Business Context and Reporting Period
The filing is Issuer Direct Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017, filed August 3, 2017. The request metadata identifies ACCESS Newswire Inc.; however, the filing’s registrant is Issuer Direct Corporation, whose ACCESSWIRE business is a major platform within the company.
Issuer Direct provides cloud-based communications, disclosure, investor-relations, news-distribution, webcasting, stock-transfer, proxy and compliance solutions. Management is transitioning the business from traditional services toward Platform and Technology subscriptions.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2017 | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $3.443 million | $3.134 million | $6.298 million | $6.411 million |
| Gross profit | $2.534 million | $2.310 million | $4.643 million | $4.817 million |
| Gross margin | 74% | 74% | 74% | 75% |
| Operating income | $733,000 | $466,000 | $1.107 million | $1.156 million |
| Net income | $493,000 | $357,000 | $817,000 | $850,000 |
| Diluted EPS | $0.16 | $0.12 | $0.27 | $0.29 |
- Platform and Technology revenue was $1.704 million in the quarter and $3.117 million year to date, with gross margins of 84% and 83%, respectively.
- Services revenue was $1.739 million in the quarter and $3.181 million year to date, with gross margins of 64% for both periods.
- Six-month operating cash flow was $1.457 million, compared with $1.486 million in the prior-year period.
- Six-month investing cash outflow was $630,000, including $624,000 of capitalized software development costs.
- Six-month financing cash outflow was $77,000, reflecting $291,000 of dividends partly offset by $214,000 of net stock-option exercise proceeds.
- Cash and cash equivalents were $6.125 million at June 30, 2017, compared with $5.339 million at December 31, 2016. Net accounts receivable was $1.334 million.
- Current assets of $7.817 million exceeded current liabilities of $2.368 million by $5.449 million.
- The company had no borrowings under its $2.0 million line of credit; the stated interest rate was 3.72% at June 30, 2017. The filing reports no other debt balance.
- Deferred revenue was $1.040 million, compared with $843,000 at December 31, 2016, and was expected to be recognized over the following twelve months.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 10% year over year, while six-month revenue decreased 2%. Excluding a $316,000 prior-year benefit from reversing an unused-postage accrual, management states that six-month revenue increased approximately 3%.
- Platform and Technology revenue increased 51% in the quarter and 50% year to date, driven primarily by ACCESSWIRE, whose revenue increased $527,000 in the quarter and $944,000 year to date.
- Services revenue declined 13% in the quarter and 27% year to date, primarily because of attrition and migration from legacy annual-report services, pricing pressure in Edgar and XBRL services, and project timing.
- Second-quarter operating income increased 57% and net income increased 38%. Six-month operating income declined 4% and net income declined 4%, although the 2016 comparison benefited from the $316,000 postage-accrual reversal.
- Depreciation and amortization declined 63% in both the quarter and year-to-date period because certain intangible assets acquired in the PrecisionIR transaction became fully amortized in 2016.
- General and administrative expense increased 7% in the quarter and 8% year to date. Product development expense increased 43% and 60%, respectively, reflecting higher salaries and reduced capitalization as projects entered production.
- Platform and Technology represented 49.5% of revenue in both reported 2017 periods, compared with 36.0% in the quarter and 32.3% year to date in 2016.
- The company adopted ASU 2016-09 and recognized stock-based compensation excess tax benefits of $45,000 in the quarter and $122,000 year to date in income tax expense.
- Shares outstanding increased to 2,954,092 at June 30, 2017 from 2,860,944 at December 31, 2016.
Guidance, Outlook, Risks and Unusual Items
Management did not provide quantitative revenue or earnings guidance. It expects demand for platforms to remain stable in most served markets, while continued migration from printed and service-based engagements to cloud subscriptions and digital distribution may reduce revenue in certain legacy areas over the next several quarters.
- 2017 priorities include realigning the Platform and Technology sales team, expanding the customer base and newswire distribution, advancing technology, achieving profitable sustainable growth and generating operating cash flow.
- Management expects to continue investing in product development and intellectual property during the second half of 2017, with the goal of increasing revenue per user and gross margins.
- ACCESSWIRE depends on key third-party distribution partners; disruption of those relationships could materially harm the business.
- The company faces competition in news distribution, webcasting, investor communications and other platform markets. Adoption of new products, including Classify, Investor Network, Blueprint and Transferly, is not assured.
- Legacy Services revenue and margins may continue to decline as customers migrate to digital platforms. The filing also notes fixed costs associated with declining ARS, print, proxy, Edgar and XBRL activity.
- Management states that operating cash flow is intended to fund obligations, but additional equity or debt financing could be required in the future and may not be available on acceptable terms.
- A $0.05-per-share quarterly dividend was declared on July 7, 2017, payable August 11, 2017, to shareholders of record July 24, 2017.
- The filing reports no material litigation, no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements and effective disclosure controls.
- The company expects the new lease standard to create an insignificant right-of-use asset and lease liability beginning in 2019 based on its then-existing corporate facility lease.
Important Facts for Investors to Verify
- Confirm that the intended issuer is Issuer Direct Corporation rather than a separate ACCESS Newswire Inc. entity.
- Track whether rapid ACCESSWIRE and Platform and Technology growth offsets continued declines in legacy Services revenue.
- Reconcile year-to-date comparisons for the $316,000 one-time postage-accrual reversal recorded in the prior-year period.
- Monitor capitalized software spending, amortization and the effect of ongoing product-development investment on future cash flow and margins.
- Verify continued availability and terms of the $2.0 million unused line of credit and the company’s ability to fund dividends and obligations from operations.
- Assess customer adoption, retention and monetization of the company’s subscription platforms, particularly Investor Network, Classify, webcasting, Blueprint and Transferly.
- Review the 2016 Form 10-K risk factors incorporated by reference, including competitive, partner-dependence, market-demand and financing risks.