Professional Diversity Network, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. PDN operates diversity-focused professional networks, the NAPW women’s network, and RemoteMore, a developer-recruiting and software-development business. China operations are reported as discontinued.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.114 million | $1.683 million | $6.363 million | $4.628 million |
| Loss from continuing operations, net of tax | $1.095 million | $88,000 | $2.038 million | $1.434 million |
| Net loss attributable to PDN | $960,000 | $81,000 | $1.572 million | $1.487 million |
| Operating cash used, continuing operations | Not separately stated | Not separately stated | $1.394 million | $1.160 million |
- Revenue increased 25.7% in Q3 and 37.5% for the nine-month period. RemoteMore contributed $757,000 and $1.882 million, respectively, but its 2021 comparison included only about 10 days after acquisition.
- Recruitment revenue declined 14.8% in Q3 but rose 3.9% year to date. Membership revenue fell 36.5% in Q3 and 33.3% year to date. PDN cited fewer events and lower recruitment initiatives in Q3; NAPW cited weaker renewals and new memberships.
- Cost of revenue rose substantially with RemoteMore contractor costs. Calculated gross margin was approximately 41.9% in Q3 versus 79.4% a year earlier, and 52.5% for nine months versus 81.2%.
- Cash and cash equivalents were $1.463 million at September 30, 2022, down from $3.403 million at year-end 2021. Total current assets were $3.442 million against current liabilities of $3.794 million, a $351,000 deficit; the filing separately reports approximately $128,000 of working capital surplus from continuing operations.
- Total liabilities were $4.387 million, including $464,000 of lease liabilities. The filing does not report conventional borrowings. Total stockholders’ equity was $2.681 million.
- Non-GAAP adjusted EBITDA was a loss of $705,000 for Q3 and $1.294 million for nine months, versus income of $84,000 and a loss of $840,000 in the comparable 2021 periods.
Material changes and unusual items
- Nine-month revenue growth was principally from RemoteMore; its nine-month operating costs were approximately $2.802 million, including $1.675 million of contractor costs and $667,000 of intangible amortization.
- General and administrative expense fell 25.2% year to date. Management attributed much of the reduction to a one-time, noncash litigation-settlement gain of approximately $908,000, as well as lower payroll and legal costs. The filing also describes an ongoing employment lawsuit and a previously recorded $450,000 reserve; the relationship between these disclosures is not clear from the text.
- In September, PDN issued 1,726,784 shares valued at $1.35 million for a 9% interest in Koala Crypto Limited. The investment is recorded as a long-term asset, not cash. Related security arrangements include a requirement to obtain lifting of a voluntary suspension of KCL’s virtual financial assets license by December 31, 2022.
- PDN repurchased 579,884 shares for approximately $515,000 during the nine months, despite its cash-use and liquidity position; approximately $1.485 million of buyback authorization remained at September 30.
- PDN’s 45.62% RemoteMore interest is consolidated, with the remaining interest reflected as noncontrolling interest. For nine months, RemoteMore reported a loss before tax of approximately $945,000.
Outlook, risks, and contingencies
- Management stated that available cash and operating cash flow should meet working-capital needs through December 31, 2022. Beyond that, PDN may need higher revenue, additional cost reductions, or capital raised through stock issuance or a strategic transaction; management gave no quantified revenue or earnings guidance.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing operating losses, continuing cash use, accumulated deficit of $97.352 million, and dependence on executing its plan, raising capital, and generating revenue. Management cautioned that funding may not be available on acceptable terms.
- Risks cited include competition, privacy regulation, technology and preference changes, staffing and execution, acquisition integration, economic conditions, and the ability to raise funds. Management also noted possible continuing effects from COVID-19, the war in Ukraine, recessionary conditions, and inflation.
- Approximately $195,000 of PDN China cash remained frozen in connection with the Gatewang case, and the company’s claim for return of previously seized funds is uncertain. China discontinued operations had no revenue and a $42,000 loss for the nine months.
- The company disputes claims in the Bayne employment-law proceeding and intends to defend itself; plaintiffs seek monetary damages and equitable relief. The filing also notes ordinary-course legal matters that could have adverse effects.
- Management reported disclosure controls and procedures were effective as of September 30, 2022, with no material third-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether PDN can fund operations after year-end 2022 without additional capital, and the terms and dilution risk of any financing.
- The source, accounting treatment, and status of the approximately $908,000 litigation-related gain, and the current exposure in the Bayne case.
- Whether RemoteMore can grow revenue while improving its margins and limiting contractor and amortization-related costs.
- The status and recoverability of the Koala Crypto investment, including whether the license-suspension condition was met by the stated deadline.
- The amount and timing of any recovery of frozen China assets and the potential outcome of related proceedings.
- The company’s share count and capital allocation decisions, including continued buybacks alongside disclosed liquidity constraints.