Business Context and Reporting Period
Issuer Direct Corporation, the registrant associated with the ACCESSWIRE business, filed this unaudited Form 10-Q for the three months ended March 31, 2019. The company provides communications and compliance technology, news distribution, webcasting, disclosure, shareholder communications, and related services through its cloud-based Platform id. offering. It reports one operating segment.
The company continued its transition from services and print-based activities toward higher-margin Platform and Technology subscriptions. Platform and Technology revenue represented 63.8% of total revenue in the quarter, compared with 57.6% in the prior-year quarter.
Financial Highlights
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $4.179 million | $3.530 million | +18% |
| Gross profit | $2.877 million | $2.509 million | +15% |
| Gross margin | 69% | 71% | Down 2 points |
| Operating income | $147,000 | $315,000 | Down 53% |
| Net income | $205,000 | $320,000 | Down 36% |
| Basic EPS | $0.05 | $0.11 | Down |
| Net cash from operations | $536,000 | $537,000 | Approximately flat |
Platform and Technology revenue increased 31% to $2.665 million, with a 75% gross margin versus 79% in the prior-year period. Services revenue increased 1% to $1.514 million, while its gross margin declined to 58% from 60%.
Operating expenses rose to $2.730 million from $2.194 million. General and administrative expense increased 36% to $1.361 million, driven by a higher bad-debt provision, acquisition-related professional fees, and increased personnel costs. Sales and marketing expense increased 9% to $820,000, product development increased 13% to $337,000, and depreciation and amortization increased 49% to $212,000 due partly to acquired intangible assets. Net interest income was $71,000, compared with net interest expense of $5,000 in Q1 2018.
Cash Flow, Liquidity, Debt, and Balance Sheet
- Cash and cash equivalents were $14.961 million at March 31, 2019, down from $17.222 million at December 31, 2018.
- Net accounts receivable was $2.237 million, compared with $1.593 million at year-end 2018. The allowance for doubtful accounts was $731,000.
- Current assets exceeded current liabilities by $14.220 million.
- Operating cash flow was $536,000. Investing cash flow was negative $2.794 million, primarily reflecting the $2.788 million cash purchase of the VisualWebcaster Platform. Financing cash flow was zero.
- Total liabilities were $4.113 million, including a $602,000 note payable consisting of $320,000 current and $282,000 long-term portions. The filing also reports $209,000 of operating lease liabilities.
- The company had a $3.0 million line of credit, bearing interest at 4.22% at March 31, 2019, with no outstanding borrowings.
- Deferred revenue increased to $1.464 million from $1.249 million and was expected to be recognized within twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue growth was primarily driven by Platform and Technology products, including ACCESSWIRE news distribution, additional Platform id. subscriptions, and contributions from acquisitions.
- VWP and FSCwire contributed $627,000 of Q1 2019 revenue, including $509,000 of Platform and Technology revenue and $118,000 of Services revenue.
- Profitability declined despite higher revenue because of acquisition costs, increased headcount and growth investments, higher bad-debt expense, and amortization of acquired intangible assets.
- The company paid $2.788 million in cash for VWP on January 3, 2019. Preliminary acquired assets included customer relationships of $1.190 million, technology of $497,000, a non-compete agreement of $69,000, and goodwill of $1.019 million.
- Services revenue remained nearly flat as legacy annual-report and compliance activities declined, offset by acquisition-related revenue and one-time print and proxy projects.
- Shares outstanding increased to 3,854,568 at March 31, 2019 from 3,829,572 at December 31, 2018. Stock-based compensation expense was $137,000.
- The company adopted the new lease standard on January 1, 2019, recognizing right-of-use assets and lease liabilities. It also signed a new eight-year-and-four-month Raleigh headquarters lease, with minimum payments of approximately $2.997 million and a tenant-improvement allowance of up to $488,000.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management stated that platform demand remained stable in most served markets and expects the shift from traditional printed and service-based engagements toward cloud subscriptions and digital distribution to continue. Management expects this transition to create near-term revenue pressure in certain legacy areas while supporting long-term platform growth.
For the remainder of 2019, stated priorities included expanding the Platform and Technology sales team, pursuing strategic acquisitions, growing the customer base, integrating acquired businesses, expanding newswire distribution, investing in technology and analytics, and generating profitable growth and operating cash flow. The filing does not provide numerical revenue or earnings guidance.
- ACCESSWIRE depends on several distribution partners; disruption in those relationships could materially affect results.
- Legacy Services and annual-report businesses face customer attrition, pricing pressure, and migration toward digital fulfillment.
- VWP reduced Platform and Technology gross margin because of its revenue and cost profile.
- Acquisition integration, valuation of goodwill and intangible assets, and related amortization may affect future results.
- Customer accounts receivable are generally unsecured, and bad-debt expense increased materially year over year.
- Management stated that there were no material changes to previously disclosed risk factors, no material litigation, and no material off-balance-sheet arrangements.
- Management concluded that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether VWP and FSCwire revenue growth continues after acquisition-related comparisons and integration effects normalize.
- Whether Platform and Technology gross margins recover from 75% following the VWP acquisition.
- The pace of decline in legacy Services and annual-report revenue versus growth in recurring subscriptions.
- Cash requirements and returns associated with the new Raleigh headquarters lease and future acquisitions.
- Changes in accounts receivable, bad-debt reserves, deferred revenue, and operating cash conversion.
- Potential dilution from outstanding options, restricted stock units, and remaining equity incentive-plan capacity.
- The filing’s forward-looking statements and the risk factors incorporated from the company’s 2018 Form 10-K.