Issuer Direct Corporation Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022. The filing registrant is Issuer Direct Corporation; ACCESSWIRE is a principal communications brand. The interim financial statements are unaudited and prepared under U.S. GAAP.
Business Context
The Company provides cloud-based communications and compliance technology through its Platform id. offering. Communications products include ACCESSWIRE news distribution, webcasting and events, investor-relations websites and related services. Compliance products include disclosure software, stock transfer, proxy and annual-meeting services, shareholder distribution and related offerings. The Company reports as one operating segment and derives revenue primarily from subscriptions and transaction-based services.
Key Financial Metrics
| Metric | Three months ended September 30, 2022 | Three months ended September 30, 2021 | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 |
|---|---|---|---|---|
| Revenue | $5.280 million | $5.465 million | $16.375 million | $16.165 million |
| Gross profit | $4.068 million | $4.110 million | $12.567 million | $11.936 million |
| Gross margin | 77% | 75% | 77% | 74% |
| Operating income | $789,000 | $977,000 | $2.625 million | $3.045 million |
| Net income | $686,000 | $1.024 million | $2.043 million | $2.675 million |
| Diluted EPS | $0.19 | $0.27 | $0.55 | $0.70 |
| Cash flow from operations | Not provided for the quarter | Not provided for the quarter | $3.025 million | $3.319 million |
Quarterly revenue declined 3%, while nine-month revenue increased 1%. Quarterly net income declined approximately 33%, and nine-month net income declined approximately 24%. The filing attributes the earnings pressure principally to higher general and administrative expenses and the absence of the $366,000 employee retention credit recognized in 2021.
- Revenue mix: Communications revenue was $3.487 million for the quarter and $10.561 million for the nine months, representing 66.0% and 64.5% of total revenue, respectively. Compliance revenue was $1.793 million for the quarter and $5.814 million for the nine months.
- Gross profit: Quarterly gross profit decreased 1%, while nine-month gross profit increased 5%. Cost of revenues declined 11% for the quarter and 10% for the nine months.
- Operating expenses: General and administrative expense increased 32% for the quarter and 25% for the nine months. Sales and marketing expense decreased 9% for the quarter but increased 6% year to date. Product development expense decreased 34% for the quarter and 16% year to date.
- Liquidity: Cash and cash equivalents were $21.812 million, net accounts receivable were $3.062 million and current liabilities were $5.956 million at September 30, 2022. Current assets exceeded current liabilities by $20.010 million.
- Deferred revenue: Deferred revenue was $3.429 million, up 11% from $3.086 million at December 31, 2021, and was expected to be recognized within one year.
- Debt and leases: The Company had no borrowings under its $3.0 million unsecured line of credit, which carried an interest rate of 4.22% at September 30, 2022. Lease liabilities totaled $1.787 million, including $1.422 million classified as long term.
- Share repurchases: The Company repurchased 207,964 shares for $5.0 million during the nine months, including 38,563 shares for approximately $959,000 during the third quarter. Shares outstanding at September 30 were 3.611 million; 3.791 million were outstanding as of November 3, 2022.
Cash Flow and Balance Sheet Changes
Operating cash flow was $3.025 million for the nine months, compared with $3.319 million in the prior-year period. Investing activities used $52,000, primarily for fixed assets. Financing activities used $4.909 million, mainly for the $5.0 million share repurchase program. Cash decreased from $23.852 million at December 31, 2021 to $21.812 million at September 30, 2022, including a $104,000 unfavorable currency translation adjustment.
Total assets declined to $36.718 million from $39.257 million at year-end 2021, primarily reflecting lower cash and amortization of intangible assets. Stockholders’ equity declined to $29.244 million from $31.620 million, principally due to share repurchases and foreign currency losses, partly offset by net income.
Material Changes, Outlook and Risks
- ACCESSWIRE revenue increased approximately 6% in the third quarter and 13% for the nine months, while webcasting and events revenue declined as conferences and meetings returned to in-person formats and certain events shifted into the fourth quarter.
- Compliance revenue increased 1% in both the quarter and nine-month period, helped by larger print and proxy fulfillment transactions, but disclosure services, software and legacy annual-report distribution experienced declines.
- Management expects to continue investing in Communications products, sales and marketing, technology, distribution capabilities and potential acquisitions. The Company identified platform subscriptions, profitable growth and operating cash generation as strategic priorities.
- Management stated that demand remained stable in most markets but warned that COVID-19, economic weakness, inflation, rising interest rates, the Ukraine conflict, energy-market instability and supply-chain disruption could adversely affect operations, customers and collections.
- The business remains exposed to reduced demand for virtual events, customer concentration among small and mid-cap companies, competition, dependence on news-distribution partners, customer attrition in legacy services and the risk that new products will not achieve sustained market acceptance.
- The Company reported no material litigation, no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements and effective disclosure controls and procedures.
Unusual and Subsequent Events
The 2021 comparable period included a $366,000 employee retention credit benefit under the CARES Act; no comparable benefit was recorded in 2022.
On November 1, 2022, after the reporting period, the Company acquired all outstanding interests of iNewsWire.com LLC for approximately $43.9 million. Consideration consisted of $18.0 million in cash subject to escrow, a $22.0 million secured promissory note bearing 6% annual interest and maturing November 8, 2023, and 180,181 shares of common stock valued at approximately $3.9 million. The acquisition creates significant post-period leverage and liquidity considerations that are not reflected in the September 30, 2022 balance sheet.
Investor Verification Checklist
- Verify the post-period iNewsWire acquisition financing, including the $22.0 million secured note, collateral, repayment capacity and impact on liquidity.
- Assess whether ACCESSWIRE growth can offset continued weakness or volatility in webcasting, events, disclosure and legacy distribution services.
- Monitor the sustainability of the 77% gross margin as product mix changes and integration costs arise.
- Review the drivers and duration of elevated general and administrative and sales-and-marketing spending.
- Evaluate cash concentration risk: $19.375 million exceeded FDIC insurance limits at September 30, 2022.
- Confirm the effect of share repurchases and subsequent stock issuance on diluted share count and per-share results.
- Review COVID-19, macroeconomic, interest-rate, geopolitical and customer-credit risks, including the $610,000 allowance for doubtful accounts.