Issuer Direct Corporation — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2019, compared with the corresponding 2018 periods. The filing identifies the registrant as Issuer Direct Corporation, not ACCESS Newswire Inc.; ACCESSWIRE is a company product brand. Financial statements are unaudited and presented in thousands, except per-share data.
Business Context
Issuer Direct provides cloud-based communications and compliance technology, including Platform id., ACCESSWIRE news distribution, webcasting, investor outreach, disclosure reporting, stock transfer, proxy and related services. Management is transitioning the business from traditional services and print-oriented offerings toward higher-value cloud subscriptions and digital distribution.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $4.138 million, versus $3.799 million | $8.317 million, versus $7.329 million |
| Gross profit | $2.888 million, versus $2.769 million | $5.765 million, versus $5.278 million |
| Gross margin | 70%, versus 73% | 69%, versus 72% |
| Operating income | $130,000, versus $595,000 | $277,000, versus $910,000 |
| Net income | $212,000, versus $366,000 | $417,000, versus $686,000 |
| Diluted EPS | $0.05, versus $0.12 | $0.11, versus $0.22 |
- Platform and Technology revenue increased 18% in the quarter and 25% year to date, reaching 64% of total revenue in both periods, compared with 59% and 58% in 2018.
- Services revenue declined 5% in the quarter and 2% year to date.
- Six-month net cash provided by operating activities was $795,000, compared with $1.589 million in 2018.
- Six-month investing cash outflow was $2.814 million, principally the $2.788 million cash purchase of the VisualWebcaster Platform.
- Cash and cash equivalents were $15.196 million at June 30, 2019, compared with $17.222 million at December 31, 2018.
- Net accounts receivable was $2.422 million, with an allowance for doubtful accounts of $1.028 million.
- Current assets exceeded current liabilities by $15.006 million. Current liabilities were $3.025 million.
- Total debt consisted principally of a note payable totaling $608,000, including $320,000 current and $288,000 long-term. The $3.0 million revolving line of credit was undrawn at June 30, 2019.
- Deferred revenue increased to $1.624 million from $1.249 million at December 31, 2018 and was expected to be recognized within one year.
Material Changes Versus the Prior Comparable Period
- Revenue grew 9% in the second quarter and 13% for the first six months, driven primarily by acquisitions, additional Platform id. subscriptions and growth in Platform and Technology revenue.
- VWP and FSCwire contributed $649,000 of revenue in the quarter and $1.275 million year to date. VWP was acquired January 3, 2019 for $2.788 million; FSCwire was acquired in July 2018.
- Gross profit increased, but gross margin declined because of VWP-related costs and increased news distribution costs. Platform and Technology gross margin fell to 73% in the quarter and 74% year to date, from 81% and 80%.
- Operating income and net income declined substantially as general and administrative costs, bad-debt expense, acquisition expenses, sales and marketing spending, product development and amortization increased.
- General and administrative expense increased 39% in the quarter and 37% year to date. The increase included higher bad-debt provisions, primarily related to two investment-commentary newswire customers that were fully reserved.
- ACCESSWIRE revenue was adversely affected by the loss of an industry partner’s investment-commentary content business. Related revenue was approximately $78,000 in the quarter and $403,000 year to date, compared with $485,000 and $863,000 in 2018.
- Platform id. subscriptions totaled 163 at June 30, 2019, with total annual contract value of $1.550 million. During the first half, 58 net new or existing customers added subscriptions representing $414,000 of annualized contract value.
Outlook, Risks and Unusual Items
- Management expects demand for platforms to remain stable in most served markets, while the shift from printed and service-based engagements to cloud subscriptions and digital distribution is expected to continue reducing certain legacy revenues.
- 2019 priorities include expanding the Platform and Technology sales team, pursuing strategic acquisitions, migrating acquired businesses, expanding newswire distribution, investing in technology and analytics, and generating sustainable profitable growth and operating cash flow.
- The company entered into a new Raleigh headquarters lease scheduled to commence in 2019. Minimum lease payments were $2.997 million over eight years and four months, excluding a tenant-improvement allowance of up to $488,000.
- The company adopted the new lease standard on January 1, 2019. June 30 lease liabilities totaled $159,000 and right-of-use assets totaled $145,000.
- Key risks include dependence on distribution partners, competition in news distribution and webcasting, customer attrition in legacy services, unpredictable corporate transaction activity, acquisition integration, credit losses, technology investment requirements and general market conditions.
- The filing states that the investment-commentary partner change could materially affect the business and that further partner disruption could have a material adverse impact.
- The filing reports no material litigation, no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements and effective disclosure controls.
Investor Verification Items
- Reconcile the metadata company name with the filing registrant: Issuer Direct Corporation, ticker ISDR.
- Assess whether Platform id. subscription growth and the VWP acquisition can offset declining legacy Services and investment-commentary revenue.
- Monitor gross-margin pressure from VWP integration and news distribution costs.
- Review the collectability of accounts receivable and the adequacy of the $1.028 million doubtful-account allowance.
- Evaluate acquisition-related intangible assets and goodwill, including $1.019 million of preliminary VWP goodwill, for impairment and amortization effects.
- Consider cash usage from acquisitions, lease commitments and the decline in operating cash flow.
- Track reliance on key distribution partners and the effect of customer attrition in annual-report, shareholder-outreach and other legacy services.