Issuer Direct Corporation — Q1 2015 Form 10-Q Summary
Reporting period: Three months ended March 31, 2015, filed May 7, 2015. The filing is for Issuer Direct Corporation, which operated the Accesswire business following its October 29, 2014 acquisition. The company reports one segment focused on disclosure management and targeted communications.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|
| Revenue | $3.044 million | $3.494 million |
| Gross profit | $2.131 million | $2.467 million |
| Gross margin | 70% | 71% |
| Operating income | $318,094 | $375,123 |
| Net income (loss) | $236,665 | $(36,942) |
| Diluted EPS | $0.10 | $(0.02) |
| Operating cash flow | $1.079 million | $21,631 |
- Revenue declined 13% year over year, while gross profit declined 14%; gross margin remained relatively stable.
- Operating expenses were $1.813 million, down from $2.092 million. General and administrative expense fell 32% to $879,782, partially offset by higher sales and marketing expense of $566,056.
- Net interest expense declined to $244,850 from $362,055, primarily because a portion of the convertible note was converted to equity in November 2014.
- The company recognized a $163,421 income tax benefit, including a $210,370 release of valuation allowances on acquired federal and state net operating losses. This benefit materially contributed to the return to profitability.
- Cash and cash equivalents were $2.775 million at March 31, 2015, compared with $1.721 million at December 31, 2014. Net accounts receivable were $1.638 million.
- Current assets exceeded current liabilities by $1.039 million. Deferred revenue was $795,012 and was expected to be recognized over the following twelve months.
- The company had no balance outstanding on its $2.0 million accounts-receivable-based line of credit and reported approximately $907,000 of remaining borrowing availability.
- The related-party 8% convertible secured note had $1.667 million of principal outstanding, net of debt discount in the balance sheet, and matured August 22, 2015. It was convertible into approximately 417,712 common shares at $3.99 per share.
Revenue mix and material changes
| Revenue stream | Q1 2015 revenue | Change versus Q1 2014 | Q1 2015 gross margin |
|---|
| Disclosure management | $723,200 | Down 24% | 70% |
| Shareholder communications | $2.064 million | Down 9% | 68% |
| Platform and technology | $256,382 | Down 7% | 82% |
- Disclosure management revenue declined because of lower Edgar and transfer-agent activity, fewer special projects and corporate actions, and pricing pressure in XBRL services.
- Shareholder communications revenue was pressured by declining hard-copy annual-report fulfillment and delayed proxy-printing projects. These decreases were partly offset by approximately $259,160 of additional press-release revenue from Accesswire.
- Platform and technology gross margin improved to 82% from 68%, primarily from delivery efficiencies.
- The company attributed lower general and administrative expense to integration of PrecisionIR functions and lower professional-services costs.
- Weighted-average basic shares increased to 2.317 million from 2.016 million. Shares outstanding at May 7, 2015 were 2,323,243.
- Accesswire was acquired for $1.840 million, consisting of $1.700 million in cash and 15,385 common shares. The acquisition added $1.185 million of goodwill and $655,000 of intangible assets and goodwill-related identifiable assets as disclosed.
Outlook, risks and unusual items
- Management expected additional revenue from Accesswire, increased sales efforts, continued cost control, and positive operating cash flow.
- Key 2015 initiatives included expanding sales and marketing, investing in technology, increasing revenue per user, growing the customer base, expanding the newswire business, and integrating a cloud-based disclosure platform.
- Management acknowledged that the shift from printed materials to digital delivery is reducing revenue and expected that trend to continue over the next several quarters, although it expects to maintain or improve margins.
- On April 16, 2015, after the reporting period, the company entered into an agreement to acquire a cloud-based reporting platform from Xselus LLC. Management expected to begin marketing the platform in the third quarter of 2015.
- The August 2015 maturity of the related-party note was a significant liquidity contingency. Management believed cash and available credit would be sufficient to repay it if it was not converted, but also stated that additional equity financing might be required to meet debt obligations.
- Other risks included pricing pressure, unpredictable timing of corporate actions and projects, customer and partner attrition, competition, execution of European expansion, technology-development requirements, and dependence on future demand.
- The filing reported no material litigation, no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no defaults on senior securities.
- Management concluded that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Verify repayment, refinancing, or conversion of the $1.667 million related-party convertible note that matured in August 2015.
- Assess whether operating cash flow remained positive after the nonrecurring tax benefit and whether the Accesswire acquisition generated the expected revenue growth.
- Monitor continued revenue pressure from digital migration, XBRL pricing, lower corporate-action activity, and declining hard-copy services.
- Review the subsequent acquisition and integration of the Xselus cloud-based reporting platform.
- Reconcile the company’s stated cash resources, line-of-credit availability, and any equity issuance required to satisfy debt obligations.
- Evaluate goodwill and intangible-asset impairment exposure, particularly following the Accesswire acquisition.
