Business Context and Reporting Period
The filing is Issuer Direct Corporation’s Form 10-K for the year ended December 31, 2019, filed February 27, 2020. The request identifies ACCESS Newswire Inc., but the filing’s registrant is Issuer Direct Corporation, which operated the ACCESSWIRE brand. The company provides communications and compliance technology through its Platform id. platform, including news distribution, webcasting, investor relations, disclosure filing, transfer agency, proxy and related services.
Revenue is reported in two streams: Platform and Technology, and Services. The company completed its acquisition of the VisualWebcaster Platform on January 3, 2019 and continued integrating Filing Services Canada, acquired in July 2018.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $16.295 million | $14.232 million | 14.5% increase |
| Platform and Technology revenue | $10.696 million | $8.593 million | 24.4% increase |
| Services revenue | $5.599 million | $5.639 million | 0.7% decrease |
| Gross profit | $11.215 million | $10.129 million | 10.7% increase |
| Gross margin | 69% | 71% | Down 2 percentage points |
| Operating income | $474,000 | $1.163 million | 40% decrease |
| Net income | $686,000 | $837,000 | 18% decrease |
| Diluted earnings per share | $0.18 | $0.24 | Decrease |
| Cash flow from operations | $2.864 million | $2.869 million | Essentially unchanged |
Platform and Technology represented 65.6% of revenue in 2019 versus 60.4% in 2018. Its gross margin declined to 73% from 79%, primarily because of the lower-margin VisualWebcaster acquisition and higher newswire distribution costs. Services gross margin improved slightly to 60% from 59%.
Operating expenses increased to $10.741 million from $8.966 million. General and administrative expense increased 25% to $5.086 million, including approximately $500,000 of VisualWebcaster-related costs and a $394,000 increase in bad debt expense. Sales and marketing expense increased 18% to $3.551 million, while product development expense declined 4% to $1.219 million. Depreciation and amortization increased 47% to $885,000.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $15.766 million at December 31, 2019, compared with $17.222 million at December 31, 2018.
- Net accounts receivable was $2.051 million, with an allowance for doubtful accounts of $700,000.
- Current assets exceeded current liabilities by $14.166 million.
- The company had a $3.0 million revolving line of credit at LIBOR plus 1.75%; it had no borrowings outstanding at year-end. The stated rate was 3.76% at December 31, 2019.
- Total liabilities were $6.290 million, including $2.693 million of operating lease liabilities and $1.812 million of deferred revenue.
- The company repurchased 76,170 shares for approximately $769,000, excluding commissions, leaving $231,000 available under the authorized program.
- No dividends were paid in 2019; $460,000 was paid in 2018. Management does not expect to pay dividends for the foreseeable future.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by Platform and Technology, VisualWebcaster, Filing Services Canada, additional Platform id. subscriptions and ACCESSWIRE growth.
- Platform and Technology revenue increased 24%, but reported growth included acquisition contributions. The company disclosed that the stream’s historical growth rate may not be indicative of future performance.
- A key distribution partner stopped accepting investor commentary content during the second quarter of 2019. Related revenue declined to approximately $403,000 from $1.577 million, and the company does not expect this revenue to recur.
- Excluding the investment commentary business and FSCwire, ACCESSWIRE revenue increased 38% in 2019; the filing also states that the news business grew 44% absent the investment commentary business.
- Deferred revenue increased to $1.812 million from $1.249 million. The company ended the year with 255 Platform id. subscriptions and $2.033 million of annual contract value. It added 150 net new or existing customers under contracts with $911,000 of annualized contract value.
- Net income declined despite higher revenue and gross profit because of acquisition costs, higher bad debt expense, increased headcount and continued investment in technology and sales.
- The company adopted the new lease accounting standard in 2019, recording right-of-use assets and lease liabilities. It also began a new Raleigh headquarters lease extending through December 31, 2027.
Outlook, Risks and Unusual Items
Management described platform demand as stable in most served segments and expects continued migration from printed and service-based engagements to cloud subscriptions and digital distribution. The 2020 priorities included expanding sales, growing through strategic acquisitions, migrating acquired businesses onto the platform, expanding newswire distribution, investing in technology, developing the Insight and Analytics module, and generating profitable growth and operating cash flow. No quantified revenue or earnings guidance was provided.
- Services revenue is expected to continue declining as customers migrate to digital and subscription offerings.
- ACCESSWIRE depends on key distribution partners; further partner disruption could materially affect revenue and results.
- The company faces intense competition, pricing pressure, regulatory changes, cybersecurity and data privacy risks, technology execution risks, customer renewal risk and dependence on key personnel.
- Subscription revenue is generally recognized ratably, so changes in bookings or renewals may affect results with a delay.
- Bad debt expense increased materially, and the company held $14.794 million of cash above the FDIC insurance limit at year-end.
- The company wrote off $44,000 of capitalized software related to a Regulation A+ and Regulation D product because market acceptance was below expectations.
- The VisualWebcaster acquisition contributed $2.788 million of cash acquisition consideration and increased goodwill by $1.344 million. No goodwill or intangible asset impairment was recorded in 2019.
- Management reported effective disclosure controls and effective internal control over financial reporting. Because the company is a smaller reporting company, its independent auditor did not perform an attestation audit of internal control over financial reporting.
- The filing states that the company was not party to, and was not aware of, litigation expected to have a material adverse effect.
Facts Investors Should Verify
- Confirm the registrant and security identity: the filing is for Issuer Direct Corporation, ticker ISDR, while the request names ACCESS Newswire Inc.
- Reconcile recurring Platform id. contract value, subscription counts, deferred revenue and customer renewal or retention trends.
- Assess the sustainability of ACCESSWIRE growth after the loss of investment commentary revenue and any changes in distribution-partner relationships.
- Evaluate whether the lower Platform and Technology gross margin persists as VisualWebcaster is integrated and newswire distribution expands.
- Review accounts receivable aging, the $700,000 allowance and customer exposure underlying the 2019 bad debt expense.
- Assess acquisition-related goodwill and intangible assets totaling approximately $9.891 million at year-end for impairment sensitivity.
- Verify cash deployment, remaining share-repurchase authorization, lease obligations and the absence of borrowings under the credit facility.
- Monitor execution of the 2020 strategy, including Insight and Analytics commercialization, acquisitions, technology investment and the shift away from Services revenue.