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Edited Transcript of ISDR earnings conference call or presentation 2-May-19 8:30pm GMT

Q1 2019 Issuer Direct Corp Earnings Call

Cary May 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Issuer Direct Corp earnings conference call or presentation Thursday, May 2, 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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Conference Call Participants

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* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

* Mike Schellinger

MicroCapClub LLC - Partner

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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 First 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. Brian Balbirnie, I'd like to read you 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 construe as a prediction of the future performances or events are forward-looking statements, which may involve known and unknown risks, uncertainties and other factors, which may cause 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 being said, 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. After the market close today, we issued a press release announcing our results for the first quarter 2019. A copy can be found in our Investor Relations section of our website, and on ACCESSWIRE's newsroom for your reference during today's call. Subsequent to this call, we intend to file with the SEC our 10-Q for the quarter.

The first quarter marked a solid beginning for the year for Issuer Direct, both in record revenues and integration of our newly acquired VisualWebcaster in our core platform expansion. We are happy to report that in Q1, we achieved $4.2 million in total revenue, which represents an 18% increase over Q1 of last year and 15% sequentially over Q4 of 2018, something Steve will expand upon here in a couple of minutes.

As we messaged last year, our platform business continues to grow as a percentage of total overall revenues. For the first quarter 2019, Platform and Technology accounted for 64% of total revenues or $2.665 million compared to 61% in Q4 of 2018 or $2.230 million. Our goal this year remains consistent with what we have previously stated in reaching 70% of our overall revenues to be derived from our Platform and Technology business. Something else Steve and I will talk about on today's call will be our new format in how we will report our active customers for each period compared to the prior year. As we mentioned last quarter, we hope to be able to do this beginning with Q1, breaking down both public and private customers in an effort to provide better insight into our overall business. In the future, as we continue to successfully transition further towards a full SaaS business, we will get into retention rates, MRR and ACV, which we believe will be critical metrics that will needed to be known.

But at this point, I'd like to turn it back to Steve for a deeper dive into our financial results. Then following, I will elaborate further on some of the key takeaways for the period and what we're seeing for the remainder of the year. Steve?

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Steven Knerr, Issuer Direct Corporation - CFO [3]

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Thank you, Brian, and good afternoon, everyone. I'll begin by going over our results for the first quarter and then turn it back to Brian for his quarterly remarks, followed by a Q&A session.

As Brian mentioned, we hit record revenues during the first quarter of 2019 primarily fueled by our acquisition of FSCwire in July 2018 and more recently, the VisualWebcaster Platform which was acquired on January 3, 2019. We also grew organically through continued licensing of Platform id. as we focus on selling full subscriptions of the product. Lastly, we conducted a few successful conferences during the quarter using our new conference management module.

Revenue for the first quarter of 2019 totaled $4.179 million, an increase of 18% or $649,000 compared to revenue of $3.530 million for the first quarter of 2018. Leading the growth was revenue from our Platform and Technology revenue stream, which increased $633,000 or 31% to $2.665 million for the first quarter of 2019 compared to $2.032 million for the same period of 2018.

Platform and Technology revenue increased to 64% of our total revenue for the first quarter of 2019 compared to 58% in the first quarter of 2018. The Platform and Technology revenue from customers acquired in our acquisitions of FSCwire and VisualWebcaster totaled $509,000 during the first quarter of 2019. We also increased our subscription base of Platform id. by adding 20 additional subscriptions during the quarter with an annualized contract value of $189,000. These increases were offset by the continued decline in revenue of our shareholder outreach offering, which is specifically tied to our annual report distribution services.

Services revenue of $1.514 million for the first quarter of 2019 increased 1% compared to the first quarter of 2018. The increase was due to an additional $118,000 of Services revenue from customers acquired in the FSCwire and VisualWebcaster acquisition as well as an increase in print and proxy distribution revenue due to the timing and size of projects during the quarter. These increases were offset by continued decline of revenue from our legacy Annual Report Service as well as decline in revenue from our compliance services as we continue to face pricing pressure where customers begin to take advantage of our platform offerings.

Switching gears to gross margin, our overall gross margin percentage was 69% for the first quarter of 2019 compared to 71% for the same period of the prior year. Cost of revenues increased $281,000 during the first quarter compared to the prior year. Majority of this increase is due to costs associated with delivering revenue of our VisualWebcaster platform as well as an increase in press release distribution costs. As a result, Platform and Technology gross margin percentage decreased to 75% for the first quarter of 2019 compared to 79% for the same period of the prior year. As we continue to work through the integration of our VisualWebcaster product, we anticipate building more scale in identifying cost which we will 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 58% for the 3 months ended March 31, 2019 compared to 60% for the same period of the prior year.

Moving down to operating expenses. We had an increase in operating expenses of $536,000 or 24% for the first quarter of 2019 compared to 2018. Majority of this increase related to G&A expense, which increased $357,000 or 36% due to an increase in bad debt expense of $181,000, acquisition-related expenses of $112,000 and an increase in corporate head count as we position ourselves for top line growth.

Sales and marketing expenses increased $70,000 or 9% compared to the prior year due to an increase in personnel costs as we realign and continue to build the sales and marketing team. Product development expenses were higher as well, increasing $39,000 or 13% due to an additional head count over the prior year. Lastly, amortization expense increased due to additional amortization resulting from intangible assets acquired as part of both the FSCwire and VisualWebcaster acquisitions.

Our income tax expense was $13,000 for the first quarter of 2019 compared to a benefit of $10,000 in the prior year. Each period benefited from a tax benefit associated with the exercise of stock-based compensation during the respective period. For GAAP purposes, we recorded net income of $205,000 or $0.05 per diluted share for the first quarter of 2019 as compared to net income of $320,000 or $0.10 per diluted share for the same period of 2018.

Non-GAAP net income was $518,000 or $0.13 per diluted share for the first quarter of 2019 compared to $458,000 or $0.15 per diluted share for the first quarter of 2018. Both GAAP and non-GAAP earnings per diluted share were negatively affected by an increase in shares outstanding as a result of the secondary offering we completed in August 2018.

Looking at some other metrics, EBITDA for the first quarter of 2019 was $558,000 or 13% of revenue compared to $655,000 or 19% of revenue during the same period of the prior year. We continue to generate positive cash flow from operations as we generated an additional $536,000 during the first quarter of 2019, similar to the $537,000 generated in the first quarter of 2018. Also our deferred revenue balance increased to $1.464 million, 17% increase since year-end due to the additional licenses of Platform id., I mentioned earlier.

In conclusion, we had another productive quarter as we generated good revenue growth and are looking for more growth to come throughout the year. We still have some work to do in completing the integration of VisualWebcaster in order to build more scale and obtain the last remaining press release distribution points needed. We also continue to build out and refine our products including our conference software management and insights and analytics modules.

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. Brian?

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

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Thanks, Steve. The first quarter was a good beginning for the year for us resulting in annual record revenues, further acceleration of our Platform and Technology business and rollout of our conference platform module, which I'll talk more about in a few minutes. First quarter 2019 Platform business sequentially increased to 64% from 61% of our overall revenues for the quarter. In order to keep this momentum and further expand our platform strategy, new customer acquisition is extremely important as well as expansion of ARPU from our current customers. Our goals are unchanged as we expect to see Platform spends reach 70% of our overall revenues in 2019.

During the quarter, the company had 1,482 publicly traded customers compared to just 1,176 during the same period of last year. Also during the quarter, we had 764 privately held customers compared to just 606 during the same period of last year. Also during the quarter, we entered into 25 new Platform id. subscriptions valued at $239,000 or just about $10,000 in average under subscription revenues, of which we saw 20 activated services during the quarter. The balance have future start dates this year. These new contracts have contributed to 17% increase in deferred revenue since year-end. And in March 31, we now have 129 active full Platform id. communications or compliance subscriptions with annual contract values of approximately $1.5 million.

Moving on to ACCESSWIRE, we have improved our distribution, pricing and subscriptions during the period. The expanded distribution points to millions include the addition of Big News Networks, News360, Digital Media Online and a handful of specialty trade publications and consumer electronics, cannabis and health and media. Some of which we have driven delivery cost -- some of which have driven delivery cost higher for the period and lower gross margin slightly, but it's a necessary step in order to gain both customers and further acceptance in the market. During Q2, we intend to add even more distribution, launch our advanced press release drafting tools to new online interfaces. These planned advancements are necessary to keep ahead of the market and build for growth we expect during 2019 and beyond.

Moving on to the recently announced VisualWebcaster acquisition, announced just this January. We have completed almost all of the integration of accounting, operations and technology infrastructure. There is no doubt other areas to focus on, and now that integration is in good spot, something we look forward to sharing with you over the coming quarters. This is an instrumental product for us, we have begun moving our legacy Issuer Direct earnings webcast customers to this platform, and we've also integrated the VisualWebcaster product into and with our conference software and believe it will be a driving force for revenue contribution when combined together, which we have begun to see in the last several weeks.

With that said, we are still getting to know our newly acquired customers both federal government, public and private companies, and over the coming months, we are going to be more focused on building product road maps based on customer feedback in hopes of learning there needs to better understand and determine what Platform id. components could also benefit the organizations with the intentions of finding ways to expand customer revenues.

This is a great segue to spend some time talking about our new conference software. A new initiative we recently launched here in Q1, which saw just a few events during the quarter and commitments for several more this year. In the last 90 days, we have been heads down delivering the best events we can, and in fact, right now, day 3 of the Planet MicroCap is going on with our conference platform software, where investors are meeting with over 100-plus companies today. We've learned a great deal, and like many other software products, there are always components to improve upon and do better. Our team is listening, learning and iterating to make the product better everywhere we can. We are on track to do more than double our events this quarter and continue to build pipeline in the back half of the year. Because the numbers of events were not material, we did not call these out separately as I did previously with public and private customers, but rather include them in our private customer revenues. So the revenues attributable to these events were $66,000 for the first quarter.

In order to keep pace with our expanded momentum, we have invested in sales personnel and look to add additional marketing teams to assist our customers with their events. As the pipelines and opportunities grow, we believe we will sign 20-plus events this year. And by 2020, do 4 to 5x that number, a business we're excited about and ties directly into our strategy of bringing the issuer and investor closer together.

Moving on to our sales and marketing teams. We have continued to invest and expand the team and will continue to look to refine and add key components through remaining part of the year. During the last 60 days, we added 2 head counts to our sales organization with several more planned this year. The new addition brings the total to 25% or 30% of our entire workforce. This includes account managers, business development managers, marketing and onboarding personnel.

Adding head count is vital to achieve our client growth objectives. We believe the market is right to acquire new customers, and experienced personnel will help us in achieving this, something we need to deliver during this first half of this year. We are encouraged by our continued client expansions, specifically the customers that are purchasing our platforms and the investment we are 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 our 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) Our first question today is coming from Mike Grondahl of Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [2]

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Brian, Steve, on the conference management software, would you describe that as sort of in line with your expectations? Or ahead of schedule? How would you characterize that?

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

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Hey, Mike. This is Brian. I think we're in line. It is a product offering that only has a couple of incumbents there today. Sales cycles typically are 3 to 6 months. So I think releasing that product at a very early stage, late last year with full availability to go into production in Q1, to do a small handful of events in Q1, to have lot more than double that in Q2 and a good pipeline for the rest of the year, I think we are in good stead. I think as we begin to build the remaining part of the year, we're going to start to build significant pipelines for into next year and beyond. I say that to quantify that a lot of the investment banks that we are speaking with today are in typical to what we've had success so far. We've worked the bottom up. The small microcap space that we're familiar with, and some of the large investment bank we're talking to have 20-plus events a year. So as we believe, we continue to deliver as we have, we're going to have a good opportunity to be in a position early next year to find ourselves doing their work as well. So I think we're within expectations right now.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [4]

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Okay. And is there an update on the insights and analytics module?

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

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Yes. We didn't actually talk about it today, and it wasn't intentional or deliberate by any stretch of the imagination. We spent a lot of good deal of time in our last call talking about it. We intend to release at the end of June where folks will -- our current customers will be able to gain access to a 30-day trial of that add-on module to see what engagement they will see in analytic data. We'll be able to derive both from conferences, to earnings event, to shareholder data and analysis, and then get our sales team fully trained and up to speed and begin selling that product in the back half of the year.

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Operator [6]

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We do have additional questions coming from Mr. Grondahl of Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [7]

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Yes, just following up. ACCESSWIRE, E*TRADE, Ameritrade, Schwab, Merrill Lynch, kind of what's the status with each one of those?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [8]

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Yes. They add some of the distribution that we added already in this past first quarter. We've got equal to that and more in this second quarter, which will include a handful of what you're talking and asking about. Our feeds were delivered live at the end of the quarter into the TD Ameritrade Thinkorswim platform through one of our aggregator partners and theirs. We are waiting for final implementation to occur. And we were told in the last couple of days that, that can happen either today, tomorrow or a couple of weeks. So we are patiently waiting. Our customers are patiently waiting. And we're committed to continuing to do it. We've delivered on every other distribution point that we have made a commitment to do. And we don't see that this will be any different for us. It's patience, right? We're playing the long game here. So I think we're fine and our customers today fully understand that.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [9]

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Got it. And then after FSC, VisualWebcaster, what is the acquisition pipeline look like today? Are you talking to anybody? Is it full? Is it light? How would you describe it?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [10]

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Yes, it's by any stretch of imagination. It's not a buffet, right? We're being very careful in the kinds of transactions that we'll be contemplating. We are talking to folks. We continue to do that as we messaged since mid to late last year. Like VisualWebcaster, like FSC and others that we've done, we're going to do the right transactions that fit in the right time. And if that takes us another month or another 6 months, that is the time line that we're not terribly worried about. We're trying to find specific transactions and opportunities that fit in our core wheelhouse and not look for adjacencies right now. We have a lot going on. I think all of our shareholders and folks that know our business understand that we do an awful lot given our size. And the last thing, I think, we need to be doing is trying to find something else that we can add into our platform as an adjacency that we just don't have that opportunity to be able to handle and be successful. So we continue to look at some of those folks. I wish I could tell you that something is further along, but for obvious reasons, I can't do that at this time. But as soon as we do have that data point available to share with you, you guys will be the first to know, that's for sure.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [11]

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Is there anything in particular you're looking for or you realize you have a need for?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [12]

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Yes. Look, it's a big focus of our capital allocation, right? We've got to invest and deploy the capital that we've raised and we continue to accumulate over the years. So we've always done a good job of that. I would like to say that both Steve and I are stewards of our balance sheet. We're going to look for things that fit into our communication side of our business specifically. We're going to look for things that specifically can have impact to news, whether it be distribution or customers or global expansion, perhaps maybe even an opportunity. We're going to look for things that sit in this analytics and analysis platform that we've been able to put together. We're going to look for things that fit inside of our conference business that we believe would be great add-ons to what we're doing. Those are our areas of scale, right? And if we can put ourselves in a position to have a product solution from a subscription set that could bring margins back into the 80s at some point and provide a scale both in a public and private side, that's where we need to be deploying that capital.

We really don't have an interest at this point deploying capital into something that we see margin compression and commoditization in the market. So we're going to be careful about those and focus on the things that we see tremendous upside.

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Mike Schellinger, MicroCapClub LLC - Partner [13]

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Got it. And Platform and Technology customers or Service customers, will those be in the 10-Q? Or are you guys just done disclosing those? It's just public and private companies.

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [14]

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Yes. That's a great question. I'm glad you asked that. And we had messaged this in the past call that we were going to switch to this format and there's more to come here, right? I think the business is as we continue with the back end of this transition of what this old service -- profitable service business was, and now led by a very deliberate strategy of platform-first engagements and subscriptions, we believe it's better story to be told about our public and private customers because the ARPUs of those are very different. And as we begin to open up the values of what a public and private company are, we want to be able to show and demonstrate to what those drivers look like. Not necessarily who bought Platform and Technology and who bought Services because they are crossover clients. And those crossover clients then make that story harder to understand sometimes. And those change from quarter-to-quarter based on the seasonality of the things that they may do. And we feel like it's really important to talk about the number of public and private companies that we've got. So those are the metrics that we will be using going forward this year and beyond.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [15]

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Got it. Got it. And then one financial question. There was a sentence in the release about bad debt expense, it had increased. Can you talk about that a little bit?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [16]

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Yes. We have been really fortunate, I think Steve and I both and our organization, from having customers that move in and out of 30 to 60 to 90 days and back current again. And from time to time in a 13-year history, we have clients here and there that accumulate larger balances, right? We've got customers that are very big, and obviously, customers that are very small and/or new. So we've got a couple of clients with some larger balances that we're working with. And that's to the extent of what we are taking the reserve on and what that looks like. And they're continuing to do work with us. We continue to have a good open dialogue with them, and we don't see anything more coming of that. And we don't have any other issues with the rest of our client base when it comes to that. So...

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [17]

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Got it. And lastly, what 1 or 2 things are you most excited about for 2019?

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [18]

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Yes, I would tell you, one thing that came up in the kind of the pre -- early on this year of this conference world that we representing, right. The absent of us being a provider of software and technologies for these events, but just being a presenter, to sit at tables and talk to prospective shareholders and current shareholders about our business. And they've always looked to the name and the brand of saying that they've seen press releases with the dateline that says ACCESSWIRE, and they may have seen an IR website or something else that had Issuer Direct's name attached to it. And I think what's really exciting for us as a company is that a lot of the things that we do today have brand visibility in everything. And so if you're listening to an earnings webcast today, it says powered by Issuer Direct. If you're at an event, the mobile software that you're using or the conference software that you're using says powered by Issuer Direct. The press releases is on our Platform id. products. And so this ecosystem that we built, which is essentially Platform id., is being seen from all angles. Investment banks, small investors, fund family offices, public and private companies and the millions of shareholders and just prospecting consumers that receive this content.

So -- and that's a flattering thing, right? That's a big responsibility for us to be delivering that ecosystem out to the market place. So as we think in the future, we are successful in integrating all these pieces and building critical mass. That's very exciting. And I think that touches probably every tentacle of our business. So -- and not to sound too terribly corny, but I think that gives demonstration for us as a management that we are excited about a lot of the things that we're doing.

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Operator [19]

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At this time, I'd like to turn the floor back over to management for closing comments.

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Brian R. Balbirnie, Issuer Direct Corporation - Founder, President, CEO & Director [20]

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Donna, thank you very much. I appreciate everybody's time today, and Mike for your great questions as always. Look, I think in short, it's a pleasure to be able to spend the time that we do with you every -- each and every quarter and between the quarters on calls and at conferences. I know there are thousands of other companies to be listening to, so it's a privilege. It drives our passion every single day to have you an opportunity to listen to us talk about the quarter. Thank you, and have a great day.

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Operator [21]

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Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.