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Edited Transcript of ISDR earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Issuer Direct Corp Earnings Call

Cary Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Issuer Direct Corp earnings conference call or presentation Thursday, August 1, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian R. Balbirnie

Issuer Direct Corporation - Founder, President, CEO & Director

* Steven Knerr

Issuer Direct Corporation - CFO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation's Second Quarter 2019 Earnings Conference Call.

Today's call will be conducted by the company's Founder and Chief Executive Officer, Brian Balbirnie; and its Chief Financial Officer, Steven Knerr.

Before I turn the call over to Mr. Balbirnie, I'd like to review the company's abbreviated safe harbor statement. I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, estimated impact of tax reform, product releases, partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from those expressed or implied by such statements.

Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only.

With that said, welcome, Mr. Balbirnie.

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [2]

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Welcome, everyone, and thank you for joining us today. At the market close, we issued a press release announcing our results for the second quarter 2019. A copy of that press release is now available on our Investor Relations section of our website and on our ACCESSWIRE newsroom for your reference during today's call.

The quarter was a solid showing for Issuer Direct, both in revenues, customers and core platform subscriptions. New subscriptions were on a hot, generating 38 net new platform subscriptions in the quarter, which is 90% over the last quarter and 40% over the prior year. Customers were also at an all-time high. Our public and private company business saw significant growth in new customers on a year-over-year basis.

As we will talk about today, ARPUs have come down on a sequential basis, but we're not alarmed by this result. It's directly tied to the significant growth in private company business and the lower contract values they tend to garner. Giving way for private company contracts are public company subscriptions and Q2 still had an ARPU spend of slightly over 8,000. We reported $4.1 million in total revenue for the second quarter, which represents a 9% increase over Q2 of last year and slightly 1% sequential decrease from Q1 of this year, something Steve will expand upon here in a couple of minutes.

Something I'd like to speak about here at the beginning of today's call is the changes that we've seen in the industry in regards to newswire business. We all segment customers slightly differently. But at the end of the day, it's no different than public, private, legal or investor commentary. During the second quarter, and something we spoke about in our investor presentation on May 30 in New York and available via webcast, whilst the distribution was changing by certain partners, this change specifically was a decision to stop all investor commentary news from all newswires.

In terms of impact, we generated $485,000 in Q2 last year in investor commentary news. If you were to remove the commentary revenues and the acquisition of FSCwire, our core news business grew 34% year-over-year. Plus, we were successful in adding new customers, essentially getting us back to a flat quarter of total ACCESSWIRE revenue. Given their momentum, we feel good about moving this business unit back to a nice year-over-year growth in the coming quarters.

In reflection, this is a good thing for our business long term. We are 100% focused on public and private customers, and our sales and marketing teams are aligned in this respect, and this will pay dividends for us in distribution and market perception.

As we messaged last year, our platform business continues to grow as a percentage of total overall revenues, which I will let Steve talk about here shortly in detail. Our goals this year remain unchanged to see our platform and technology business reach 70% of our overall revenues, driven by our subscription business and news platform.

Lastly, after Steve's remarks, I will share with you some advancements in our distribution, which we are excited to talk to you about.

Steve, at this point, I'll turn the call back to you for a deeper dive into our financial results. Then following your remarks, I'll elaborate further on some of the key takeaways for the period and what we're seeing the remainder of the year.

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Steven Knerr, Issuer Direct Corporation - CFO [3]

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Thank you, Brian, and good afternoon, everyone. As Brian mentioned, despite the challenges we faced during the quarter with the investment commentary news business, we made good strides in almost doubling our Platform id subscriptions from the first quarter and increasing our total customers during the quarter. We also continued to work with our acquired customers and businesses from the acquisitions of the visual webcasting platform or VWP, and FSCwire, a Canadian newswire. Additionally, we had continued success with new subscriptions of our conference management module.

Turning to the results for the quarter. Total revenue increased 9%, $339,000, to $4,138,000 for the second quarter of 2019 compared to $3,799,000 for the same period of 2018. Revenue for the 6 months ended June 30, 2019, totaled $8,317,000, an increase of 13%, or $988,000, compared to revenue of $7,329,000 for the first half of 2018. Leading the growth was revenue from our platform and technology revenue stream, which increased $415,000 or 18% and $1,049,000 or 25% during the 3 and 6 months ended June 30, 2019, compared to the same period of the prior year.

Platform and Technology revenue increased to 64% of our total revenue for both the 3 and 6 months ended June 30, 2019, compared to 59% and 58% for the same periods of 2018. Majority of the growth was fueled by our acquisitions of VWP in the early part of 2019 and FSCwire during the third quarter of 2018. Platform and Technology revenues from customers acquired from these acquisitions was $468,000 and $977,000 during the 3 and 6 months ended June 30, 2019, respectively. Additionally, we generated increased revenue from subscriptions of Platform id as we entered into 38 net new subscriptions during the quarter with annualized contract value of $227,000. This brings our total net new subscriptions for 2019 to 58 and our overall total as of June 30, 2019, to 163 subscriptions with annual contract value of over $1.5 million.

Our continued focus of moving customers and subscription to the Platform id will help drive recurring revenue and predictability of revenue. Partially offsetting the increases in Platform and Technology revenue, I just spoke about, were decreases in ACCESSWIRE revenue as a result of the investment commentary business and the continued decline in subscriptions of our shareholder outreach offering, which are typically tied in with our ARS customers. ACCESSWIRE revenue for the second quarter was negatively impacted by the decision of one of our key partners to no longer accept investment commentary content, which accounted for approximately $78,000 and $403,000 of revenue during the 3 and 6 months ended June 30, 2019, respectively, compared to $485,000 and $863,000 during the same period of 2018.

Removing the impact of the investment commentary business and the acquisition of FSCwire, ACCESSWIRE revenue increased 34% and 21% during the 3 and 6 months ended June 30, 2019, respectively, compared to the same periods of the prior year. This is consistent with the increases we are seeing in our ACCESSWIRE customers as well, a good indicator for the long-term growth of the business.

Switching to services revenue, which decreased $76,000 or 5% to $1,477,000 in the second quarter of 2019 and $61,000 or 2% to $2,991,000 for the 6 months ended June 30, 2019, compared to the same period of the prior year. The decrease is primarily the result of a decline in revenue from our transfer agent services due to a decline in corporate transactions, directives or action, which are difficult to predict as they are controlled by our customers and the conditions of the market and tend to fluctuate from quarter-to-quarter. Additionally, revenue from our ARS services declined as customers continue to elect to leave the service or transitioned to digital fulfillment. These decreases were offset by the acquisitions of VWP and FSCwire, which accounted for $181,000 and $298,000 of services revenue during the 3 and 6 months ended June 30, 2019, respectively.

Transitioning to gross margin, our overall gross margin percentage was 70% for the second quarter of 2019 and 69% for the first 6 months of 2019 compared to 73% and 72% for the same periods of the prior year. Cost of revenues increased $220,000 or 21% during the second quarter and $501,000 or 24% for the first half of 2019 compared to the same periods of the prior year. Majority of the increase is due to cost associated with delivering revenue of our VisualWebcaster platform as well as an increase in press release distribution and editorial costs. As a result of these increases in costs, Platform and Technology gross margin percentage decreased to 73% and 74% for the 3 and 6 months ended June 30, 2019, compared to 81% and 80% for the same periods of 2018.

As we continue to work through the integration of our VisualWebcaster product, we anticipate building more scale and identifying costs which we'll be able to streamline in order to bring gross margin more in line with previous quarters. Gross margin percentage from our services revenue stream was 63% and 61% for the 3 and 6 months ended June 30, 2019, compared to 61% and 60% for the same period of the prior year.

Moving down to operating expenses. We had an increase in operating expenses of $584,000 or 27% during the second quarter of 2019 and $1,120,000 or 26% for the first half of 2019 compared to the same periods of 2018. Majority of this increase is related to an increase in bad debt expense of $282,000 and $463,000 for the 3 and 6 months ended June 30, 2019, primarily associated with fully reserving the AR balances of 2 investment commentary customers. The remaining increase is primarily attributable to increases associated with the acquisitions of FSCwire and VWP as well as increases in headcount and personnel expenses as the company positioned itself for growth.

Sales and marketing expenses increased $76,000 and $146,000 or 10% and 9% for the 3 and 6 months ended June 30, 2019, respectively, compared to the same period of the prior year due to an increase in personnel costs as we realigned and continued to build the sales and marketing team. Product development expenses were higher as well, increasing $58,000 and $97,000 for the 3 and 6 months ended June 30, 2019, due to an additional headcount over the prior year.

Lastly, amortization expense increased due to an additional amortization resulting from intangible assets acquired as part of the FSCwire and VisualWebcaster acquisitions.

On the income tax line, our effective tax rate is lower than prior year due to a tax benefit associated with the exercise of stock-based compensation as well as other tax credits playing a larger impact on lower pretax income dated 2018. For GAAP purposes, we reported net income of $212,000 or $0.05 per diluted share in the second quarter of 2019 as compared to net income of $366,000 or $0.12 per diluted share for the same period of 2018. For the 6 months ended June 30, 2019, net income was $417,000 or $0.11 per diluted share compared to net income of $686,000 or $0.22 per diluted share during the first half of 2018. The decrease in earnings per share was due in part to lower net income as well as an increase in shares outstanding for the 3 and 6 months ended June 30, 2019, due to the secondary offering completed in August 2018.

Looking at some non-GAAP metrics. Total EBITDA for the second quarter of 2019 was $550,000 or 13% of revenue compared to $935,000 or 25% of revenue during the same period of the prior year. For the first half of 2019, total EBITDA was $1,108,000, also 13% of revenue, compared to $1,590,000 or 22% of revenue during the first half of 2018. EBITDA results were directly impacted by the investment commentary business with a decline in revenue and increase in bad debt expense noted earlier.

Non-GAAP net income for the second quarter of 2019 was $477,000 or $0.12 per diluted share compared to $663,000 or $0.21 per diluted share during the second quarter of 2018. For the first half of 2019, non-GAAP net income was $995,000 or $0.26 per diluted share compared to $1,121,000 or $0.36 per diluted share during the first 6 months of 2018.

We continue to generate positive cash flows from operations as we generated an additional $259,000 during the second quarter of 2019 or $795,000 for the first 6 months of 2019 compared to $1,052,000 and $1,589,000 during the same periods of the prior year. On the balance sheet, our deferred revenue balance increased to $1,624,000, 30% increase since year-end, a direct result of the additional licenses of Platform id, I mentioned earlier, as well as increases in press release packages.

In conclusion, we had another solid quarter, and we generated revenue growth and increased subscriptions of Platform id and ACCESSWIRE customer count. We remain optimistic that growth in these 2 areas will drive long-term results to mitigate the short-term impact of the investment commentary business.

With that, I will turn it back to Brian who will now talk further about our products and outlook for the remainder of 2019 and beyond.

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [4]

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Thanks, Steve. The second quarter sure was a quick 3 months. I'd like to spend some time updating everyone on the business and highlight some areas of interest, including some good subscription growth as well as talk about our plans in the back half of the year. As I said earlier, our platform business is seeing good signs of growth, but I can't say enough. In order to keep this momentum and further expand our platform strategy, new customer acquisition is extremely important as well as cross-selling efforts to our current book of business. We ended the quarter with 1,440 publicly traded customers compared to 1,179 during the same period last year and 997 privately held customers compared to 734 during the same period last year.

Moving on to ACCESSWIRE, we have continued to improve our distribution, pricing, strategy and new customer acquisition. We expanded distribution points to millions, including the addition of thinkorswim from TD Ameritrade, Turnkey Brokers and several trading publications such as Mining Stock Education, Digital Video, [Creative Mac] and [Bio Portfolio.]

Now let's get back to what everyone really wants to talk about and that's TD. The first stage went live several weeks ago beginning in Q2 with thinkorswim, which is a portion of the professional traders of TD Ameritrade. This was a big step for us, which draws us closer to the official Q3 launch of the entire TD platform for ACCESSWIRE this month.

Also, since quarter end, we have gone live with Business Insider. And we are into testing or content processes with Desjardins Online Brokerage, Teletrader, CNNMoney and Merrill Lynch. These investments regardless of costs are paramount to our business and future growth of our news product and Platform id communication efforts. Something else we had mentioned last quarter was the advancement of our ACCESSWIRE to a real platform. This has occurred both to our editors and to our customers. Some early feedback, as quoted from a customer earlier this month, stated the following, "I am impressed how easy it really was to set up my press release, cleanup formatting, including my financial tables, with a click of a couple of buttons, set distribution and schedule for final editorial review in minutes." There is really nothing better than having feedback from your customers. It not only motivates us but validation of our technology and what we're doing into the industry. This product advancement is crucial for scale as well as turnaround times for our teams. But equally important, putting the technology in the hands of the customer is truly the exciting part. The drafting process really should be easier, quicker and gratifying. And we have future advancements planned like adding video with the click of a button and a drag and drop document option, similar features to what we have in our Blueprint disclosure platform.

Another area of our business that has progressed nicely is our webcasting business. Over the last couple of quarters, we have seen some accounts increased their spends. Also, we have initiated efforts to go live in Q3 with our Chinese CDM, which will accommodate future growth in our key accounts. The back half of the year, we will begin to turn our focuses to cross-selling these accounts strategically with our Platform id solutions. Also, our development in frontline operation teams continue to gather client feedback to assess product advancements that can be made to maintain and improve client stickiness.

Moving on to our conference software business, which is a very nice platform, ID adjacency for us. At the end of Q2, we had completed 7 conferences. We have 11 more signed that will be completed over the next 12 months. Our goal was to have 20 event signs and are delivered by the end of the year, and we feel good about this and the pipeline that we're building today and forward. If I were to specifically characterize this conference software business, I'd say that we're going into our third phase. Product build would be one, and soft launch will be two and now the commercialization and investment is really for this platform to put it into the hands of the community.

Revenue attributable in Q2 was $56,000 and $122,000 for the 6 months. We expect to earn approximately $150,000 in the back half of the year on these events that will take place before year's end.

In summary, this is a business that we believe will be significant for us in 2020 and beyond and ties directly into our strategy of bringing the issuer and investor closer together.

Sales and marketing did a great job this quarter, getting us back on track on platform subscriptions. As you recall, in Q1, we sold 20 platform subscriptions with a total annual contract value of $189,000. In Q2, we signed 38 with annual contract values of $227,000. Our teams have their objectives and look to continue to cement on the reaching our strategic target. In fact, we already have a dozen sold for Q2 with future start dates, and this quarter is off to a rapid start.

Since quarter end, we have added 2 more sales headcount and we have 2 to 3 more we intend to hire by year's end. These business development managers were recruited -- will be recruiting both in the offices and strategically in the field. As we just talked about by adding distribution, this gives us the comfort that we're making the progress necessary this year, and it's time to ramp up some of our sales headcount in order to be ready to take advantage of this. Adding this headcount is vital to achieve our client growth objectives. We still believe that market is right for acquiring new customers, something we plan on delivering in the second half of this year.

An area we continue to spend time on is the M&A front. I know that perhaps some shareholders would have expected to have seen acquisitions by now. And I'm here to tell you that I'm with you on that. However, we as a team are committed to doing the transactions that makes sense for the business. And if that takes more time then we are comfortable with that decision. We have a viable business with several growing valuable assets like ACCESSWIRE, which I think told by some of our shareholders is just the business alone is worth our market cap and beyond based on the uniqueness and position in the market. For that reason and many others, I personally believe that the business is undervalued. And the way management teams are committed to delivering on our strategic objectives, we are confident that we will continue to execute, and our shareholders will be rewarded in share appreciation.

In closing, we are encouraged by the continued client expansion, specifically the customers that are purchasing our platforms and the investments that we're making in the business, both in our new product development and our employee base, which will put us in a position to further grow and scale the business. We have enjoyed speaking with you today and look forward to your questions and visiting with you again sooner.

Operator, could we please begin the Q&A portion of the call?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll take our question first from Mike Grondahl with Northland Capital.

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Unidentified Analyst, [2]

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This is Michael on for Mike. Maybe first just on the thinkorswim platform. I know it's early yet, but feedback on how that's going so far?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [3]

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Michael, yes, that's fantastic. I think there's a significant pent-up demand for that entire TD platform. Obviously, it was critical for us to start with a portion of this system and the target now is August 29. We're seeing significant traffic as a result of that. So both our smaller public companies and large-cap companies through our exchange partnerships are beginning to see some institutional pull in that platform as well as retail folks as well. So I think it's a welcome for our current customers, and it's absolutely a welcome for customers in our pipeline that have been waiting for that to occur.

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Unidentified Analyst, [4]

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Got it. And then how about insights and analytics module? I think you mentioned in the last quarter about some trials starting end of June? Any update on that?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [5]

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I think we're exactly still at that point. We're in a trial demo mode with some clients, and we continue to monitor data. I think that the reality of the world that we live, for us, it's very important that we get the privacy of this data accurately nailed down. And we are doing our best with groups like Privacy Shield and others to ensure that we've got those processes in place before we do a full commercial launch at the back half of this year, but results are there, engagement is there, both from our news platform, our earnings event systems, our IR platforms and our investor network system. So the good news is that once our customers have full access to this engagement profiles and relationships could be built from that. I think we just want to be very careful that we treat the privacy with the utmost and forthright concern.

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Unidentified Analyst, [6]

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Okay. And then just on the -- I might have missed this, but just a nice jump in number of private clients, if you kind of specify what's driving that in the quarter?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [7]

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Yes, we have -- I think our sales and marketing teams have done a really good job. We've refined our marketing messages to attract and target the right folks. Our sales teams are being able to close loops on opportunities from initial call to close. So our -- the pipeline is getting better and better every single day there. I think the maturity in the brand is starting to show itself through now where agencies and other folks in the community are starting to reach out to us and begin to want to build integrations. So we focused a lot during Q2 on building API relationships with a lot of agencies and partners to be able to embed ACCESSWIRE into their platforms. And we have done that in years past with London Stock Exchange and OTC Markets and others. Now is really about these agencies and how do we go drive volume in our news network. And I think that's critical for ACCESSWIRE. It's a pillar of strength for a lot of our other competitor newswires that they've got. I think we've done a fantastic job there, with both our public and private gains. But to your point, our private company business really is ignited. And I think we couldn't be happier with the progress there. I think that, in hindsight, if commentary business hadn't been lost, we'd been looking at 18%, 19% year-over-year growth from total business and very much even more so than that in our news business on a stand-alone basis. So to make that -- this ground is very encouraging for us, and those client count numbers should be able to continue.

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Operator [8]

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(Operator Instructions) And I do not see any signals from the group.

Brian and Steve, I'll turn it back to the leadership team for any additional or closing remarks.

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [9]

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Yes, I appreciate it very much. Thank you, and everyone else, we look forward to visiting you on -- look forward to spend time with you on today's call and look forward to talking to you again in the future. I appreciate your time. Have a great day. Take care.

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Operator [10]

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Ladies and gentlemen, this does conclude today's conference. We thank you all for your participation. You may now disconnect your lines, and we hope that you enjoy the rest of your day.