Issuer Direct Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2019, compared with the corresponding 2018 periods. The filing identifies the registrant as Issuer Direct Corporation (NYSE American: ISDR), not ACCESS Newswire Inc. The company provides cloud-based communications, news distribution, webcasting, investor-relations and compliance solutions through Platform id. and related services.
Financial highlights
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $4.019 million | $3.255 million | $12.336 million | $10.584 million |
| Gross profit | $2.797 million | $2.274 million | $8.562 million | $7.552 million |
| Gross margin | 70% | 70% | 69% | 71% |
| Operating income | $180,000 | $119,000 | $457,000 | $1.029 million |
| Net income | $200,000 | $86,000 | $617,000 | $772,000 |
| Diluted EPS | $0.05 | $0.02 | $0.16 | $0.23 |
| Operating cash flow | Not separately provided | Not separately provided | $1.955 million | $2.153 million |
- Q3 revenue increased 23%; nine-month revenue increased 17%.
- Platform and Technology revenue increased 30% in Q3 and 26% for the nine-month period, reaching 67% and 65% of total revenue, respectively.
- Services revenue increased 12% in Q3 and 2% for the nine-month period.
- Q3 operating income increased despite higher operating expenses; nine-month operating income declined 56% because of increased general and administrative costs, bad debt expense, acquisition expenses and amortization.
- Net income increased 133% in Q3 but declined 20% for the nine-month period.
- Cash and cash equivalents were $15.807 million at September 30, 2019, compared with $17.222 million at December 31, 2018. Net accounts receivable were $2.054 million.
- Current assets exceeded current liabilities by $15.213 million.
- Debt included a $320,000 current note payable and a $294,000 long-term note payable, net of discount. The $3.0 million revolving line of credit was undrawn at September 30, 2019; its reported interest rate was 3.77%.
Material changes versus the prior comparable period
- The company acquired the VisualWebcaster Platform on January 3, 2019 for $2.788 million in cash. The acquisition contributed approximately $494,000 of Q3 revenue and $1.477 million of nine-month revenue, and added customer relationships, technology, a non-compete agreement and goodwill.
- VWP increased Platform and Technology revenue but also contributed to lower Platform and Technology gross margins, higher depreciation and amortization, and additional operating costs.
- The shift toward cloud subscriptions continued: Platform and Technology represented 65% of nine-month revenue versus 60% in 2018.
- A key distribution partner stopped accepting investor commentary content during Q2 2019. Related revenue was approximately zero in Q3 2019 and $403,000 for the first nine months, versus $356,000 and $1.219 million, respectively, in the prior-year periods.
- Excluding investment commentary and the FSCwire acquisition, ACCESSWIRE revenue grew 67% in Q3 and 39% for the nine-month period, according to management.
- General and administrative expense increased 30% in Q3 and 35% for the nine-month period. The nine-month increase included a $550,000 increase in bad debt provision, primarily related to two investment-commentary newswire customers whose balances were fully reserved.
- Deferred revenue increased to $1.566 million from $1.249 million at December 31, 2018 and is expected to be recognized within twelve months.
- The company repurchased 24,980 shares for $236,000 under a $1.0 million authorization, leaving $764,000 available at September 30, 2019.
- The company adopted ASC 842 lease accounting on January 1, 2019. It reported $104,000 of right-of-use assets and $108,000 of lease liabilities at September 30, 2019.
Cash flow, liquidity and capital resources
- Nine-month operating cash flow was $1.955 million, compared with $2.153 million in 2018. The reduction occurred despite higher net noncash adjustments, partly because accounts receivable increased by $1.166 million.
- Investing cash outflows were $3.110 million, including the $2.788 million VWP acquisition and $302,000 of fixed-asset purchases.
- Financing cash outflows were $236,000 for share repurchases. The prior-year period benefited from $13.323 million of secondary-offering proceeds.
- Ending cash declined by $1.391 million to $15.807 million during the nine-month period.
- Cash deposits exceeding FDIC insurance limits totaled approximately $14.925 million at September 30, 2019, creating bank-concentration exposure.
Outlook, management commentary and risks
- Management stated that demand for the company’s platforms remained stable in most served segments, while demand continues shifting from printed and service-based offerings to cloud subscriptions and digital distribution.
- Strategic priorities for the remainder of 2019 included expanding the Platform and Technology sales organization, pursuing strategic acquisitions, growing the customer base, migrating acquired businesses, expanding news distribution, investing in technology and analytics, and generating sustainable growth and operating cash flow.
- Management expects continued declines in certain legacy service areas as customers migrate to digital platforms, although it expects the higher-margin Platform and Technology business to grow over time.
- Key risks include competition, dependence on distribution partners, loss of investor-commentary revenue, customer attrition in legacy services, unpredictable corporate transactions affecting transfer-agent revenue, bad-debt exposure, acquisition integration, market conditions and execution of the cloud-platform strategy.
- The company reported no material litigation or material changes to previously disclosed risk factors. Management concluded that disclosure controls and procedures were effective and that no material changes occurred in internal control over financial reporting.
- The company signed a new Raleigh headquarters lease commencing October 2, 2019, with minimum payments of approximately $2.997 million through December 2027, excluding a tenant-improvement allowance of up to $488,000.
Investor verification checklist
- Confirm the issuer identity and ticker: the supplied metadata references ACCESS Newswire Inc., while the filing is for Issuer Direct Corporation, ticker ISDR.
- Assess whether VWP revenue growth and customer additions can offset acquisition-related amortization and operating costs.
- Monitor the recovery of ACCESSWIRE revenue after the loss of investor-commentary content and evaluate dependence on key distribution partners.
- Review the collectability of accounts receivable and the adequacy of the reserves for the two significant investment-commentary customers.
- Track the mix of Platform and Technology versus Services revenue and the associated gross-margin trend.
- Reconcile cash use for acquisitions, share repurchases, headquarters relocation and lease commitments with projected operating cash flow.
- Review goodwill and acquired intangible-asset balances for potential impairment, particularly as legacy services decline.