Issuer Direct Corporation Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017; filed November 2, 2017. The provided filing identifies the registrant as Issuer Direct Corporation, whose Platform and Technology segment includes the ACCESSWIRE newswire business.
Business Context
The company provides cloud-based communications, disclosure management, shareholder communications, news distribution, webcasting, investor relations, stock transfer and compliance products. Management is transitioning the business from traditional services toward higher-margin cloud-based subscriptions and digital distribution.
Financial Performance and Position
| Metric | Q3 2017 | Q3 2016 | First 9 Months 2017 | First 9 Months 2016 |
|---|---|---|---|---|
| Revenue | $2.931 million | $2.873 million | $9.229 million | $9.284 million |
| Gross profit | $2.110 million | $2.134 million | $6.753 million | $6.951 million |
| Gross margin | 72% | 74% | 73% | 75% |
| Operating income | $481,000 | $294,000 | $1.588 million | $1.451 million |
| Net income | $308,000 | $195,000 | $1.126 million | $1.045 million |
| Diluted EPS | $0.10 | $0.07 | $0.37 | $0.36 |
- Revenue mix: Platform and Technology revenue was $1.619 million in Q3 and $4.736 million year to date, representing 55% and 51% of total revenue, respectively. Services revenue was $1.312 million in Q3 and $4.493 million year to date.
- Cash flow: Nine-month operating cash flow was $2.095 million, compared with $2.020 million in the prior-year period. Investing cash outflow was $900,000, including $891,000 for capitalized software. Financing cash outflow was $205,000, including $440,000 of dividends.
- Liquidity: Cash and cash equivalents were $6.407 million at September 30, 2017, compared with $5.339 million at December 31, 2016. Current assets exceeded current liabilities by $5.671 million.
- Debt and availability: The renewed line of credit increased borrowing capacity from $2.0 million to $2.5 million at LIBOR plus 2.50%. The interest rate was 3.74% at September 30, 2017, and no amount was outstanding.
- Balance sheet: Total assets were $14.324 million and total liabilities were $2.339 million. Deferred revenue increased to $958,000 from $843,000 at year-end 2016.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 2%, while nine-month revenue decreased 1%. Management stated that excluding a one-time $316,000 postage-credit accrual reversal included in 2016 revenue, nine-month 2017 revenue increased approximately 3%.
- Platform and Technology revenue increased 56% in Q3 and 52% year to date, primarily from ACCESSWIRE, which increased $497,000 and $1.441 million, respectively.
- Services revenue declined 29% in Q3 and 27% year to date due mainly to attrition and migration from legacy annual-report services to digital fulfillment, lower print and proxy projects, and pricing pressure in XBRL services.
- Overall gross margin declined because the higher-margin Platform and Technology growth did not fully offset lower Services margins. Services gross margin fell to 60% in Q3 and 63% year to date from 70% and 71%, respectively.
- Operating income increased 64% in Q3 and 9% year to date. Net income increased 58% in Q3 and 8% year to date, aided by lower amortization of intangible assets and lower operating costs.
- Capitalized software was $948,000 year to date, compared with $1.103 million in the prior-year period; net capitalized software increased to $2.767 million from $2.048 million at December 31, 2016.
Outlook, Risks and Unusual Items
- Management expected stable demand for platforms but continued migration from printed and service-based engagements to cloud subscriptions and digital distribution. This transition may continue to pressure revenue in certain legacy businesses over the next several quarters.
- Management expected sufficient cash to operate under its current plan through November 30, 2018, while noting that additional equity or debt financing could become necessary and may not be available on acceptable terms.
- Strategic priorities included expanding the Platform and Technology sales force, growing the customer base, expanding ACCESSWIRE distribution, investing in technology, migrating Interwest Transfer Company customers, and generating sustainable operating cash flow.
- On October 2, 2017, after the reporting date, the company acquired Interwest Transfer Company for approximately $3.228 million, subject to a working-capital adjustment. Consideration included $1.935 million in cash, 25,235 common shares valued at approximately $333,000, and $960,000 payable over three years.
- The ITC acquisition introduced integration, employee-retention, customer-retention, operational-control and potential-unknown-liability risks. Management planned to migrate ITC customer records and market additional platform products to approximately 300 acquired transfer-agent clients.
- The board declared a quarterly cash dividend of $0.05 per share on October 10, 2017, payable November 10, 2017.
- The company adopted ASU 2016-09 and recognized a $122,000 year-to-date income tax benefit from excess tax benefits on exercised stock awards. Future effects depend on stock prices and exercise timing.
- The filing states that no material litigation was pending or threatened, no material changes to previously disclosed risk factors occurred other than the ITC-related risks, and disclosure controls were effective.
Important Facts for Investors to Verify
- Confirm the registrant and corporate relationship because the provided metadata references ACCESS Newswire Inc., while the filing identifies Issuer Direct Corporation as the registrant.
- Assess whether ACCESSWIRE and other Platform and Technology growth can offset continuing Services and legacy ARS declines.
- Monitor Services gross-margin compression and the effect of lower utilization of fixed-cost service infrastructure.
- Review the purchase-price allocation, financing, operating results and integration progress for the post-quarter-end ITC acquisition.
- Verify the sustainability of operating cash flow after software investment, dividends and acquisition-related payments.
- Evaluate exposure to news-distribution partners, competition, customer migration, capital-market conditions and potential future financing needs.