Professional Diversity Network, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company operates diversity-focused professional networks and recruitment services, the NAPW women’s network, and RemoteMore, a software-development recruiting and services business. RemoteMore is 45.62%-owned and consolidated.
Financial results and liquidity
- Revenue: $2.053 million, up 38.3% from $1.485 million. Recruitment services were $1.333 million (up 13.4%); contracted software development contributed $477,000, with no comparable prior-year revenue; membership fees and related services fell 25.8% to $196,000; consumer advertising and marketing solutions were $46,415.
- Profit and margins: Continuing-operations loss was $890,000 versus $756,000. Net loss attributable to PDN was $703,000 versus $771,000; consolidated net loss, including noncontrolling interests, was $908,000 versus $771,000. Basic and diluted loss per share was $0.06 in both periods. Gross profit, calculated as revenue less cost of revenue, was approximately $1.191 million, or 58.0% of revenue, versus $1.224 million, or 82.5%, a year earlier. Adjusted EBITDA, a non-GAAP measure, was negative $292,000 versus negative $686,000.
- Cash flow: Continuing-operations operating cash use was $287,000, compared with $769,000. Investing cash use was $2,000; financing cash use was $140,000, primarily share repurchases. Cash and cash equivalents were $2.974 million at quarter-end, down $429,000 from December 31, 2021.
- Liquidity and obligations: Current assets were $5.244 million and current liabilities $4.896 million at March 31, implying working capital of approximately $347,000. Lease liabilities totaled approximately $499,000; the filing reports no interest expense for the quarter. Total liabilities were $5.561 million. The company had an accumulated deficit of $96.483 million.
Material changes and notable items
- Revenue growth was mainly driven by RemoteMore’s first-quarter contribution and higher recruitment services revenue. RemoteMore generated approximately $477,000 of revenue and incurred approximately $855,000 of operating costs, including about $256,000 of intangible amortization, for a loss before tax of approximately $381,000.
- Cost of revenue rose 230.3% to $862,000, primarily reflecting RemoteMore contractor costs and higher revenue-related costs. Depreciation and amortization increased to $281,000, principally due to RemoteMore acquisition-related amortization. General and administrative expense declined 16.0% to $1.108 million.
- In February, the company issued 279,720 shares valued at $400,000 to RemoteMore’s co-founders as part of the acquisition consideration. During the quarter, it also repurchased 141,987 shares for approximately $140,000 at an average cost of about $0.98 per share.
- NAPW revenue decreased 25.8%, which management attributed to lower legacy-member retention and continuing COVID-19 effects on enrollment. PDN recruitment revenue increased 13.1%.
Outlook, risks and contingencies
- Going concern: The company states that recurring losses and operating cash use raise substantial doubt about its ability to continue as a going concern. Management believes cash on hand and operating cash flow may meet working-capital needs through December 31, 2022, but says executing its business plan will require continued cost reductions, revenue growth, and capital raising or a strategic transaction. There is no assurance financing will be available on acceptable terms.
- Risks and unusual matters: Approximately $2.9 million of PDN China funds was seized in 2021 in connection with the Gatewang case; the company is pursuing return of the funds, but recovery is uncertain. China operations remain discontinued. NAPW has an $855,002 judgment relating to a former office, for which it says it has reserved the amount and accrued interest. A separate wage-and-hour case remains pending; the company disputes liability and had recorded a $450,000 settlement reserve in 2020.
- COVID-19 continues to pose risks to membership demand, events, liquidity, and access to capital; offices reopened on a hybrid basis on April 4, 2022. Management provided no specific revenue or earnings guidance. The filing identifies competition, privacy regulation, execution and integration risks, and the need to raise funds among other forward-looking risks.
Investor verification points
- Assess the going-concern disclosure, projected cash needs, and the company’s ability to secure financing or reach sustained positive cash flow.
- Review RemoteMore’s economics, including the company’s 45.62% ownership, consolidation treatment, noncontrolling interest, and acquisition-related costs and amortization.
- Verify the status and recoverability of the seized China funds and the outcome or reserve adequacy for the disclosed legal matters.
- Reconcile the filing’s working-capital comparisons: the balance-sheet figures imply approximately $418,000 at December 31, 2021, while the MD&A liquidity table reports a $684,000 deficiency.
- Consider the cash spent on share repurchases during a period when management disclosed substantial doubt about the company’s ability to continue as a going concern.