Business Context and Reporting Period
This filing is Issuer Direct Corporation’s unaudited Form 10-Q for the three and nine months ended September 30, 2015, filed November 5, 2015. The request identifies ACCESS Newswire Inc.; however, the filing’s registrant is Issuer Direct Corporation. The company provides disclosure management, shareholder communications, news distribution, webcasting, investor outreach and cloud-based compliance technologies. Accesswire was acquired on October 29, 2014.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $2.79 million, down 13% | $8.94 million, down 14% |
| Gross profit | $1.94 million | $6.28 million |
| Gross margin | 70%, versus 69% | 70%, unchanged |
| Operating income | $332,357 | $947,531 |
| Net income | $136,730, versus $76,174 | $438,423, versus $107,255 |
| Diluted EPS | $0.05 | $0.18 |
| Operating cash flow | Not separately provided | $2.31 million, versus $1.63 million |
- Cash and cash equivalents were $3.69 million at September 30, 2015, compared with $1.72 million at December 31, 2014.
- Net accounts receivable was $1.45 million, and deferred revenue was $881,678.
- Current liabilities were $2.35 million, producing working capital of approximately $3.49 million.
- The company had no balance outstanding on its $2.0 million line of credit; the stated interest rate was LIBOR plus 3.0%, or 3.19% at September 30, 2015.
- The related-party 8% convertible note was fully converted into 417,712 common shares on August 22, 2015. No principal remained outstanding at quarter-end.
- Capital expenditures were $382,707 during the first nine months, including capitalized software development costs of $525,545.
- Net income benefited from a $210,370 release of a valuation allowance on certain federal and state net operating losses.
Material Changes Versus the Prior Comparable Period
- Revenue declined $433,434, or 13%, in the quarter, and $1.42 million, or 14%, year to date. Disclosure management revenue decreased 17% in the quarter and 21% year to date; shareholder communications revenue decreased 15% and 12%, respectively.
- Platform and technology revenue increased 9% in the quarter but decreased 3% year to date. Management attributed the quarterly improvement to Investor Network, webcasting, transfer-agent and IR Direct activity.
- Accesswire press-release revenue increased $174,563 in the quarter and $697,591 year to date, partly due to the acquisition and new clients.
- Gross margin improved in the quarter despite lower revenue. Platform and technology margins increased to 83% from 79% in the quarter and to 83% from 78% year to date.
- Operating expenses declined year to date, including general and administrative expense down 13% and sales and marketing expense down 13%.
- Interest expense declined materially because the 8% note was converted; the company expects no further cash or non-cash interest expense from that note.
- Shares outstanding increased to 2,767,544 at September 30, 2015 from 2,316,743 at December 31, 2014, primarily reflecting note conversions and equity activity.
Guidance, Outlook, Risks and Unusual Items
- Management expected continued fourth-quarter revenue pressure as customers moved from printed materials to electronic dissemination. Pricing pressure was expected to continue in Edgar and XBRL services.
- Management expected Accesswire, Investor Network and Blueprint to support future growth, with platform and technology revenue expected to increase in 2016. No quantified financial guidance was provided.
- Key risks include continued migration away from printed products, pricing pressure, customer and partner attrition, competition, dependence on successful product development and uncertain demand in domestic and international capital markets.
- Regulation A+ could reduce filings from existing clients, although it could also create new offering-related opportunities. Failure to adapt could materially reduce disclosure-management revenue.
- The company cautioned that operating cash flow might not be sufficient to fund expenses, dividends or other obligations and that future debt or equity financing might be required, although no specific financing need was identified.
- The company reported no material off-balance-sheet arrangements and no pending litigation in which it was a plaintiff or defendant.
- On October 5, 2015, the board declared a quarterly cash dividend of $0.03 per share, payable November 2, 2015. On October 23, 2015, the headquarters lease was extended through October 31, 2019.
- The CFO resigned during the second quarter; the Global Controller became interim CFO. Management stated that disclosure controls and procedures were effective as of September 30, 2015.
Investor Verification Checklist
- Confirm the correct issuer and whether the intended company is Issuer Direct Corporation rather than ACCESS Newswire Inc.
- Assess whether revenue declines from print-to-digital migration are temporary or structural, particularly in shareholder communications and disclosure management.
- Track Accesswire growth and the commercial adoption, recurring revenue and margins of Investor Network and Blueprint.
- Verify the sustainability of operating cash flow after excluding non-cash interest expense, stock-based compensation and the one-time tax valuation-allowance benefit.
- Monitor dilution from note conversions, equity awards and the company’s stated possibility of future equity financing.
- Review the company’s ability to maintain the dividend while funding technology development and meeting operating obligations.