Issuer Direct Corporation (ACCESSWIRE-related business) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 3, 2018. The filing’s registrant is Issuer Direct Corporation, not ACCESS Newswire Inc. The company operates a shareholder communications and compliance business through its Platform id. cloud platform and ACCESSWIRE news distribution offering.
Financial performance and condition
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $3.530 million | $2.856 million |
| Gross profit | $2.509 million | $2.110 million |
| Gross margin | 71% | 74% |
| Operating income | $315,000 | $375,000 |
| Net income | $320,000 | $325,000 |
| Diluted earnings per share | $0.10 | $0.11 |
| Cash flow from operations | $537,000 | $647,000 |
- Revenue increased 24%, or $674,000, year over year. Platform and Technology revenue rose 25% to $2.032 million, while Services revenue rose 21% to $1.498 million.
- Platform and Technology represented 57.6% of revenue; Services represented 42.4%.
- ACCESSWIRE revenue increased $270,000 year over year. Interwest customers contributed $418,000 of revenue in the quarter.
- Operating expenses increased to $2.194 million from $1.735 million, including higher sales and marketing, product development, personnel, and amortization expenses.
- Cash and cash equivalents were $5.483 million at March 31, 2018, compared with $4.917 million at December 31, 2017. Current assets exceeded current liabilities by $5.407 million.
- Deferred revenue increased to $1.125 million from $887,000 at year-end and was expected to be recognized within 12 months. The company reported $322,000 of annualized contract value from Platform id. subscriptions sold to 29 new or existing customers during the quarter.
- Total liabilities were $3.758 million. The balance sheet included a $288,000 current portion and $576,000 long-term portion of the Interwest-related note payable, net of discount.
- The company had a $2.5 million revolving credit facility at LIBOR plus 2.50%; the stated rate was 4.40% at March 31, 2018, and no amounts were outstanding.
- Financing activities provided $8,000, including $160,000 from option exercises and $152,000 of dividends paid.
Material changes versus the prior comparable period
- Revenue growth was driven by ACCESSWIRE, bundled Platform id. subscriptions, Interwest customers, webcasting, and transfer-agent services.
- Gross margin declined from 74% to 71%, primarily because amortization of capitalized software increased by $140,000. Platform and Technology gross margin declined from 85% to 79%; Services gross margin improved from 59% to 60%.
- Operating income declined 16% despite higher revenue and gross profit because operating expenses increased faster than gross profit. Net income declined modestly from $325,000 to $320,000.
- Product development expense increased 139% to $298,000, while no software development costs were capitalized in Q1 2018 compared with $366,000 in Q1 2017.
- Sales and marketing expense increased 26% to $750,000 as the company expanded its sales organization.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective approach. Total prior-period revenue was unchanged, but $206,000 of Q1 2017 revenue was reclassified from Services to Platform and Technology.
- The October 2017 acquisition of Interwest Transfer Company added transfer-agent operations, intangible assets, goodwill, deferred consideration, and related amortization expense.
Outlook, commentary, risks, and unusual items
- Management expects continued migration from printed and service-based engagements toward cloud-based subscriptions and digital distribution. It expects Platform and Technology revenue to grow as a percentage of total revenue, while legacy Services and annual-report businesses may decline.
- 2018 priorities include expanding the Platform and Technology sales team, growing the customer base, migrating Interwest customers, expanding newswire distribution, investing in technology, and generating sustainable profitability and operating cash flow.
- Management stated that platform demand was stable in most served segments but cautioned that digital migration has negatively affected certain legacy revenue streams and may continue to do so.
- Key risks include competition, demand and customer acceptance, capital-market conditions, pricing pressure, customer attrition, reliance on distribution partners for ACCESSWIRE, and the success of integrating and cross-selling to Interwest customers.
- The company stated that future acquisitions or obligations could require additional equity or debt financing, and that operating cash flow may not always be sufficient to fund expenses, dividends, or other obligations.
- A $0.05 per-share quarterly dividend was declared on April 6, 2018, payable May 14, 2018.
- 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.
- The company estimated that the 2017 Tax Cuts and Jobs Act would not have a material impact to date, but additional analysis of historical foreign earnings and related adjustments remained outstanding.
Important facts for investors to verify
- Confirm that the filing applies to Issuer Direct Corporation and determine the relationship between Issuer Direct and the ACCESS Newswire/ACCESSWIRE business identified in the request.
- Assess whether revenue growth from ACCESSWIRE and Interwest is recurring, particularly given the quarter’s significant one-time print and proxy projects.
- Monitor the decline in gross margin and the effect of software and acquired-intangible amortization on future earnings.
- Evaluate customer attrition in shareholder outreach and legacy ARS services and the pace of migration to Platform id. subscriptions.
- Review the sustainability of operating cash flow after dividends, acquisition-related payments, technology investment, and sales-force expansion.
- Track integration results and remaining Interwest anniversary payments, as well as the company’s ability to cross-sell additional platform modules to acquired customers.
- Verify the impact of ASC 606 revenue allocation and the continuing increase in deferred revenue and subscription backlog.
- Consider dependence on third-party news distribution partners, competitive pricing pressure, and the availability and terms of future financing.