Business Context and Reporting Period
Issuer Direct Corporation and subsidiaries, whose ACCESSWIRE business is a principal offering, filed this unaudited Form 10-Q for the three months ended March 31, 2020. The company provides cloud-based communications, news distribution, webcasting, shareholder outreach, compliance and related services through its Platform id. technology platform. The filing identifies the registrant as Issuer Direct Corporation rather than ACCESS Newswire Inc.
The company reported one operating segment: shareholder communications and compliance solutions for public and private companies. The filing was signed April 30, 2020.
Financial Performance and Condition
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $4.016 million | $4.179 million | Down 4% |
| Gross profit | $2.763 million | $2.877 million | Down 4% |
| Gross margin | 69% | 69% | Flat |
| Operating income | $248,000 | $147,000 | Up 69% |
| Net income | $226,000 | $205,000 | Up 10% |
| Diluted earnings per share | $0.06 | $0.05 | Increased |
| Cash flow from operations | $602,000 | $536,000 | Up 12% |
- Revenue mix: Platform and Technology revenue was $2.685 million, up 1%, and represented 66.9% of total revenue versus 63.8% in the prior-year quarter. Services revenue was $1.331 million, down 12%.
- Segment margins: Platform and Technology gross margin was 74% versus 75%; Services gross margin was 57% versus 58%.
- Operating expenses: General and administrative expense declined 11% to $1.216 million; sales and marketing increased 9% to $896,000; product development declined 42% to $194,000; and depreciation and amortization was $209,000.
- Tax and interest: Net interest income was $58,000. Income tax expense increased to $80,000 from $13,000, primarily reflecting state income taxes in 2020 and prior-year tax benefits.
- Liquidity: Cash and cash equivalents were $16.197 million at March 31, 2020, compared with $15.766 million at December 31, 2019. Current assets exceeded current liabilities by $14.607 million.
- Debt and lease obligations: The company had no borrowings under its $3.0 million line of credit, which bears interest at LIBOR plus 1.75%. Lease liabilities totaled $2.610 million, including $2.226 million classified as long-term.
- Balance sheet: Total assets were $32.574 million and total stockholders’ equity was $26.208 million at March 31, 2020. Goodwill was $6.376 million and intangible assets were $3.343 million.
- Deferred revenue: Deferred revenue increased to $1.879 million from $1.812 million and was expected to be recognized within one year.
Material Changes Versus the Prior Comparable Period
- Total revenue declined $163,000, principally because of lower Services revenue, including reduced transfer-agent activity, customer attrition in legacy annual-report services and the absence of a one-time print and proxy project completed in Q1 2019.
- Platform and Technology revenue increased modestly despite the loss of investment commentary distribution business. Excluding that business, ACCESSWIRE revenue grew 36% year over year; the investment commentary business contributed approximately $335,000 in Q1 2019.
- Platform id. subscriptions increased to 273 with total annual contract value of $2.098 million, compared with 255 subscriptions and $2.033 million of annual contract value at December 31, 2019. The company signed 30 new licenses during the quarter with $181,000 of annual contract value.
- Operating income and net income increased despite lower revenue, supported by lower bad-debt expense, the absence of approximately $112,000 of VWP acquisition-related professional fees incurred in Q1 2019, and lower product-development headcount.
- Operating cash flow improved to $602,000 from $536,000. Q1 2019 investing cash flow included the $2.788 million acquisition of the VisualWebcaster Platform; there was no comparable acquisition payment in Q1 2020.
- The company repurchased and retired 21,700 shares during March 2020 for approximately $203,000. Total repurchases under the program were 97,870 shares at an aggregate cost of approximately $972,000, excluding commissions.
- The company adopted ASU 2017-04, simplifying goodwill impairment testing, and did not expect a significant financial statement impact.
Guidance, Outlook, Risks and Unusual Items
- The company did not provide quantitative 2020 revenue or earnings guidance. Management stated that the long-term financial impact of the COVID-19 pandemic could not be reasonably estimated.
- COVID-19 resulted in temporary office closures and remote work requirements. Management reported no material business impact through the filing date other than remote work, but identified risks of operational disruption, lower revenue, customer deterioration, nonpayment, asset-value declines and goodwill or intangible-asset impairment.
- Investor conferences were cancelled or delayed, negatively affecting conference-management software and related activity. Transfer-agent services were also affected by lower corporate transactions and processing delays.
- Demand for webcasting and virtual meetings increased. The company introduced a Virtual Annual Meeting product combining webcasting and proxy voting and upgraded conference software for fully virtual events.
- Management expects continued migration from Services toward higher-margin Platform and Technology subscriptions, while legacy print, proxy, annual-report and other physical services may continue to decline.
- The company completed qualitative and quantitative goodwill and intangible-asset reviews as of March 31, 2020 and recorded no impairment. It planned to reassess the impact of COVID-19 at the end of Q2 2020.
- On April 16, 2020, the company received a $1.025 million PPP loan, but returned all proceeds plus accrued interest on April 28, 2020 after determining it might not meet all certification requirements. This occurred after the reporting date.
- Cash balances exceeded FDIC insurance limits by approximately $14.905 million at March 31, 2020, creating bank-counterparty concentration risk. The company also held $358,000 of cash in Europe and $254,000 in Canada.
- The company reported no material litigation, no material off-balance-sheet arrangements and no material changes to previously disclosed risk factors other than the COVID-19 risk.
Important Facts for Investors to Verify
- Confirm that the filing entity and securities issuer are Issuer Direct Corporation, while the request metadata refers to ACCESS Newswire Inc.
- Monitor the effect of COVID-19 on conference cancellations, transfer-agent activity, customer collections, subscription renewals and virtual-event demand.
- Verify whether the shift toward Platform and Technology revenue continues and whether its gross-margin advantage offsets declines in Services revenue.
- Review subsequent-quarter goodwill and intangible-asset impairment assessments, particularly given the company’s planned Q2 2020 reassessment.
- Track deferred revenue conversion, Platform id. subscription growth and annual contract value as indicators of recurring revenue momentum.
- Confirm the status of the $2.0 million share-repurchase authorization and the effect of further repurchases on cash and share count.
- Assess liquidity after considering lease obligations, customer-credit exposure and the returned PPP proceeds.