Investor Relations Contact:
Pat Beans, CFO at 402-475-2525 or click here for more information.

Past letters have largely highlighted achievements of various National Research Corporation associates, profiles of clients we serve, our operating performance as a Company, and the trends within the healthcare industry. I dedicate this letter to our shareholders. Our shareholders include associates that work at NRC, our neighbors, and individuals across this and other countries. Shareholders also include large and small investment funds and institutions behind which is another person, just like our associates and neighbors, making investment decisions in which NRC is just one of thousands of alternatives.

Not unlike the trust that someone would place in you to handle their life savings, I feel we, as an organization, have a special obligation to our shareholders to do the right things the right way all the time. Unlike many companies in today’s world, where doing what’s right seems difficult, I actually see it as effortless because NRC management are fellow shareholders, different only in that we are a little closer to the front line. This ensures, I believe, all major decisions are being made by people in your shoes, fellow shareholders that personally live with the decisions being made.

It amazes me when company leaders who hold minimal or no stock in their company often suggest that such company has a bright future, is undervalued, and/or go to great lengths to showcase it as an attractive investment. If such were the case, why are their personal funds invested elsewhere? Rest assured, NRC management’s personal net worth is all about NRC stock. While this fact does not suggest we have a corner on making all the right business decisions, it does keep us shareholder-focused. As an example of our shareholder basis, I’ve outlined our stance on a few topics that have been in the news.

Stock Options—We use stock options, however sparingly, with a stated goal of aligning incentives of key leaders with all shareholders through equity ownership and not as an execute and sell means to garner higher annual compensation. We also, far before backdating made headlines, established a fixed date on which our annual option grants would be awarded each year. We have no crystal ball to suggest January 5 is to anyone’s advantage or disadvantage over the next 20 years, but that is the date.

Share Repurchases—Our share repurchase program is limited to offsetting options granted which, if gone unchecked, would create dilution to current shareholders. We do not repurchase shares when we believe the Company is undervalued, or stop repurchasing if perception is one of overvalue. In fact, we don’t even waste our time asking the question. Consequently, no one should look at our share repurchasing as any signal to the market. After all, it is only shareholders via the market that have the right to deem what is an appropriate value.

Dividends—We will return to shareholders, via dividends, cash in excess of what is needed to grow in a prudent fashion. After all, it is your money—the shareholders—not management’s. Some organizations seem to forget this point. That said, while we will never view a cash surplus as the opportunity to bet on a long shot, we as well would never hesitate to stop a dividend if the cash was for a sure bet.

Golden Parachutes—We will not provide management with preferential guarantees such as golden parachutes or the like. We keep management’s compensation short on salaries and long on performance incentives, as it should be. If things go south, we all go south together.

In closing, NRC has likely not been your best investment, but I hope we have been far from your worst. Looking back over the last 10 calendar years, from the start of 1998 through the end of 2007, NRC stock has realized a 16% compounded growth during that decade, compared to the NASDAQ composite of 5% and the Russell 2000 at 7%. Selection of any other date ranges or comparisons will showcase a different picture, some better and some far worse. How we will perform over the next decade, I do not know. I do know we will remain shareholder-focused.

Best personal regards,

Michael D. Hays,
Chief Executive Officer and Fellow Shareholder