ACCESS Newswire Inc. quarterly report, Q3 FY2020

Issuer Direct Corporation (ACCESSWIRE) — Q3 2020 Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2020. The filing is for Issuer Direct Corporation, whose ACCESSWIRE business is a principal platform and technology offering. Financial statements are unaudited and amounts are in thousands except per-share and share data.

Business context

Issuer Direct provides communications and compliance technology for public and private companies, investment banks, professional firms and financial-services customers. Its offerings include the Platform id. cloud platform, ACCESSWIRE news distribution, webcasting, virtual annual meetings, virtual conferences, investor relations content, proxy services and stock transfer solutions. The company reports one operating segment and is transitioning from legacy service offerings toward higher-margin platform and technology subscriptions.

Key financial metrics

Metric	Three months ended September 30	Nine months ended September 30
Revenue	$4,882; up 21% from $4,019	$13,782; up 12% from $12,336
Gross profit	$3,495; 72% margin	$9,780; 71% margin
Operating income	$1,076	$2,325
Net income	$789, or $0.21 diluted EPS	$1,787, or $0.47 diluted EPS
Operating cash flow	Not separately reported for the quarter	$3,400

• Revenue mix: Platform and Technology revenue was $3,613 in the quarter and $9,599 year to date, representing 74% and 70% of total revenue, respectively. Services revenue was $1,269 in the quarter and $4,183 year to date.
• Segment economics: Platform and Technology gross margin was 77% for the quarter and 76% year to date; Services gross margin was 57% and 59%, respectively.
• Liquidity: Cash and cash equivalents were $18,429 at September 30, 2020, compared with $15,766 at December 31, 2019. Current assets exceeded current liabilities by $16,409.
• Debt and obligations: The balance sheet included a $320 short-term note payable and $2,445 of lease liabilities, including $391 classified within current accrued expenses and $2,054 long term. The company had an unused $3,000 unsecured line of credit bearing interest at LIBOR plus 1.75%; the rate was 1.90% at September 30, 2020.
• Cash flow and capital allocation: Year-to-date operating cash flow was $3,400, investing cash outflow was $15 and financing cash outflow was $719, including $785 for share repurchases partly offset by $66 from stock-option exercises. No material capitalized software development spending was reported in 2020.
• Balance sheet: Total assets were $34,223 and stockholders’ equity was $27,364 at September 30, 2020. Deferred revenue was $2,098, up from $1,812 at December 31, 2019, and was expected to be recognized within one year.

Material changes versus the prior comparable period

• Quarterly revenue increased $863, or 21%, while nine-month revenue increased $1,446, or 12%, primarily from Platform and Technology products.
• Platform and Technology revenue increased 33% in the quarter and 19% year to date. ACCESSWIRE revenue increased 22% and 14%, respectively.
• Services revenue declined 3% in both the quarter and nine-month period, reflecting attrition in legacy ARS services and lower transfer-agent activity, partly offset by higher print, proxy fulfillment and virtual webcasting work.
• Gross margin improved from 70% to 72% for the quarter and from 69% to 71% year to date, driven principally by higher-margin virtual webcasting revenue and a relatively fixed cost structure.
• Operating income increased from $180 to $1,076 in the quarter and from $457 to $2,325 year to date. Net income increased from $200 to $789 in the quarter and from $617 to $1,787 year to date.
• General and administrative expense declined 14% in the quarter and 11% year to date, primarily because of lower bad-debt provisions and stock compensation. Sales and marketing expense increased 12% and 10%, respectively, reflecting investment in personnel and digital marketing.
• Income tax expense increased to $283 for the quarter and $593 year to date, compared with $59 and $105 in the prior-year periods, partly because the 2019 periods benefited from excess stock-based compensation tax benefits and other tax items.
• Platform id. subscriptions increased to 320, with annual contract value of $2,477, compared with 255 subscriptions and $2,033 of annual contract value at December 31, 2019. The company entered into 42 subscriptions in the quarter and 107 year to date.
• The company repurchased 160,068 shares for an aggregate $1,552, including commissions, through September 30, 2020. The remaining authorization was $448.

Guidance, outlook, management commentary and risks

• The filing does not provide specific quantitative revenue or earnings guidance. Management expects Platform and Technology revenue to continue increasing relative to Services revenue and intends to pursue platform expansion, customer growth, newswire distribution, analytics development, acquisitions and cash-flow generation.
• COVID-19 reduced in-person conferences and delayed some transfer-agent transactions, but increased demand for virtual annual meetings, virtual conferences, webcasting, virtual roadshows and analyst days. Management cannot predict the duration or long-term financial effect of these trends.
• Management stated that demand was stable in most served segments, but cautioned that product upgrades may not achieve sufficient customer acceptance to offset declines elsewhere.
• Primary COVID-19 risks include operational disruption, weaker customer demand, customer failures or reduced spending, asset-value declines and deterioration in the company’s predominantly middle-, small- and micro-cap customer base.
• ACCESSWIRE depends on distribution partners, and disruption of those relationships could materially affect the business. Legacy Services revenue is expected to continue declining as customers shift from paper-based and manual services to digital offerings.
• Cash balances generally exceeded FDIC insurance limits; $17,365 was above the $250 FDIC limit at September 30, 2020. Management also identified collection risk for accounts receivable if customers’ financial condition deteriorates.
• The company reported no material off-balance-sheet arrangements and no material pending or threatened litigation. Management concluded disclosure controls were effective and reported no material changes to internal control over financial reporting.

Important facts for investors to verify

• Whether the pandemic-related increase in virtual events and webcasting remains durable after in-person events resume.
• The pace and profitability of Platform id. subscription growth, including renewal rates and annual contract value conversion into recognized revenue.
• Whether declining Services and legacy ARS revenue accelerates and offsets platform growth.
• Customer payment performance, bad-debt provisions and the concentration of cash above FDIC insurance limits.
• The company’s ability to maintain elevated gross margins as virtual-event demand changes and product-development spending increases.
• Future use of the remaining $448 share-repurchase authorization and the effect of repurchases and equity awards on share count and dilution.