Business Context and Reporting Period
This unaudited Form 10-Q was filed by Issuer Direct Corporation, not ACCESS Newswire Inc., for the quarter and six months ended June 30, 2015. Issuer Direct operates cloud-based disclosure management, shareholder communications, compliance, investor outreach, webcast, proxy, and news distribution services, including the Accesswire business acquired on October 29, 2014.
The company reported three revenue streams: disclosure management, shareholder communications, and platform and technology. As of August 6, 2015, 2,334,832 common shares were outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 |
|---|---|---|
| Revenue | $3.106 million | $6.150 million |
| Gross profit | $2.207 million | $4.338 million |
| Gross margin | 71% | 71% |
| Operating income | $297,080 | $615,174 |
| Net income | $65,028 | $301,693 |
| Diluted EPS | $0.03 | $0.13 |
| Net cash from operating activities | Not separately provided for the quarter | $1.916 million |
At June 30, 2015, cash and cash equivalents were $3.449 million, net accounts receivable were $1.562 million, and current assets exceeded current liabilities by $1.316 million. Total assets were $11.446 million and total liabilities were $4.752 million.
The company had $1.667 million of principal outstanding under an 8% convertible secured related-party note, net of debt discount as presented on the balance sheet. The note matured on August 22, 2015 and was convertible into 417,712 common shares. The company had no borrowings under its renewed $2.0 million line of credit at June 30, 2015; the line carried interest at LIBOR plus 3.0%, or 3.19% at quarter-end.
Deferred revenue was $995,892, primarily from annual service contracts and platform subscriptions. The allowance for doubtful accounts was $443,324. Goodwill was $2.242 million and net intangible assets were $3.242 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue decreased 15% from $3.638 million to $3.106 million. Six-month revenue decreased 14% from $7.133 million to $6.150 million.
- Disclosure management revenue declined 21% for the quarter and 23% year to date, reflecting lower reseller and special-project activity, XBRL pricing pressure, and fewer transfer-agent corporate actions.
- Shareholder communications revenue declined 13% for the quarter and 11% year to date, principally because customers shifted from printed annual reports and proxy materials to digital delivery. Accesswire press-release revenue partially offset the decline.
- Platform and technology revenue declined 8% for the quarter and 7% year to date. Approximately $45,000 of revenue was deferred because IRDirect shifted to subscription-based recognition.
- Gross margin remained 71% overall for both comparison periods. Sales and marketing expense declined 29% in the quarter and 15% year to date; general and administrative expense declined 16% year to date.
- Second-quarter net income declined slightly from $68,023 to $65,028, while six-month net income increased from $31,081 to $301,693. The year-to-date improvement included a $172,394 tax benefit, including a $210,370 release of valuation allowance related to acquired net operating losses.
- Net interest expense decreased because $833,327 of principal and $23,369 of accrued interest on the convertible note were converted into stock in November 2014. The company recorded $416,670 of non-cash interest expense and $66,667 of cash interest expense during the first six months of 2015.
- Operating cash flow increased from $267,072 to $1.916 million year to date, helped by net income, non-cash charges, and a $366,150 decrease in accounts receivable.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected continued challenges during the second half of 2015 from the transition away from printed products and ongoing pricing pressure in EDGAR and XBRL services. It expected additional revenue from Accesswire, continued cost control, positive operating cash flow, growth in the newswire business, increased technology development, and migration of customers to the Investor Network platform.
Management stated that cash on hand and the available line of credit were expected to be sufficient to repay the $1.667 million convertible note at maturity if it was not converted. However, the filing cautioned that additional equity financing might be required and that financing may not be available on acceptable terms.
Other notable matters include the $100,000 acquisition of a cloud-based reporting platform from Xselus LLC, capitalization of $283,252 of software development costs during the first half of 2015, and the resignation of the CFO and director during the second quarter. Steven Knerr became interim CFO.
The company identified Regulation A+ as a risk to disclosure-management revenue because reduced filing requirements could decrease filing activity, although new offerings could create opportunities. It also cited customer migration to electronic delivery, pricing pressure, competition, market conditions, international expansion risks, and uncertainty regarding new product development. The company reported no material litigation, no material off-balance-sheet arrangements, and effective disclosure controls as of quarter-end.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Issuer Direct Corporation, while the request metadata identifies ACCESS Newswire Inc.
- Verify the status and settlement of the $1.667 million related-party convertible note, which matured shortly after the reporting date on August 22, 2015.
- Assess whether cash flow and the $2.0 million line of credit were sufficient to meet debt obligations and ongoing operating needs.
- Evaluate whether the revenue decline from printed products, EDGAR, XBRL, reseller activity, and corporate actions was offset by Accesswire and digital-platform growth.
- Review the sustainability of the year-to-date tax benefit and the company’s ability to use remaining acquired net operating losses.
- Monitor goodwill, intangible assets, and capitalized software for impairment or recoverability risks.
- Review the impact of the CFO transition, customer migration to digital delivery, Regulation A+, and the planned Investor Network and Xselus platform launches.