Issuer Direct Corporation (ACCESSWIRE/Newswire) — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023; filed August 10, 2023. The filing registrant is Issuer Direct Corporation, although the request identifies ACCESS Newswire Inc. The company operates communications and compliance businesses, including ACCESSWIRE, Newswire, webcasting, investor-relations websites, disclosure software, stock transfer, proxy and shareholder distribution services.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $9.651 million | $5.807 million | $18.270 million | $11.095 million |
| Gross profit | $7.315 million | $4.443 million | $14.105 million | $8.499 million |
| Gross margin | 76% | 77% | 77% | 77% |
| Operating income | $1.747 million | $1.148 million | $2.328 million | $1.836 million |
| Net income | $1.363 million | $0.841 million | $1.219 million | $1.357 million |
| Diluted EPS | $0.36 | $0.22 | $0.32 | $0.36 |
| Operating cash flow | $1.731 million | $1.096 million | $2.003 million | $1.644 million |
| Adjusted EBITDA | $3.019 million | $1.498 million | $4.907 million | $2.638 million |
Q2 net margin was approximately 14%, compared with approximately 14% in the prior-year quarter. Six-month net margin declined to approximately 7% from 12%, primarily reflecting higher interest expense, acquisition-related costs and other unusual items.
- Revenue mix: Q2 Communications revenue was $5.936 million, or 61.5% of total revenue; Compliance revenue was $3.715 million, or 38.5%. Six-month Communications revenue was $12.502 million, or 68.4%, and Compliance revenue was $5.768 million, or 31.6%.
- Liquidity: Cash and cash equivalents were $4.961 million at June 30, 2023, with net accounts receivable of $4.311 million and deferred revenue of $5.729 million.
- Working capital: Current assets were $10.869 million and current liabilities were $12.084 million, resulting in a current-liability excess of approximately $1.215 million.
- Debt: Long-term debt was $17.904 million, with a $2.000 million current portion. The company had no balance drawn under its $5 million revolving letter-of-credit facility.
- Cash generation: Six-month free cash flow was $1.835 million, defined as operating cash flow less fixed-asset and capitalized-software spending. Adjusted free cash flow was $2.511 million.
Material Changes Versus Prior Comparable Period
- Q2 revenue increased 66%; six-month revenue increased 65%. Management attributed the increase primarily to the November 2022 acquisition of iNewswire LLC, now branded Newswire, and higher Compliance revenue.
- Communications revenue increased 61% in Q2 and 77% for the six-month period. ACCESSWIRE revenue increased 10% for the six-month period, while events and webcasting revenue declined because of reduced virtual events and annual meetings.
- Compliance revenue increased 76% in Q2 and 43% for the six-month period, driven by significant print and proxy fulfillment transactions and higher transfer-agent activity.
- Gross margin remained strong but declined one percentage point in Q2, principally because Communications gross margin fell to 76% from 80%. Six-month gross margin was unchanged at 77%.
- Operating expenses rose substantially due to Newswire operating costs, expanded sales and marketing personnel, product development, integration activity and higher amortization of acquired intangible assets. Depreciation and amortization increased 392% in Q2 and 393% for the six-month period.
- Net interest expense was $281,000 in Q2 and $519,000 for the six-month period, compared with net interest income in the prior-year periods, reflecting the new acquisition-related term loan.
- Six-month net income declined 10% despite revenue growth, primarily because of increased amortization, interest expense, acquisition and integration costs, and the $370,000 payment to extinguish the seller note.
Debt, Acquisition and Unusual Items
On March 20, 2023, the company entered into a $25 million credit agreement consisting of a $20 million term loan and a $5 million revolving letter-of-credit facility. The term loan bears a fixed effective rate of 6.217% through an interest-rate swap. Monthly principal payments of $333,333 begin January 1, 2024, and the loan matures December 28, 2028. The debt is secured by substantially all company and guarantor assets upon an event of default.
Proceeds from the term loan and cash on hand were used to repay the $22 million seller note issued for the Newswire acquisition. The seller forgave $440,000 of otherwise payable interest. The company recorded a $370,000 early-extinguishment payment as other expense. The preliminary acquisition accounting remains subject to finalization.
The interest-rate swap had a $214,000 net asset fair value at June 30, 2023. A $379,000 Q2 gain and a $214,000 six-month gain from changes in fair value were recorded in other income. Management’s adjusted metrics exclude or adjust for these items, acquisition and integration costs, stock-based compensation and other unusual items.
Guidance, Outlook and Risks
- Management did not provide specific numerical revenue, earnings or cash-flow guidance.
- Management stated that demand remains stable in most markets and expects stable to increased demand for the combined ACCESSWIRE and Newswire business during 2023 and beyond.
- Strategic priorities include expanding Communications products and distribution, increasing sales and marketing, investing in technology and artificial intelligence/media-database products, evaluating acquisitions, growing the customer base and generating sustainable cash flow.
- Key risks include integration and execution of the Newswire acquisition, dependence on distribution partners, competition, reduced demand for virtual events, economic and capital-market uncertainty, inflation, higher interest rates, foreign exchange exposure and compliance with debt covenants.
- The term loan requires a minimum fixed-charge coverage ratio of 1.20:1.00 and leverage limits of 2.75:1.00 through September 30, 2023 and 2.50:1.00 after December 31, 2023. Management reported that all covenants were exceeded for the quarter.
- Cash deposits exceeded FDIC insurance limits by approximately $2.408 million at June 30, 2023. No material litigation or material changes to previously disclosed risk factors were reported.
Investor Verification Items
- Verify the registrant and business-name relationship between Issuer Direct Corporation, ACCESSWIRE and Newswire.
- Assess whether Communications growth and Newswire integration offset lower webcasting demand and declining Communications gross margin.
- Model required term-loan principal payments beginning January 2024 against operating cash flow and the company’s negative working capital position.
- Review the preliminary purchase-price allocation, goodwill and acquired intangible assets for potential future impairment or changes.
- Reconcile GAAP earnings and cash flow with management’s adjusted EBITDA, adjusted net income and adjusted free cash flow, particularly the treatment of acquisition costs, stock compensation, swap gains and debt-extinguishment costs.
- Monitor compliance with fixed-charge coverage and leverage covenants as principal amortization begins.