NRC Health (NRC) Q3 2026 Earnings Call Transcript

DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• Chief Accounting Officer - Jordan N. Freeman
• Chief Executive Officer - Trent Green
• Chief Financial Officer - Shane R. Harrison

TAKEAWAYS

• Revenue -- $38.4 million for the third quarter, representing 11% growth year over year driven by new implementations and contract renewals.
• Total Recurring Contract Value (TRCV) -- $154.1 million as of Sept. 30, 2026, a 9% increase year over year reflecting momentum in healthcare experience solutions.
• Adjusted EBITDA -- $10.9 million for the third quarter, yielding a 28% margin as the company saw sequential expansion from the first half of the year.
• Free Cash Flow -- $7.0 million for the third quarter, supported by higher operating income and disciplined capital expenditures.
• Net Income -- $4.7 million for the third quarter, representing 12% of total revenue.
• Sales Pipeline -- Increased 60% compared to the prior year, though management noted the average deal size is currently lower due to the size of organizations coming to market.
• Sales Activity -- Meeting volume rose 35% year over year following a reorganization of the sales force to align more closely with buyer behavior.
• The Governance Institute (TGI) Growth -- TRCV for the segment grew nearly 10% year over year, achieving its strongest bookings performance in seven years.
• TGI Market Proportion -- Approximately 10% of total company revenue, serving as a strategic entry point for CEO-level relationships within health systems.
• Accounting Change Headwind -- A shift to net revenue accounting for reputation monitoring solutions created a 2 percentage point headwind for revenue growth in the second quarter.
• Accounting Impact Value -- Approximately $1.5 million annually, representing the vendor fees now recorded as contra-revenue rather than as an expense.
• Landmark Implementation -- 25 hospitals and multiple ambulatory sites for a large health system partner went live in early October 2026.
• Landmark Revenue Recognition -- Recognition associated with the primary contract began in October 2026, with full deployment expected by year-end.
• Landmark Expansion -- A rounding platform purchased by the landmark client is expected to begin implementation in the second half of 2027.
• Customer Concentration -- 70% to 71% of current customers currently purchase only one NRC Health product, representing a significant cross-sell opportunity.
• Nine-Month Revenue -- $108.6 million for the period ended Sept. 30, 2026, compared to $102.2 million in the prior-year period.
• Share Repurchases -- 397,000 shares repurchased during the second quarter under an existing $1 million authorization.
• Dividends -- $0.16 per share quarterly dividend declared on Oct. 14, 2026, payable on Jan. 8, 2027.
• Operating Expenses -- Rising operating costs were driven by a $270,000 severance charge and higher headcount for delivery and customer success teams.
• Second Quarter Free Cash Flow -- $62,000 for the period ended June 30, 2026, reflecting earlier headquarters renovation costs and executive bonus payments.

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RISKS

• Green stated that "average deal size that we are seeing is down," which management attributed to the specific mix of smaller healthcare organizations currently entering the request-for-proposal process.
• Green warned that there is "a little uncertainty in the market right now among buyers" following the acquisition of Press Ganey by Qualtrics, causing some active procurement processes to pause for reassessment.

SUMMARY

NRC Health (NASDAQ:NRC) reported third quarter revenue growth of 11% year over year, driven by the successful implementation of its largest-ever multiyear contract and sustained demand for recurring healthcare experience solutions. The company stated that 25 hospital sites for this landmark partner went live in October 2026, contributing to sequential margin expansion. CFO Shane R. Harrison indicated that while an accounting change for reputation monitoring solutions created a growth headwind earlier in the year, the impact will diminish through the fourth quarter. Management reported that the sales pipeline has expanded 60% year over year, though buyer uncertainty following competitor consolidation has temporarily slowed some deal cycles. The company is prioritizing capital allocation toward internal product innovation, specifically AI-enabled tools, while maintaining a $0.16 per share quarterly dividend and pursuing opportunistic share repurchases.

• CEO Green noted that the company is focusing on applying AI to its proprietary healthcare data sets to identify loyalty patterns and predict improvement opportunities rather than using generic models.
• The company launched an ambient listening feature using AgenTeq AI for its rounding solution, allowing frontline leaders to automatically summarize patient interactions and identify service recovery needs.
• Management reported that its partnership with the Healthcare Experience Foundation is designed to connect governance and leadership development with practical operating disciplines.
• TGI serves as a high-level strategic entry point for the company, as the product is typically purchased by CEOs or general counsel, providing visibility into broader organizational priorities.
• Management confirmed that most customers only utilize a single solution, and the company is strengthening the connectivity between product families to drive cross-sell activity.
• Shane R. Harrison indicated that the company expects EBITDA margins to scale in the fourth quarter as revenue from high-value implementations increasingly offsets normalization of operating expenses.

INDUSTRY GLOSSARY

• AgenTeq AI: NRC Health's proprietary AI tool that uses ambient listening to document patient-provider interactions and identify service recovery opportunities.
• Market Insights: A consumer intelligence platform used by healthcare organizations to understand brand perception and community needs.
• Rounding Solution: A digital tool used by healthcare leaders to engage with patients in real-time, now enhanced with AI-driven documentation capabilities.
• The Governance Institute (TGI): An NRC Health business unit providing strategic guidance, benchmarking, and resources for healthcare boards and executive teams.
• TRCV (Total Recurring Contract Value): A leading indicator representing the total annualized value of all customer contracts in effect or committed at quarter-end.

Full Conference Call Transcript

Operator: I will now hand the conference over to Jordan N. Freeman, NRC Health's Chief Accounting Officer. Jordan, please go ahead.

Jordan N. Freeman: Thank you, operator. Welcome to NRC Health's earnings conference call for the second quarter ended June 30, 2026. I wanted to first let you know that we posted our earnings press release to the investor relations section on our website. On this call today, we have NRC Health's CEO, Trent Green, and CFO, Shane R. Harrison. Today's call will include statements related to the expected future results of our company, which are therefore forward looking statements. Actual results may differ materially from these expectations due to a number of risks and uncertainties, including those described in our earnings release and other SEC filings. We will also reference non GAAP financial measures.

Definitions and reconciliations to the most comparable GAAP measures are provided in our earnings press release which is available on our Investor Relations website. A replay of this call will also be posted to the same website. With that, let me turn our call over to our CEO, Trent Green.

Trent Green: Thank you, Jordan. Good afternoon, everyone. Thank you for joining us for NRC Health's second quarter 2026 earnings call. Today, I will begin with an overview of our second quarter performance, discuss the momentum we are seeing across the business, and highlight how we continue to advance the next chapter of the NRC Health story with innovation across our product portfolio. We delivered another strong quarter of execution in the second quarter. Reflected in our year over year total recurring contract value or TRCV and revenue growth. During the quarter, TRCV increased 11% year over year with diversified growth across the business.

Experienced TRCV grew in the mid teens compared to the prior year driven by strong bookings activity during the first half of this year. Also notable in the quarter was the Governance Institute. Which achieved its strongest bookings performance in 7 years and grew its TRCV by nearly 10% year over year. This performance reinforces our conviction that healthcare leaders increasingly value trusted strategic guidance alongside technology enabled solutions. Our TRCV growth reflects more than market demand. It demonstrates the effectiveness of our strategy. The sales organization we redesigned around buyers continues to perform well. Enabling deeper engagement across experience, market insights, and the Governance Institute.

By aligning with how health systems make decisions, we are creating larger, more strategic relationships and expanding our opportunity to deliver value across the enterprise. We are also seeing encouraging returns from our continued product investments. Particularly those that connect experience measurement with experience improvement. Those capabilities were a key differentiator in the Landmark multi solution agreement we discussed last quarter and continue to resonate with health care organizations looking for partners who can move beyond insight to measurable action. Turning to our financial performance, second quarter revenue increased approximately 4% year over year and 2% sequentially. Despite an approximately 2-point headwind, from an accounting change related to certain reputation monitoring solutions, which Shane will discuss in greater detail.

Adjusted EBITDA margin was 27% consistent with the first quarter as we continued investing ahead of revenue and implementation customer success and product development to support our large first quarter win and a growing pipeline of opportunities. This performance is consistent with expectations we outlined last quarter. As planned, we maintain margins, while building the delivery capacity required for the first phase of this multiyear engagement. We continue to expect margin expansion in the second half of the year as revenue increasingly reflects the TRCV growth we have generated. More broadly, our investment philosophy remains unchanged. We are investing deliberately in the capabilities and strength of long term customer relationships, accelerate product innovation, expand our competitive advantage.

We believe these investments position NRC Health to deliver durable growth and attractive incremental margins as these programs mature and scale. Product innovation remains 1 of our highest strategic priorities. And during the quarter, we continued to strengthen our solution families. Beginning with the Governance Institute, we have expanded our capabilities by engaging in a refresh of our board assessment tools, increasing our benchmarking capabilities, developing board effectiveness resources that help healthcare boards and executive teams govern more strategically. We believe governance is becoming an increasingly important differentiator as health systems navigate unprecedented financial, workforce, and regulatory complexity. And we are investing to ensure the governance remains the trusted partner health care leadership.

Within the experienced family, we are particularly excited about the recent launch of ambient listening, with AgenTeq AI in a rounding solution. Rather than having frontline leaders use clipboards and static question sets to engage with patients and document those conversations, our ambient listening feature allows them to remain fully present while AI securely captures the interaction in the background saving them transcribing time, automatically organizing conversations into meaningful summaries, identifying themes, surfacing service recovery opportunities, and preparing documentation for review. Early deployments have demonstrated dramatically richer documentation and insights without increasing the time leaders spend rounding. A meaningful step forward in helping healthcare organizations move from measuring experience after the fact to improving it in real time.

But perhaps the most exciting opportunity extends well beyond any single product release. Over more than 4 decades, NRC Health has been solely focused on healthcare and has built both deep client relationships and 1 of healthcare's richest and most interconnected experience data sets. We uniquely connect consumers expect before they choose care what patients experience throughout their care journey, and how employees help shape those experiences from within the organization. No other organization can offer our laser focus this breadth depth, and longitudinal history of healthcare experience data. That foundation creates a significant competitive advantage as AI continues to reshape our industry.

Our objective is not simply to apply AI to health care. it is to apply AI to 1 of health care's most differentiated datasets. By mining decades of interconnected patient, consumer, employee, and market data, we can identify patterns, uncover drivers of loyalty and experience, predict opportunities for improvement, and recommend actions with a level of context that generic AI models simply cannot provide. All of which can drive a virtuous cycle of higher consumer attraction, better patient outcomes, improved caregiver careers, and higher customer return on investment. In our view, this is the next evolution of human understanding. We are not simply helping health care organizations understand what happened.

We are helping them understand why it happened, what is most likely to happen next, and what actions will create the greatest impact for patients, communities, and caregivers they serve. Stepping back, our strategy continues to be grounded in 3 elements. Insight, engagement, and enablement. Insight provides a continuous view into what patients, families, employees, communities expect and experience throughout their healthcare journey. Engagement aligns leaders and teams around what needs to change, supported by our customer success teams, partnerships like the 1 we recently announced with the Healthcare Experience Foundation, and platforms like the Governance Institute.

Enablement is where improvement happens through tools, workflows, and practices that convert insight into better performance which may be measured in improved patient and employee experience stronger volumes, lower costs. We believe we are increasingly differentiating ourselves in this industry, particularly in those engagement and enablement layers. Players can generate data and dashboards, but fewer can help a health system act on what the data is telling them especially when those answers are nuanced, financially meaningful. Our opportunity is to combine health care specific intelligence, governance expertise, and enablement tools to drive real behavior change across the thousands of care sites we serve.

I am proud of how our teams executed in the quarter, driving double digit year over year TRCV growth, sustaining revenue momentum, advancing the governance institute offering, and investing with discipline in delivery and product. The foundation is solid. Our opportunity ahead is clear. And health care industries need for what NRC Health delivers turning human understanding into meaningful, measurable action has never been greater. With that, I will turn it over to Shane to walk through our second quarter financial results.

Shane R. Harrison: Thank you, Trent, and good afternoon, everyone. I will take the next few minutes to walk through our Q2 2026 results provide context on our profitability dynamics, as we invest to support our TRCV growth and give an update on capital allocation, including our dividend and share repurchase activity. Starting with TRCV, we finished the quarter with total recurring contract value of $151.9 million up 11% year over year, reflecting continued strength across our experience, market insights, and the governance institute portfolios. Q2 revenue was up approximately 4% year over year and 2% sequentially. This included a roughly 2 point growth headwind related to a change in revenue recognition for several of our reputation management SKUs.

This was due to the strategic replacement of a third party vendor for some elements of these solutions, where the new arrangement requires net revenue accounting. Which means the vendor's fees are offset as contra revenue rather than expense. Previous accounting was traditional gross revenue and expense recognition. This accounting change had a pronounced revenue impact in the second quarter and we expect to see a smaller headwind in Q3 and Q4. The relationship between TRCV and revenue recognition remains consistent with what we have described previously. TLCV growth leads revenue as implementations ramp. Especially for larger multisite customers like the landmark win we discussed last quarter. Which will begin to show revenue during Q3.

We continue to expect that the strong TRSV performance we posted over the past several quarters will support durable revenue growth as implementations mature. Moving to profitability. Second quarter adjusted EBITDA was $9.4 million with a margin of 27%, which was essentially flat with Q1 in line with our expectation that margins would remain steady this quarter while we invest in delivery and customer success for our large new implementations. Year over year EBITDA was down 3 points or $900 thousand lower, primarily driven by higher operating expenses tied to expansion in our delivery teams, ongoing product and platform investments, and the normalization of certain corporate expenses following the executive team build out we completed in 2025.

These investments are intentional and aligned with our long term growth strategy. We expect margin improvement as revenue catches up to the TRCV we have already secured. For modeling purposes, we expect third quarter revenue to increase sequentially and adjusted EBITDA margin to be approximately the same as the first half of the year, due primarily to the timing of our annual customer conference occurring in September. And in the fourth quarter, we expect to see upside to our EBITDA margin as we scale revenue and see our operating expenses normalize from Q3. This underlying margin performance reflects the same discipline we have shown historically, funding growth initiatives while maintaining an attractive profitability profile.

Adjusted net income for the second quarter was $6.9 million and adjusted EPS was $0.31 per diluted share. Majority of the adjustments to arrive at adjusted net income in Q2, related to the previously announced acceleration of vesting of restricted shares and associated cash payments to offset personal taxes for 3 of our executives. Which was done to honor the original intent of those 2023 share grants. Given that most of these expenses are non deductible for NRC's taxes, and due to the technical tax accounting related to allocating non deductible items during a lost quarter our Q2 tax provision will not be comparable to our second half provision.

For both Q3 and Q4, we expect our effective tax rate to be approximately 4.0%. And lastly, on the second quarter financial review, our Q2 free cash flow was $0.062 million which was $4.2 million higher than prior year as executive cash bonuses and CapEx related to our headquarters renovation declined year over year. Turning to capital allocation. Our philosophy remains straightforward. We will be measured and disciplined in deploying cash to the highest return opportunities. Our first priority is investing in NRC. Hiring and developing talented people innovating new capabilities, and supporting implementations that deepen customer relationships and expand our addressable market.

Alongside these internal investments, we remain active in surveying various markets for possible acquisitions, gauging for opportunities that will strengthen our platform and deepen our expertise, while assessing their ability to be accretive to our financial profile. Additionally, we look to return capital to shareholders in diversified ways. Through our dividend and opportunistic share repurchases. During the quarter, we paid our regular quarterly dividend of $0.16 per share and repurchased approximately 397 thousand shares under our existing $1 million authorization. Our philosophy around repurchases is to act when we identify an attractive risk adjusted return opportunity relative to our other investment alternatives. And we balance that use of cash with our prudent leverage profile.

We will continue to evaluate the relative attractiveness of internal investment, strategic M&A and share repurchases with the goal of compounding free cash flow per share over time. Zooming out a bit on this Q2, these results reflect the balanced profile we aim to deliver. Strong TRCV growth, returning to consistent revenue growth, maintaining attractive margins while funding our future and executing a thoughtful capital allocation strategy that supports long term value creation for our shareholders. With that, we will open the line up for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Constantine Davides with Citizens. Your line is open. Please go ahead.

Constantine Davides: Thanks. I just wanted to drill in a bit on the bookings performance for TGI. Just talk a little bit about what is driving that. Excuse me. And how does that translate into future revenue? And I guess more to the point, what is the scale of that business line today? And I know you said TRCV is growing 10% for that business line. Is that the right way to think about growth over the near term?

Trent Green: Yeah. Thanks Constantine. This is Trent. Appreciate the question And thanks also for picking up coverage on us. We are grateful. Let me zoom out for a second on TGI, provide a little maybe some broader context on what is happening there and then kind of drilling on your question on where we are with TRCV and where we see growth. So the Governance Institute is a very unique asset. it is a differentiated offering with an existing base of clients in the hundreds. Building this product from scratch would be incredibly difficult. it is also a top of funnel purchaser, meaning this is a product that is bought by the CEO or the CEO and their general counsel.

So this gives us visibility at the top of the organization and, therefore, a broader awareness of their organizational priorities. it is also a little. it is a bit clubby in a good way. CEOs want a network of peers with like organizations. Or to network with organizations that are facing like problems and we help make those connections. In terms of the business fundamentals, it. it is the margin on this business is strong. We do need to upgrade some of our talent and service to the emerging value proposition for that product offering, but we will do that in a thoughtful way and sync with the growth signals.

Then to your specific question, in terms of the overall, this is only about 10% of our business. So I do not expect it to significantly move top line, although we have in. This is a product offering we have owned for 20 years. it is been an offering in the market for over 40 years and it has had doubled the membership that we presently enjoy. So we see significant opportunities for growth. But I want to make sure that is measured with you.

I do not anticipate it to be a significant top line mover for us, but it does create connectivity inside of organizations. it is really important for us. it is a good brand, and it helps us establish a strong foothold for ensuring that those organizations at the highest levels understand our full suite of capabilities. Oh, and then I could see Trent. The part would be relative to your question. You know, similar to our other our other product lines, we now have a dedicated focus sales team on this product. We did not have a dedicated team We now have dedicated leadership on sales.

And what we are finding is as we refresh the value prop, Not only is it helpful to have a dedicated sales team, but we are increasingly finding that our members, current members, or prospective members are calling their friends, excited about the things that we are we are attempting to do, and so it is generating some additional buzz and connectivity just through the network itself.

Constantine Davides: Oh, it is great color. I just wanna shift gears a little bit. Talk. You referenced the landmark customer win. Obviously, some investments ahead of standing that up. Wondering if you can just give us an update there and then with respect to your pipeline, I guess, are you seeing larger deals, maybe not along the size of that, but I am just wondering if you can comment on pipeline, how you would characterize it with respect to demand for different solutions, average deal size, whatever else you would want to highlight as well.

Trent Green: Yeah. Sure. Thanks. So we are now live with this Landmark customer. We brought on the first 25 hospitals and a number of ambulatory sites earlier this month. So data is flowing through the pipes, so to speak. We also began to recognize revenue associated with this customer this month. We will bring on the next tranche of facilities in October and will be fully deployed by the end of the year They also purchased another product from us, a rounding platform. that is not yet recognized in our TRCV and that is expected to kick off in the second half of 27. So that engagement is well underway.

We did, as we noted, during our first quarter call, bring on some additional resources to help support onboarding of this customer. We also intend to jointly announce this partnership publicly in a couple of weeks, so we will not be as vague about who this is. And in fact, I will be on-site with their leadership team next week. So that engagement is going quite well. In terms of sales pipeline So there is not a lot of deals of this size coming to market every quarter. That being said, our pipeline generation has been strong. Our pipeline is up 60% higher than it was the same quarter last year. I will say the.

In the pipe, the average deal size is down. And that is just reflective of the size of the organizations. They are actively coming to market. We somewhat expected some of this given some of the near term unknowns associated with the Qualtrics and Prescany acquisition. there is a little uncertainty in the market right now among buyers. So the average deal size that we are seeing is down. We do look at.

I mean, we look at a number of metrics with our with our sales team particularly associated with the reorg that we executed last year and we are seeing a significant increase in the number of meetings that we are getting access to and in particular, on-site meetings. So we are up by 35% on sales activity. So all those leading indicators to us to us appear to be to be very solid. Pipes up, size of pipe, average deal size in that pipe is down and, know, just.

We do not we do not see deals like the 1 we landed in Q1 coming up every quarter, but certainly, we will we will be in the mix when those opportunities do present themselves.

Constantine Davides: Okay. 1 more for me, and I will hop back in the queue. But Shane, you called out the 2-point headwind from the gross to net adjustment, which I get to around $1.5 million. I just want to understand, is TRCV because of that as well? Is that apples to apples sequentially with what we saw in the first quarter? Or a little bit of adjustment there as well?

Shane R. Harrison: Yeah. It is still apples to apples. We have a policy on TRCV in the policy is a gross treatment. So we did not adjust TRCV for what you saw here. You are about. You are approximately right. The annual amount's about $1.5 million. So not gonna move any needles really, either on the margin standpoint or at the TRCV level. So we again, we are following our policy. We kept it where it is at. it is just affecting revenue as it flows in.

Constantine Davides: Thanks. I will hop back in the queue.

Operator: Your next question comes from the line of Jeff Wilson with Atlanta Capital. Your line is open. Please go ahead.

Jeff Wilson: Hi, everyone. Can you hear me okay? Yep. Okay. Trent. Well, I hope you are doing well, and thanks for the opportunity here. I have a couple bigger picture questions. First, related to AI, and then a follow-up if time permits. On the revenue side, can you just elaborate on the early monetization strategy for the AgenTeq AI features that you are talking about? Are they being positioned as premium add ons to the current subscription model or primarily a retention tool to drive a higher ROI for your existing partners And then on the cost side, are there specific areas as we think about longer term future margin prospects?

Are there specific areas within the customer success or data processing where AI is allowing you to scale your operation more efficiently where we should see that more as revenue growth begins to accelerate. Thanks.

Trent Green: Yeah, Jeff. This is Trent. Thanks so much for the for the question. So we do not presently have an AI skew for our AgenTeq tool that is embedded in our in our rounding product. So you subscribe to rounding, and it is part of the offering. So we see. Presently, we see our AI innovations as more powerful features that we have added to our solutions to further differentiate NRC and improve our win rates and retention. And still to our knowledge, we are the first. Certainly the first and I think still the only rounding platform that has this capability enabled.

We will or we are I should say actively evaluating other opportunities to monetize some of the thinking that we have around how we apply AI and where we insert AI into our products. So as you as you referenced, perhaps some premium type add ons. We are not we are not there yet. So that is where things stand presently in terms of customer facing AI. We are absolutely looking at ways in which AI can make our customer team success and implementation teams more efficient and effective.

So we have assigned engineering resources and product resources to our customer success team so we can evaluate areas where we are ingesting data and can do it more efficiently and effectively. And I do, in fact, believe that we will see over time some improvement in our cost to serve. May not result in an overall reduction in head because I am anticipating we wanna continue to grow the business. I just anticipate that we will be able to we will be able to service the business in a more efficient and effective manner.

Jeff Wilson: Okay. Thank you for that. And then secondary question on the competitive front. So following the it is a good segue given your comments, but following the completion of the acquisition of Press Gini, by Qualtrics, just curious how do you feel about NRC's competitive moat with this new competitive environment? And you mentioned some uncertainty in the marketplace. Are you seeing any shift in customer sentiment or RFP requirements now that your largest competitor has a integrated into a broader experience management platform?

Trent Green: Yeah. Jeff. Thanks. You know, overall, I feel great about NRC and where and how we are positioned and where and how we are differentiated, and we will continue to differentiate ourselves. It is still really fresh The deal closed on May 18. I would say just in terms of market sentiment, to respond to that, the early effect is this has caused some customers who are inactive RFP processes to pause and reassess. And specifically, we have we have been engaged in 2 processes where prior to closing, it was NRC Qualtrics Prescany who had proposed. Post closing, they have created an opportunity for Prescany and Qualtrics to submit a unified proposal.

Those evaluation processes are still in motion, so I cannot assess what the buyer reaction to that combined proposal has been. So I think generally what is happened is we have entered an era of buyer and uncertainty relative to what exactly materializes from the combination and what products and services are available and in what form. And, therefore, again, get really specific with you on kind of their emerging value proposition and how we differentiate because frankly, it is it is uncertain. I do see this as temporary. Do not have crystal balls to how long this is gonna be before the market has greater clarity. But for us, it means we can. We continue to build our pipeline.

As I mentioned earlier, our Q2 pipeline grew 60%. And we can focus on communicating what we believe are our strategic differentiators. Particularly how our rounding the governance institute, our consumer intelligence platform of market insights, complements experience, insights for a for a really holistic experience and brand improvement strategy.

Operator: Your next question comes from the line of Josh Peters with Shiba Insight LLC. Josh, your line is open. Please go ahead.

Josh Peters: Hello, Trent. Hello, Shane. Thanks for taking my call and congratulations On another solid quarter. Better than solid, I would say, of execution. I am curious if you have any more color that you might add to what Qualtrics and Presgany may be communicating to customers in terms of potential changes to their existing platform? If they are planning a systems integration, that would shake up the marketplace still a little bit further. The way I have approached it is NRC offers certainty because you already have a fully set up platform. So what more are you hearing from perhaps customers and potential prospects on that front?

Trent Green: Yeah, Josh. Thank you. And yeah, we agree. We offer we offer certainty where there is You know, it is it is interesting, Josh. it is it is ambiguous. We have heard of we have heard of customers who are on Pressganey that have you know, have some interest in Qualtrics, but they are not being given any indication as to whether there is a. Or what the platform migration plan is. We have heard at least in those. I mentioned the 2 deals that have been paused for reassessment We do know in 1 of those very clearly that it is a currently a Prescany customer.

They have been given what the Qualtrics transition platform transition would be to Qualtrics. But there is not been at least that we have heard of, any kind of overarching communication plan on what they are what they are doing with their platform strategy.

Josh Peters: Okay. And then by way of a quick follow-up question, Shane, you mentioned tax rate is going to be unusual here affected by of the nonrecurring activity here in Q2. what is a good normalized number to think about in 2027 and beyond?

Shane R. Harrison: Yeah. there is some of the activity that has happened in Q2 And you can see the impact last year too when we had the similar of bonus structure. You see what it did to the tax rate. So, yeah, there is there is several a significant amount of the accelerated vesting and the bonuses are not deductible, so it is jumping up our effective tax rate. We will wash that through, right, by the end of the year. We will be through that. A good way that we model ourselves is you know, we are at the high 20s is about how we do our effective tax rate.

Now that is not cash taxes. that is that is the effective. On the cash side, it is usually a little bit lower than that. But I think you know, call it 28%, 29%, at the effective level and then at the. On the actual cash going out the door, it is probably more in the lower to mid-20s.

Josh Peters: Alright. Thank you very much.

Trent Green: Thanks, Josh.

Operator: Your next question comes from the line of John Lewis with Willis Investment Counsel. Your line is open. Please go ahead.

John Lewis: Congratulations on another solid quarter. I was curious to hear a little bit more about how these new service offerings are allowing you to access the customer customers. More and potentially how that is impacting TRCV.

Trent Green: Yeah. Thanks, John. You broke up just a little bit. it is hard to hear how new are you referring to our announcement with the Health Experience Foundation or rounding platform? Can you just help me? I wanna make sure I am precisely addressing your question.

John Lewis: You know, adding, you know, additional rounding capabilities things like that. How is that allowing you to engage?

Trent Green: Yeah. Gotcha. Thank you. Yeah. So these are. As I think about our rounding offering, some of the work that we are doing on a tool we call improvement navigator These are these are all tools that move from helping organizations, our customers move from insights about their business and how customers, patients, employees are experiencing their business. To improving that experience. So rounding is very much a engagement tool with frontline leaders. And so what happens is you actually expand the number of individuals that are actively using on a day to day basis NRC tools because they become embedded in daily workflows for an organization. So we start to become, in my view, even stickier with organizations.

So irrespective of capturing the insights, although the insights, you know, that is doing the surveys is still important to us, Where we really become sticky with organizations is when we can get more embedded in their daily operations and workflow. And that is where I see as a, for instance, a rounding platform and a couple of other emerging product innovations that we are we are we are working on. We also as you might have seen, we announced in June a partnership with an organization called the Health Experience Foundation.

This is an organization that is been in operation since 2017. it is led by an individual who has a historical connection to Quint Studer, and Quint Studer is a big name brand in health care. It may not mean anything to you, but it means a lot to leaders and in hospitals and health systems. And we see this partner as further reinforcing our engagement and enablement pillars of what we do.

So this is an experienced team of clinicians, operators, executives, They are collaborating to connect governance, leadership development, and frontline enablement to help us translate our human understanding into really practical operating disciplines that sustain improvement, ultimately, in my view, that is what this is about. it is about producing the outcomes, and the more we can demonstrate that our tools become embedded in daily workflows that produce positive outcomes, whether those are just improvement in patient satisfaction scores or whether they start to drive quality improvement, safety improvement, workforce engagement, more efficiency in day to day operations.

All of that is it is great stuff and we see this relationship with HX Foundation is further blossoming into 1 where we can kinda bake them in. As part of a deeper advisory capability tied to our to our key products and services, further advancing what I am talking about here with engagement driving to improved outcomes for our customers.

John Lewis: That makes sense. And where do you feel that you new customers to be able to, you know, have them buy multiple. solutions from you.

Trent Green: Yeah. I am sorry, John. Again, you cut out. I think you were you were asking about where we are relative to customers buying multiple solutions. that is correct. I am sorry. I am traveling. Hopefully, you can hear me a little better now. Not at all. No worries. Just wanna make sure I get the I get the question right. So yeah, you know, cross sell is a is a big opportunity for us. I mean, the large Q1 deal that we announced, just as a reminder, was a cross-sell. There was a customer that already bought a product from us and now we have sold in both our experience measurement tool as well as the rounding tool.

We still have a very long runway of cross sell opportunity in our base. 70% of our customers only buy 1 product from NRC today or roughly I think it might be I think it might be 71% of our customers or something buy only 1 product. So we have a lot of opportunity to grow there. And we are spending, as I mentioned in our Q1 call, we are working really hard to strengthen the connective tissue between our product families to facilitate these cross sell opportunities.

And as I mentioned to start the call, as I reflect on the opportunities with the Governance Institute, I see that as a we are we are we are at a high level of the organization and have an opportunity to expose that high level to our full suite of products. Our CEOs do not typically buy. They may be involved somewhat in a buying process, but they do not typically purchase. it is generally delegated to a different leader, do not generally purchase a patient experience measurement solutions. But by strengthening our connectivity at that level, we can start to expose the full breadth and depth of our of our capabilities.

So the 2 kind of leaders that I see there for us opening those doors are the governance and institute and our consumer intelligence product that we refer to as market insights. So anyway, long way to go, big opportunity for us and it is it is all about strengthening the connective tissue and the cross connections between our product offerings.

John Lewis: Perfect. Thank you so much for letting me join the call. Sorry for the technical issues.

Trent Green: Thanks so much. Glad you were able to join.

Operator: There are no further questions at this time. I will now turn the call back to Trent Green for closing remarks.

Trent Green: Thanks all for joining the call today, and thanks for the questions. In closing, to reiterate, we are confident in the foundation of the business. We are encouraged by the momentum in our product portfolio and customer relationships. And we are committed to sound execution and capital allocation that will drive long term value for our shareholders. So I am grateful to our incredible NRC associates for their commitment to our customers for their trust, and to our shareholders for your continued support. Thanks for your time and interest in NRC Health.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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