Issuer Direct Corporation Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2014; filed November 5, 2014. The supplied filing is for Issuer Direct Corporation, not ACCESS Newswire Inc. Results are unaudited and should be read with the 2013 Form 10-K.
Business Context
Issuer Direct operates as a disclosure management and communications company serving public companies and related financial-services participants. Its principal revenue streams are disclosure management, shareholder communications, and software licensing. The company operates as one reportable segment.
On October 29, 2014, after quarter-end, the company acquired substantially all assets of Accesswire, a press-release distribution business, for $1.84 million consisting of $1.70 million in cash and 15,385 common shares valued at $140,000. Accesswire results are not included in the reported quarter.
Financial Performance
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Revenue | $3.221 million | $2.103 million | $10.353 million | $5.238 million |
| Gross profit | $2.226 million | $1.475 million | $7.261 million | $3.699 million |
| Gross margin | 69% | 70% | 70% | 71% |
| Operating income | $487,368 | $343,714 | $1.242 million | $1.325 million |
| Interest expense, net | $368,172 | $154,076 | $1.091 million | $151,778 |
| Net income | $76,174 | $117,344 | $107,255 | $697,964 |
| Basic EPS | $0.04 | $0.06 | $0.05 | $0.36 |
Revenue increased 53% in the quarter and 98% year to date. Shareholder communications revenue rose 100% in the quarter and 283% year to date, primarily because the PrecisionIR acquisition was included for a full period in 2014 but only approximately 40 days in 2013. Disclosure management revenue declined 15% in the quarter and 16% year to date, while software licensing revenue increased 102% and 153%, respectively.
Despite substantially higher revenue, net income declined because of higher amortization associated with PrecisionIR intangible assets and increased interest expense, including $312,500 of non-cash interest in the quarter and $937,500 year to date related to the convertible note.
Cash Flow, Liquidity, and Debt
- Cash and cash equivalents were $3.550 million at September 30, 2014, versus $1.713 million at December 31, 2013.
- Net cash provided by operating activities was $1.628 million for the first nine months, compared with $1.151 million in the prior-year period.
- Investing cash outflow was $63,767, compared with $3.218 million in the prior-year period, which included the PrecisionIR acquisition.
- Current assets were $5.962 million and current liabilities were $3.953 million, resulting in working capital of approximately $2.009 million.
- Accounts receivable, net, was $1.753 million; deferred revenue was $1.095 million and is expected to be recognized over the following twelve months.
- The renewed line of credit permits borrowings of up to $2.0 million, subject to eligible receivables. No balance was outstanding at quarter-end, and $771,436 was available based on eligible receivables. The stated interest rate was LIBOR plus 3.0%, or 3.15% at September 30, 2014.
- The 8% convertible secured note had a $2.5 million principal amount, matures August 22, 2015, and was reported net of debt discount at $1.384 million as a current liability. The note is secured by company assets, subordinated to the primary financial institution, and convertible at $3.99 per share. The interest rate increases to 18% upon specified defaults.
Material Changes and Unusual Items
- General and administrative expense increased 47% in the quarter and approximately $1.785 million year to date, reflecting the full-period inclusion of PrecisionIR, higher personnel costs, bad debt expense, professional fees, accounting-system implementation costs, and a $50,000 NYSE MKT listing fee.
- Sales and marketing expense increased $193,568 in the quarter and $1.243 million year to date, primarily due to PrecisionIR activities and expanded marketing efforts.
- Depreciation and amortization increased $123,261 in the quarter and $618,371 year to date, mainly from PrecisionIR acquisition-related intangible assets.
- Stockholders’ equity increased to $4.902 million from $4.206 million at December 31, 2013. Common shares outstanding increased to 2,070,559 from 2,006,689.
- The company approved a 2014 Equity Incentive Plan authorizing up to 200,000 shares; no awards had been issued under the plan at September 30, 2014.
- The company reported no material off-balance-sheet arrangements and no pending litigation in which it was a plaintiff or defendant at the filing date.
Outlook, Commentary, and Risks
Management described the fiscal 2014 and longer-term outlook as positive. Priorities include expanding sales and marketing, increasing revenue per user, growing the customer base, developing disclosure and communications technology, generating operating cash flow, and expanding the newswire business following the Accesswire acquisition. Management expects more predictable revenue as quarterly and annual contracts increase and expects disclosure-management margins to remain above 70%.
Management cautioned that actual results may be affected by demand, competition, economic and capital-market conditions, pricing pressure in XBRL services, timing of client actions, and the company’s ability to develop and commercialize new technology. Management also stated that additional debt or equity financing might be required to meet or refinance obligations, including the convertible note, although availability and terms are not assured.
Accesswire presents additional execution risks, including reliance on key distribution partners and possible performance issues with acquired software. The $1.70 million cash purchase reduced cash after quarter-end. The company also noted that expansion in Europe involves regulatory and market-learning risks.
Investor Verification Points
- Reconcile the filing identity: the supplied document names Issuer Direct Corporation, while the request identifies ACCESS Newswire Inc.
- Verify the post-quarter-end accounting, integration progress, and revenue contribution of the Accesswire acquisition.
- Assess the August 2015 maturity, conversion terms, collateral, and refinancing requirements of the $2.5 million convertible secured note.
- Separate recurring operating profitability from acquisition-related amortization and the $937,500 year-to-date non-cash interest expense.
- Monitor disclosure-management pricing pressure, declining revenue, and software-licensing margin compression.
- Confirm cash availability after the $1.70 million Accesswire cash payment and the remaining borrowing capacity under the receivables-based line of credit.
- Review the allowance for doubtful accounts, which was $508,950 at September 30, 2014, and the company’s collection performance.