Professional Diversity Network, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. PDN operates diversity-focused professional and recruitment networks, NAPW, and RemoteMore, a software-developer hiring and development business. The company acquired Expo Experts in January 2023; it owned 72.62% of RemoteMore at quarter-end.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.008 million | $2.114 million | $5.805 million | $6.363 million |
| Loss from continuing operations, net of tax | $1.320 million | $1.095 million | $3.861 million | $2.038 million |
| Net loss attributable to PDN | $1.316 million | $0.960 million | $3.798 million | $1.572 million |
| Net cash used in operating activities | Not separately reported | Not separately reported | $2.443 million | $1.399 million |
| Cash and cash equivalents | — | $0.615 million at September 30 | $1.237 million at December 31, 2022 |
- Q3 revenue fell 5.0%; nine-month revenue fell 8.8%. Nine-month recruitment revenue declined 10.9%, membership revenue 21.6%, and consumer advertising and marketing revenue 42.0%; contracted software development rose 1.3%.
- Nine-month cost of revenue was $2.763 million, yielding gross profit of about $3.041 million (52.4% of revenue), versus $3.340 million (52.5%) a year earlier. Total operating costs and expenses increased 15.1% to $9.692 million.
- Nine-month adjusted EBITDA, a company-defined non-GAAP measure, was a loss of $3.104 million versus a loss of $1.294 million. Nine-month loss per share was $0.37 versus $0.25.
- At September 30, total assets were $6.578 million, total liabilities $4.441 million, and stockholders’ equity $2.137 million. Working capital deficit from continuing operations was approximately $1.264 million. Lease liabilities totaled approximately $386,000; the filing does not report material conventional borrowing.
Material changes and management commentary
- PDN cited softer employer hiring demand as a driver of lower comparable recruitment revenue. Expo Experts added approximately $92,000 of Q3 event revenue and $240,000 for the nine-month period, with no prior-year comparable revenue.
- NAPW revenue declined amid consumer economic pressures and discretionary spending; management said in-person chapter events began resuming in Q3. RemoteMore Q3 revenue fell 20.1%, while its nine-month revenue rose 1.3%.
- Management described cost-control actions, including restructuring NAPW and reducing staff, renegotiating or ending vendor contracts, and creating an internal marketing department. Despite these efforts, higher sales and marketing and general and administrative expenses contributed to worsening nine-month losses.
- Investing cash outflow included $400,000 for Expo Experts and approximately $352,000 for additional RemoteMore ownership. Financing provided $2.700 million from common-stock sales. PDN also entered a facility allowing, but not requiring, up to $12.775 million of share sales; $2.0 million was purchased initially, and 176,222 commitment shares valued at $750,000 were issued.
Outlook, risks and unusual items
- Going concern: The company disclosed substantial doubt about its ability to continue as a going concern, citing recurring losses, operating cash outflows, $615,133 cash, and a $1.264 million working capital deficit. Management said cash and operating cash flow might cover working capital needs through December 31, 2023, but longer-term needs depend on expense reductions, revenue growth, and additional capital. No assurance was given that these plans will succeed.
- Risks include continued operating losses and financing needs, dilution from equity issuance, weak hiring and discretionary consumer demand, competition, privacy regulation, execution and integration of acquisitions, and retention of key personnel. The filing provides no specific revenue or earnings guidance.
- The unresolved Bayne employment-law case seeks monetary damages and equitable relief; PDN says it intends to defend the case, which was in final discovery. A $450,000 reserve was recorded in 2020, while the prior-year results included a roughly $909,000 noncash litigation-related gain; the filing text does not clearly reconcile the reserve and gain.
- China operations remain discontinued. Approximately $195,000 of cash was frozen at September 30, 2023, and the company continues to seek return of funds seized in 2021; recovery is uncertain. China discontinued operations generated a $28,000 loss for the nine months.
- Management concluded disclosure controls were effective as of September 30, 2023, and reported no material third-quarter change in internal control over financial reporting.
Key facts for investors to verify
- Whether liquidity, cost reductions, revenue growth, or additional financing can address the going-concern uncertainty after year-end 2023.
- Remaining availability, conditions, pricing effects, and potential dilution under the $12.775 million equity purchase facility.
- Underlying recruitment demand and whether Expo Experts and RemoteMore can sustain growth and improve profitability.
- Status and potential exposure of the Bayne litigation, and the accounting relationship between the historical reserve and prior-year litigation-related gain.
- Recoverability and legal status of the frozen China funds, and any impairment risk to goodwill or acquired intangible assets.