts under customer contracts that are in effect or contractually committed as of the most recent quarter-end and are expected to be in force over the subsequent 12 months, based on contractual pricing and term provisions. TRCV is calculated using contracted recurring fees and assumes no upsells, downsells, price changes, early terminations, or non-renewals, unless we have been notified of such changes by the customer as of the measurement date. TRCV is an operating metric and is not a measure of revenue recognized under U.S. GAAP. The timing and amount of revenue we recognize under ASC 606 may differ from the pattern implied by TRCV due to allocation of transaction price and the timing of satisfaction of performance obligations. As a result, there is typically a lag between changes in TRCV and changes in our reported revenue. Generally, if we are able to sustain growth in TRCV, we would expect revenue growth to follow within subsequent periods, although intervening factors may affect this relationship.

Current wording

Total recurring contract value (TRCV). TRCV at September 30, 2026 was higher compared to September 30, 2025 due to sales to new and existing customers. We view TRCV as a leading indicator of our future revenue trends. TRCV represents the total annualized contract value of recurring amounts under customer contracts that are in effect or contractually committed as of the most recent quarter-end and are expected to be in force over the subsequent 12 months, based on contractual pricing and term provisions. TRCV is calculated using contracted recurring fees and assumes no upsells, downsells, price changes, early terminations, or non-renewals, unless we have been notified of such changes by the customer as of the measurement date. TRCV is an operating metric and is not a measure of revenue recognized under U.S. GAAP. The timing and amount of revenue we recognize under ASC 606 may differ from the pattern implied by TRCV due to allocation of transaction price and the timing of satisfaction of performance obligations. As a result, there is typically a lag between changes in TRCV and changes in our reported revenue. Generally, if we are able to sustain growth in TRCV, we would expect revenue growth to follow within subsequent periods, although intervening factors may affect this relationship.

Previous wording

Management transition costs, presented in the Company's prior earnings releases as "non-recurring executive compensation," consist of costs related to the Company's executive leadership transition. The caption was revised in the current period to more accurately reflect the composition of these costs. For the three and six months ended June 30, 2025, these costs consisted of bonuses tied to compensation arrangements for our new CEO and existing executive leaders. For the three and six months ended June 30, 2026, these costs consist of bonuses paid to certain executives to cover anticipated tax obligations in connection with amendments to their 2025 equity awards, as previously disclosed, and approximately $270,000 of severance costs incurred in connection with team restructurings implemented by newly appointed executives.

Current wording

Management transition costs, presented in the Company's filings prior to June 2026 as "non-recurring executive compensation," consist of costs related to the Company's executive leadership transition. The caption was revised for the period ended June 30, 2026 to more accurately reflect the composition of these costs. For the nine months ended September 30, 2025, these costs consisted of bonuses tied to compensation arrangements for our new CEO and existing executive leaders. For the nine months ended September 30, 2026, these costs consist of bonuses paid to certain executives to cover anticipated tax obligations in connection with amendments to their 2025 equity awards, as previously disclosed, and approximately $270,000 of severance costs incurred in connection with team restructurings implemented by newly appointed executives.

Previous wording

1 See 'Non-GAAP Financial Measures' above for a description of the composition of management transition costs and the change from prior period presentation.

Current wording

1 See 'Non-GAAP Financial Measures' above for a description of the composition of management transition costs.

Previous wording

1 See 'Non-GAAP Financial Measures' above for a description of the composition of management transition costs and the change from prior period presentation.

Current wording

1 See 'Non-GAAP Financial Measures' above for a description of the composition of management transition costs.

Previous wording

As of June 30, 2026, our principal sources of liquidity included $3.3 million of cash and cash equivalents, up to $17.0 million of unused borrowings under our Revolving Loan and an additional $27.6 million on our Delayed Draw Term Loan.

Current wording

As of September 30, 2026, our principal sources of liquidity included $3.6 million of cash and cash equivalents, up to $18.0 million of unused borrowings under our Revolving Loan and an additional $12.6 million on our Delayed Draw Term Loan.

Previous wording

Our cash flows from operating activities primarily consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation, and the effect of working capital changes. For the six months ended June 30, 2026, cash provided by operating activities increased compared to the same period in 2025 primarily due to higher net income net of non-cash items and working capital changes. Working capital changes were mainly driven by trade accounts receivable and prepaid expenses primarily due to timing of billings and payments, and higher deferred revenue, partially offset by the timing of income tax payments and lower accrued expense balances.

Current wording

Our cash flows from operating activities primarily consist of net income adjusted for non-cash items including depreciation and amortization, deferred income taxes, share-based compensation, and the effect of working capital changes. For the nine months ended September 30, 2026, cash provided by operating activities decreased compared to the same period in 2025 primarily due to lower net income net of non-cash items and working capital changes. Working capital changes were mainly driven by trade accounts receivable and prepaid expenses primarily due to timing of billings and payments, and higher deferred revenue, partially offset by the timing of income tax payments and lower accrued expense balances.

Previous wording

We had a working capital deficit of $12.2 million and $16.4 million on June 30, 2026, and December 31, 2025, respectively. The change was primarily due to an increase in income taxes receivable and prepaid expenses, together with decreases in accrued wages and bonuses, income taxes payable, and other current liabilities. These favorable changes were partially offset by decreases in cash and cash equivalents and trade accounts receivable, and by an increase in deferred revenue. Cash and cash equivalents decreased mainly due to the payment of dividends and the repurchase of shares of our common stock for treasury, partially offset by cash from operating activities. 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 June 30, 2026, 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.

Current wording

We had a working capital deficit of $15.1 million and $16.4 million on September 30, 2026, and December 31, 2025, respectively. The change was primarily due to an increase in trade accounts receivable and income taxes receivable, partially offset by increases in deferred revenue and accrued expenses. 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 September 30, 2026, 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.

Previous wording

Cash dividends of $3.6 million were paid in the six months ended June 30, 2026. Additional dividends of $3.5 million were declared in the three months ended June 30, 2026, and paid in July 2026. 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.

Current wording

Cash dividends of $7.1 million were paid in the nine months ended September 30, 2026. Additional dividends of $3.4 million were declared in the three months ended September 30, 2026, and paid in October 2026. 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.

Previous wording

We paid cash of $3.2 million for capital expenditures in the six months ended June 30, 2026. These expenditures consisted primarily of computer hardware and software, and costs related to software development for our Human Understanding® solutions.

Current wording

We paid cash of $4.2 million for capital expenditures in the nine months ended September 30, 2026. These expenditures consisted primarily of computer hardware and software, and costs related to software development for our Human Understanding® solutions.

Previous wording

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% (5.97% at June 30, 2026).

Current wording

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% (6.18% at September 30, 2026).

Previous wording

The outstanding balance on the Delayed Draw Term Loan was $77.3 million at June 30, 2026. 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 $27.6 million on the Delayed Draw Term Loan at June 30, 2026, excluding the accordion feature.

Current wording

The outstanding balance on the Delayed Draw Term Loan was $91.2 million at September 30, 2026. 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 $12.6 million on the Delayed Draw Term Loan at September 30, 2026, excluding the accordion feature.

Previous wording

Principal amounts outstanding under the Revolving Loan are due and payable in full at maturity at February 6, 2028. As of June 30, 2026, we had $13.0 million outstanding and the availability to borrow $17.0 million on the Revolving Loan. Our weighted average borrowings for the three-month periods ended June 30, 2026, and 2025 were $5.9 million and $8.2 million, respectively. Our weighted average borrowings for the six-month periods ended June 30, 2026, and 2025 were $4.7 million and $5.1 million, respectively. The weighted average interest rate on borrowings during the three-month periods ended June 30, 2026, and 2025 was 5.99% and 6.67%, respectively, and 6.01% and 6.67% during the six-month periods ended June 30, 2026, and 2025, respectively.

Current wording

Principal amounts outstanding under the Revolving Loan are due and payable in full at maturity on February 6, 2028. As of September 30, 2026, we had $12.0 million outstanding and the availability to borrow $18.0 million on the Revolving Loan. Our weighted average borrowings for the three-month periods ended September 30, 2026, and 2025 were $3.8 million and $1.1 million, respectively. Our weighted average borrowings for the nine-month periods ended September 30, 2026, and 2025 were $4.4 million and $3.8 million, respectively. The weighted average interest rate on borrowings during the three-month periods ended September 30, 2026, and 2025 was 6.10% and 6.68%, respectively, and 6.04% and 6.67% during the nine-month periods ended September 30, 2026, and 2025, respectively.

Previous wording

We have lease arrangements for certain computer, office, printing, and mail inserting equipment as well as office and data center space. As of June 30, 2026, we had fixed lease payments of $413,000 and $5,000 for operating and finance leases, respectively, payable within 12 months.

Current wording

We have lease arrangements for certain computer, office, printing, and mail inserting equipment as well as office and data center space. As of September 30, 2026, we had fixed lease payments of $337,000 and $3,000 for operating and finance leases, respectively, payable within 12 months.

Previous wording

The liability for gross unrecognized tax benefits related to uncertain tax positions was $2.4 million as of June 30, 2026. There were no material changes in our unrecognized tax benefits during the six months ended June 30, 2026.

Current wording

The liability for gross unrecognized tax benefits related to uncertain tax positions was $2.3 million as of September 30, 2026. There were no material changes in our unrecognized tax benefits during the nine months ended September 30, 2026.

Previous wording

During the three months ended June 30, 2026, we repurchased 397,381 shares of our common stock for an aggregate of $7.4 million.

Current wording

During the three months ended September 30, 2026, we repurchased 788,777 shares of our common stock for an aggregate of $16.7 million.