Business Context and Reporting Period
Issuer Direct Corporation and subsidiaries filed an unaudited Form 10-Q for the three and nine months ended September 30, 2021. The company provides communications and compliance technology, including the ACCESSWIRE news distribution brand, Platform id. subscriptions, webcasting and events, disclosure software, stock transfer services, proxy voting and shareholder distribution.
The company reported one operating segment. Communications represented 67% of third-quarter revenue and 64% of nine-month revenue. The filing identifies the registrant as Issuer Direct Corporation; ACCESSWIRE is a principal product brand rather than the registrant name.
Financial Performance and Position
| Metric | Three months ended September 30, 2021 | Three months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 |
|---|---|---|---|---|
| Revenue | $5.465 million | $4.882 million | $16.165 million | $13.782 million |
| Gross profit | $4.110 million | $3.495 million | $11.936 million | $9.780 million |
| Gross margin | 75% | 72% | 74% | 71% |
| Operating income | $0.977 million | $1.076 million | $3.045 million | $2.325 million |
| Operating margin | 18% | 22% | 19% | 17% |
| Net income | $1.024 million | $0.789 million | $2.675 million | $1.787 million |
| Net margin | 19% | 16% | 17% | 13% |
| Diluted EPS | $0.27 | $0.21 | $0.70 | $0.47 |
Communications revenue was $3.686 million in the third quarter and $10.383 million for the nine months, while Compliance revenue was $1.779 million and $5.782 million, respectively. Communications gross margin was 78% for the quarter and 75% year to date; Compliance gross margin was 69% and 71%, respectively.
At September 30, 2021, cash and cash equivalents were $22.415 million, accounts receivable were $3.037 million, and current assets were $26.241 million. Current liabilities were $5.078 million, producing working capital of $21.163 million. Total liabilities were $7.078 million and stockholders’ equity was $30.876 million. The company had no borrowings under its $3.0 million unsecured line of credit. Lease liabilities totaled $2.105 million, including $1.738 million long term.
Nine-month operating cash flow was $3.319 million, compared with $3.400 million in the prior-year period. Investing cash outflow was $0.264 million, primarily reflecting $0.215 million of capitalized software. Financing cash outflow was $0.178 million, including $0.452 million for share repurchases, partly offset by proceeds from stock option exercises. Ending cash increased from $19.556 million at December 31, 2020 to $22.415 million.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue increased 12% and nine-month revenue increased 17%, driven by growth in both Communications and Compliance.
- ACCESSWIRE revenue increased approximately 31% in the quarter and 37% year to date, reflecting higher average pricing per release and greater volume.
- Communications revenue increased 10% in the quarter and 18% year to date. Compliance revenue increased 17% and 16%, respectively.
- Gross margin improved by three percentage points in both the quarter and year-to-date period, primarily because of a greater mix of higher-margin newswire revenue and lower distribution costs.
- Operating income declined 9% in the quarter despite higher revenue, as general and administrative, sales and marketing, and product development expenses increased. Year-to-date operating income increased 31%.
- Sales and marketing expense increased 39% in the quarter and 29% year to date as the company expanded headcount, commissions and digital marketing. Product development expense increased 76% and 54%, respectively.
- Net income benefited from $0.366 million of employee retention credit recorded in other income. The benefit was included in both third-quarter and nine-month 2021 results and was not present in the comparable 2020 periods.
- Platform id. subscriptions increased to 418, with annual contract value of $3.499 million, from 341 subscriptions and $2.677 million of annual contract value at December 31, 2020. The company added 40 licenses in the quarter and 126 year to date.
- Deferred revenue increased 22% from December 31, 2020 to $2.696 million, primarily reflecting advance billings for subscriptions, news distribution packages and annual services.
- The company repurchased 19,777 shares for $0.452 million during the first quarter, completing its previously authorized $2.0 million repurchase program. No repurchases occurred during the period covered by this Form 10-Q.
Guidance, Outlook, Risks and Unusual Items
The filing provides no quantitative revenue or earnings guidance. Management expects to continue investing in Communications products, sales and marketing, technology, newswire distribution and potential strategic acquisitions, while pursuing profitable growth and operating cash flow generation.
Management reported stable demand across most served markets but noted that webcasting, events and virtual annual meeting activity declined from the unusually strong 2020 levels associated with COVID-19, although activity remained above 2019 pre-pandemic levels. Demand could return toward pre-pandemic levels as in-person events resume.
Key risks include COVID-19-related disruption, customer financial deterioration, exposure to small- and micro-cap customers, competition, changing capital-market conditions, dependence on news distribution partners, customer acceptance of new products, and fluctuations in transaction-driven Compliance revenue. The company also noted that removing unlimited newswire subscriptions may reduce the number of Platform id. subscriptions, although affected customers generally remain active through paid release packages.
The company launched its Newsroom product near the end of July 2021 and capitalized $0.161 million of related development costs during the first nine months. Product development expenses are expected to continue increasing. Cash deposits exceeded FDIC insurance limits by $20.731 million at September 30, 2021. The company stated that it had no material off-balance-sheet arrangements and no material pending litigation.
The unsecured line of credit was renewed effective October 3, 2021, changing the interest rate from LIBOR plus 1.75% to SOFR plus 1.75%; all other provisions remained unchanged. Management concluded that disclosure controls were effective, while noting heightened misstatement risk associated with implementation of a new accounting system.
Investor Verification Checklist
- Verify the sustainability of ACCESSWIRE growth, pricing increases and volume trends, particularly after the 2021 comparison period.
- Separate recurring subscription growth from transaction-driven revenue in events, print, proxy and transfer-agent services.
- Assess the effect of the $0.366 million employee retention credit on reported other income and net income.
- Monitor whether higher sales, marketing and product development spending converts into recurring Platform id. revenue and cash flow.
- Evaluate the durability of virtual events and annual meetings as pandemic-related demand normalizes.
- Review customer credit quality, accounts receivable collections and the $0.702 million allowance for doubtful accounts.
- Consider concentration and liquidity risk from cash balances above FDIC insurance limits and the company’s reliance on distribution partners.
- Confirm the impact of the LIBOR-to-SOFR transition and the availability of the unused $3.0 million credit facility.