Business Context and Reporting Period
Issuer Direct Corporation, which operates the ACCESSWIRE and Newswire brands, filed this Form 10-Q for the quarter and nine months ended September 30, 2023. The filing identifies the registrant as Issuer Direct Corporation rather than “ACCESS Newswire Inc.” The company provides cloud-based Communications and Compliance solutions, including press release distribution, media databases, webcasting, investor-relations websites, disclosure software, stock transfer, proxy and shareholder distribution services.
The November 2022 acquisition of iNewswire.com LLC (“Newswire”) materially expanded the Communications business and affected year-over-year comparability. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $7.569 million | $5.280 million | $25.839 million | $16.375 million |
| Gross profit | $5.772 million | $4.068 million | $19.877 million | $12.567 million |
| Gross margin | 76% | 77% | 77% | 77% |
| Operating income | $0.593 million | $0.789 million | $2.921 million | $2.625 million |
| Net income | $0.273 million | $0.686 million | $1.492 million | $2.043 million |
| Diluted EPS | $0.07 | $0.19 | $0.39 | $0.55 |
| Adjusted EBITDA | $1.756 million | $1.213 million | $6.663 million | $3.851 million |
Q3 revenue increased 43%, while nine-month revenue increased 58%. Communications represented 80% of Q3 revenue and 72% of nine-month revenue; Compliance represented 20% and 28%, respectively.
Net cash provided by operating activities was $2.290 million for the nine months, compared with $3.025 million in the prior-year period. Non-GAAP free cash flow was $1.945 million, compared with $2.973 million. Cash and cash equivalents were $5.050 million at September 30, 2023, versus $4.832 million at December 31, 2022. Net accounts receivable was $4.271 million, and deferred revenue was $5.164 million.
Current liabilities were $11.658 million compared with current assets of $10.792 million, resulting in negative working capital of approximately $0.866 million. Total assets were $65.514 million and stockholders’ equity was $35.789 million at September 30, 2023.
Debt, Liquidity and Capital Structure
- The company entered into a $25 million credit agreement with Pinnacle Bank in March 2023, consisting of a $20 million term loan and a $5 million revolving letter-of-credit facility.
- The term loan had $19.908 million of carrying value at September 30, 2023, including debt discount, and a fixed effective interest rate of 6.217% through an interest-rate swap.
- Monthly principal payments of $333,333 plus interest begin January 1, 2024; maturity is December 28, 2028.
- The company used the new term loan and cash to repay the $22 million Newswire acquisition note. The seller forgave $440,000 of otherwise payable interest, and the company paid $370,000 to extinguish the note.
- No amounts were outstanding under the revolving letter-of-credit facility at September 30, 2023. The company stated that it currently had no plans to use it.
- Financial covenants were satisfied for the quarter. The agreement requires a fixed-charge coverage ratio of at least 1.20:1.00 and leverage ratios of no more than 2.75:1.00 through September 30, 2023 and 2.50:1.00 for applicable periods after December 31, 2023.
Material Changes Versus the Prior Comparable Period
- Communications revenue increased 74% in Q3 and 76% for the first nine months, primarily because of the Newswire acquisition; ACCESSWIRE revenue also increased 9% and 10%, respectively.
- Compliance revenue decreased 17% in Q3 because of lower transfer-agent and print/proxy activity, but increased 25% for the nine-month period due to significant first-half transactions and higher corporate-action activity.
- Operating expenses increased 58% in Q3 and 71% for the nine months. Increases reflected Newswire-related personnel and operating costs, higher sales and marketing expenses, product-development investment and substantially higher amortization of acquired intangible assets.
- Operating margin declined to 8% in Q3 from 15%, and to 11% for the nine months from 16%, despite higher revenue.
- Net income declined 60% in Q3 and 27% for the nine months, primarily due to higher depreciation and amortization, interest expense and acquisition-related costs.
- Interest expense increased to $368,000 in Q3 and $1.080 million for the nine months, compared with no interest expense in the prior-year periods.
- The company capitalized $319,000 of software-development costs during the first nine months, including costs related to artificial intelligence and media database products.
Guidance, Outlook, Risks and Unusual Items
The company did not provide quantitative revenue or earnings guidance. Management stated that demand remains stable in most markets despite global economic uncertainty, inflation, higher interest rates, geopolitical conflicts and financial-market volatility. Management expects continued stable to increased demand for the combined ACCESSWIRE and Newswire business and intends to focus on communications expansion, acquisitions, sales and marketing, distribution reach, technology investment, profitable growth and operating cash flow.
Reported results include significant acquisition-related amortization and costs, stock-based compensation, and non-recurring items. The Q3 interest-rate-swap gain was $165,000; the nine-month swap gain was $379,000. The nine-month period also included the $370,000 payment to extinguish the Newswire seller note. Adjusted EBITDA excludes or adjusts for these and other items and is not a substitute for GAAP results.
Key risks include integration and realization of synergies from Newswire, dependence on distribution partners, competition, declining demand for certain virtual events and legacy physical shareholder-distribution services, customer and project variability, interest-rate and debt-servicing exposure, covenant compliance, acquisition execution, goodwill and intangible-asset impairment, and global economic conditions. The company reported no material litigation, no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
Disclosure controls and procedures were evaluated as effective, with no material changes reported since the latest annual report.
Most Important Facts to Verify
- Confirm the legal-entity relationship between the requested “ACCESS Newswire Inc.” and the filing registrant, Issuer Direct Corporation.
- Verify that Newswire revenue growth and operating synergies justify the increased amortization, sales and marketing costs and acquisition-related leverage.
- Monitor cash generation as $333,333 monthly term-loan principal payments begin in January 2024.
- Review compliance with the fixed-charge coverage and leverage covenants as debt amortization begins and interest rates remain elevated.
- Reconcile GAAP earnings and cash flow with management’s adjusted EBITDA and free-cash-flow measures, particularly the treatment of stock compensation, amortization, swap gains and acquisition-related payments.
- Assess accounts-receivable collectability, including the increase in net receivables to $4.271 million and the $1.018 million allowance for doubtful accounts.