Issuer Direct Corporation — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2016; filed August 4, 2016. The source filing identifies the registrant as Issuer Direct Corporation, not ACCESS Newswire Inc. The company provides disclosure management, shareholder communications, news distribution and cloud-based compliance technologies, including Accesswire.
Financial performance and condition
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $3.134 million, versus $3.106 million | $6.411 million, versus $6.150 million |
| Gross profit | $2.310 million, versus $2.207 million | $4.818 million, versus $4.338 million |
| Gross margin | 74%, versus 71% | 75%, versus 71% |
| Operating income | $466,348, versus $297,080 | $1.157 million, versus $615,174 |
| Net income | $356,638, versus $65,028 | $849,927, versus $301,693 |
| Diluted EPS | $0.12, versus $0.03 | $0.29, versus $0.13 |
- Revenue increased 1% year over year in the quarter and 4% year to date.
- Six-month revenue included an approximately $316,000 benefit from reversing an accrual for unused postage credits related to acquired ARS clients. Excluding this item, six-month gross margin would have been 74% rather than 75%.
- Six-month cash flow from operations was $1.486 million, compared with $1.916 million in the prior-year period. Investing cash flow was $(562,994), primarily reflecting $518,381 of capitalized software costs. Financing cash flow was $(135,022), including a $167,382 dividend payment.
- Cash and cash equivalents were $4.990 million at June 30, 2016, compared with $4.215 million at December 31, 2015. Net accounts receivable was $1.285 million and deferred revenue was $1.010 million.
- Current assets exceeded current liabilities by $4.551 million. Total liabilities were $2.467 million and stockholders’ equity was $9.756 million.
- The company had no balance outstanding under its $2.0 million line of credit. The line carried interest at LIBOR plus 3.0%, or 3.47% at June 30, 2016. The filing does not report other outstanding debt at period end.
Material changes versus the prior comparable period
- Disclosure management revenue declined 11% in the quarter and 13% year to date, primarily because of pricing pressure and client attrition in traditional EDGAR and XBRL services.
- Shareholder communications revenue declined 9% in the quarter and 2% year to date as customers moved from hard-copy ARS services to digital offerings. Accesswire revenue increased $230,542 in the quarter and $392,813 year to date.
- Platform and technology revenue increased 99% in the quarter and 94% year to date, driven by Investor Network customer migrations, iProxy licensing and broader cloud-platform adoption.
- Cost of services decreased 8% in the quarter and 12% year to date. Gross margin benefited from channel-partner restructuring, higher-margin press release revenue and the postage-credit accrual reversal.
- General and administrative expense decreased 12% in the quarter and 8% year to date, while sales and marketing expense increased 4% and 7%, respectively, due primarily to higher personnel and tradeshow costs.
- Interest expense declined substantially because the remaining $1.667 million principal balance of the 8% convertible note was converted into common stock in August 2015.
- Income tax expense was $192,727 in the quarter and $390,648 year to date, compared with tax benefits in the prior-year periods. The company released $78,400 of valuation allowance during the first six months of 2016.
Outlook, risks and unusual items
- Management expects continued migration from traditional print and service engagements to cloud-based subscriptions and digital distribution. This transition may pressure revenue over the next several quarters but is expected to support higher margins over time.
- 2016 priorities include expanding sales and marketing, advancing technology, achieving profitable sustainable growth, generating positive operating cash flow, increasing revenue per user, expanding the customer base and growing the newswire business.
- Management expects further commercialization of Investor Network and Classify during the second half of 2016 and continued growth in Accesswire and webcasting.
- Key risks include pricing pressure and attrition in legacy services, competition, dependence on distribution partners for Accesswire, unpredictable timing of corporate actions, general market conditions and the execution risk associated with the cloud transition.
- Management states that cash generated from operations is intended to fund obligations, but additional equity or debt financing could be required. The filing provides no assurance that financing would be available on acceptable terms.
- The board declared a $0.05-per-share quarterly dividend on July 7, 2016, payable August 12, 2016.
- The company reported no material litigation, no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements. Management concluded that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity, because the provided metadata names ACCESS Newswire Inc. while the filing is for Issuer Direct Corporation and includes Accesswire as a business.
- Assess recurring revenue growth separately from the approximately $316,000 postage-credit accrual reversal.
- Track whether growth in platform and technology revenue offsets continued declines in disclosure management and legacy ARS services.
- Review the effect of capitalized software costs, stock-based compensation and related amortization on reported earnings and operating cash flow.
- Verify the sustainability of dividends and liquidity given management’s caution that future financing may be needed.
- Monitor the company’s use of acquired net operating losses and future changes in valuation allowance and tax expense.