Issuer Direct Corporation (AMEX:ISDR) Q4 2023 Earnings Call Transcript
Issuer Direct Corporation (AMEX:ISDR) Q4 2023 Earnings Call Transcript March 7, 2024
Issuer Direct Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
James Michael: Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation Fourth Quarter and Year Ended 2023 Earnings Conference Call. My name is James Michael, and I am an 18-year veteran of the business, employee number two here at Issuer Direct. And today, I'm charged with managing the Compliance business that accounts for approximately 27% of our overall revenues last year. Like my fellow employees doing this in previous quarters, this is our way of ensuring our shareholders get to know all of us here at Issuer Direct. I am the ridiculously handsome bald bearded guy. It is my pleasure to introduce my mentor, the company's Founder and Chief Executive Officer, Brian Balbirnie; and our Vice President of Finance and Controller; Steve Knerr.
Before I turn the call over to Mr. 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, 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 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 that 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, the one, the only, Mr. Balbirnie.
Brian Balbirnie: The one and only, huh? Well, thanks, James. For those of you that don't know, James, he is the practical joker of the office, if you can't tell, always has story to tell, and conversely, he's one of the most knowledgeable people in the industry and understands the world of compliance and public companies more than anybody I know. With that said, greetings, everyone, and thank you, James, for today's introduction. So happy you're able to do this for us today, 18 years has gone by so very quickly. The business would not be the same without you, sir. As we have said before, we will introduce a new employee each quarter, the first quarter earnings call, on May 9, we will hear from another amazing ISDR employee. Now let's talk about the quarter and year.
We appreciate everyone joining us today to discuss our results for the period. Our press release, which is accessible on our newsroom, has just been released and provides key takeaways on our performance for the quarter and year-end 2023. We are pleased with the fourth quarter results. Total revenue was up 6% year-over-year to $7.5 million, driven by our news distribution businesses, which both Steve and I will discuss throughout the call today. We also delivered our earnings for the quarter. Adjusted EBITDA was up 5% to $1.1 million from $1 million last year, and our subscription business also grew 5% for the quarter, and our average price per release and our core news business has held steady. I will talk more about why this is important a bit later.
We have and continue to be bullish on our Communications platform led by our news distribution brands, ACCESSWIRE and Newswire, where we are gaining market share each month, customers and further brand recognition. As we move forward strategically, we know we had to spend a good bit of time in the back half of 2023 fine-tuning the product set as we now know, called Media Suite, a true SaaS reoccurring subscription business, something I will spend some time talking about here today on the call. But before I talk about these accolades and what we expect for 2024, I want to highlight some nice wins and accomplishments in 2023. This year, we did work for brands like Delta, Bosch Health, Celsius, AutoZone, who trust us with their Investor Relations earnings calls and news distribution.
When we consider our entire customer base, it's absolutely pleasure to work with the 11,000-plus customers around the world. When we look back at our history and the growth of our business over the period, I can't help but be satisfied with our accomplishments, proud of our teams and thankful to our shareholders. And because of ACCESSWIRE and our acquisition of Newswire, see prior year revenues up 42%, but that's behind us now. And we are focused this year and for several years on transforming our business, continuing to grow customers and revenues and outpacing the industry in some important metrics like year-over-year volumes in news distribution and outpacing industry annual growth rates, something we feel confident that we will and can do for years to come.
As always, there is a lot more to talk about. So I will turn the call over to Steve to cover the fourth quarter and year-end results. Steve?
Steve Knerr: Thank you, Brian, and good afternoon, everyone. As Brian mentioned, quarterly and year-end results were primarily driven by our acquisition of Newswire and growth in our ACCESSWIRE news brand, which resulted in our press release revenue increasing 12% for the quarter and 75% for the full year. I will now highlight some of the financial results we achieved during the fourth quarter and full year ended 2023. During the fourth quarter of 2023, we achieved revenues of $7.5 million, a 6% increase from $7.1 million in Q4 2022. For the full year, total revenue was $33.4 million, a 42% increase from $23.5 million in 2022. The increase in the quarter and year-to-date revenue was driven by both our Communications and Compliance revenue streams.
On the Communications side, the increase is primarily related to the acquisition of Newswire in November of 2022. We also achieved increased revenue in ACCESSWIRE, which increased 1% during the fourth quarter and 10% for the year compared to the same periods of the prior year. Partially offsetting these increases was a decrease in revenues from webcasting and events due to less demand of our virtual products as well as a large conference, which occurred last year but did not occur in the current year. During Q4 2023 and the full year of 2023, Communications revenue accounted for 75% and 73% of total revenue, respectively. In the prior year, Communication revenue was 78% and 69% of total revenue during both Q4 and full year of 2022. Revenues from our Compliance business increased 20% for the fourth quarter and 24% during the full year compared to the same periods of 2022.
The increase was primarily related to revenue from our print and proxy fulfillment services due to an increase in both the number of projects and the average size of the projects, specifically a couple of large projects which occurred in the second quarter of 2023. We also experienced an increase in revenue from our transfer agent business due to an increase in market activity and corporate actions. Changing gears to gross margin. Our overall gross margin percentage remained consistent at 74% and 76% for the fourth quarter and full year of 2023 compared to the same periods of the prior year. Gross margins from our Communications business were also consistent for the fourth quarter of 2023 compared to the same period of the prior year. However, on a year-to-date basis decreased 1%, primarily due to an increase in distribution costs as we continue to expand our reach and global footprint.
Gross margins from our Compliance business increased 4% for the fourth quarter and 3% for the full year of 2023 compared to the same periods of the prior year. This increase in gross margin percentage is primarily due to higher margins achieved on some of the larger print and proxy jobs as well as the increase in transfer agent revenue. Moving down to operating income and loss. We posted operating loss of $105,000 for the fourth quarter of 2023 compared to operating income of $44,000 during the fourth quarter of 2022. The full year operating income increased to $2.8 million from $2.7 million in 2022. For both periods presented, operating income was impacted by an increase in operating expenses primarily due to an increase in amortization expense attributed to intangible assets related to the Newswire acquisition.
Additionally, we experienced increases in general and administrative expenses and product development expenses during both Q4 and the full year of 2023 as well as an increase in sales and marketing expenses for the full year of 2023. General and administrative expenses increased 11% for the quarter and 28% year-to-date. The increase during the quarter is primarily related to an increase in bad debt expense and for the year-to-date period is primarily due to additional cost to operate Newswire along with increased stock compensation expense, employee-related costs and bad debt expense. Sales and marketing costs decreased 3% for the quarter and increased 39% for the full year compared to the same periods of 2022. These increases are due to incremental costs associated with operating the Newswire business as well as our continued investment in advertising, digital marketing spend and automation enhancements.
Product development costs increased 16% and 95% for the quarter and full year compared to the same periods of 2022, which is directly attributed to the additional costs associated with operating Newswire and the addition of our new CTO. On a GAAP basis, we had a loss of $726,000, or $0.19 per diluted share, compared to a net loss of $109,000, or $0.03 per diluted share, during Q4 of 2022. Net income for the full year of 2023 was $766,000, or $0.20 per diluted share, compared to $1.9 million, or $0.52 per diluted share, in 2022. Looking at some non-GAAP metrics. EBITDA for the fourth quarter of 2023 was $234,000 or 3% of revenue compared to $589,000 or 8% of revenue during Q4 of 2022. For the full year of 2023, EBITDA was $5.4 million or 16% of revenue compared to $3.7 million or also 16% of revenue during 2022.
Adjusted EBITDA for Q4 2023 was $1.1 million or 14% of revenue compared to $1 million or 14% of revenue during Q4 of 2022. For the full year of 2023, adjusted EBITDA was $7.7 million, or 23% of revenue, compared to $4.9 million, or 21% of revenue, for 2022. Non-GAAP net income was $575,000, or $0.15 per diluted share, for Q4 of 2023 compared to $665,000, or $0.18 per diluted share, during Q4 of 2022. For the full year of 2023, non-GAAP net income was $4.9 million, or $1.28 per diluted share, compared to $3.5 million, or $0.95 per diluted share, in 2022. Switching over to cash flow metrics. We just completed our 33rd consecutive quarter of positive cash flows from operations for the company. Cash flow from operations for Q4 of 2023 was $770,000 compared to just under $1 million for Q4 of 2022.
The full year of 2022 cash flow from operations were $3.1 million compared to $4 million from the prior year. However, adjusted free cash flow was $687,000 for Q4 of 2023 compared to $2 million for Q4 of 2022 and $3.3 million for the full year of 2023 compared to $5.1 million in 2022. I will now turn the call back to Brian, who will provide some updates on the business, our new products and everything else we have planned for 2024. Brian?
Brian Balbirnie: Thank you, Steve. As we said before, customer growth is an important KPI for us. Total customers grew to 11,924, up from 8,218 last year. The total includes customers from the Newswire platform acquired in late 2022. This is a 45% year-over-year customer increase. With some of the new things that we've planned this coming year, we feel confident that we can continue to see customers increase double digits year-over-year. Moving along to subscriptions. We ended the quarter with 1,053 customers subscribing to our products with an average spend of $9,489, up from 1,002 subscribers last year, or 8,641. This is a 10% revenue expansion and 5% subscriber growth on a year-over-year basis. We continue to see mid-90% retention in our subscriber customers and believe as we commercialize our new Media Suite, we will see further improvement here as well as expansion of our subscription business.
Something that we do not talk about in our calls is about our customers. Of the almost 12,000 companies using our products and solutions, there are thousands that are under one-year contracts or longer to use our news platform with a set quantity of press releases for a defined term. We expect to continue to increase as customers are looking to obtain fixed cost agreements, and conversely, as we look to sell more solutions and products to our customer base, one year or longer contracts help us forecast and build our backlog business each year. We continue to see advancements in the U.S., both in taking price as well as customer activity. Conversely, in Canada, we have seen signs of new customer activity slowing slightly, not just in our results, but an industry as a whole.
So conversely, we are taking a one-time write-down of $300,000 in our Canadian installed base, something we are working hard to ensure is not going to be a repeatable result this year. Improving our credit terms, prepays and overall credit monitoring will prevent this from being the case moving forward. For the fourth quarter, our collective news brands contributed to an increased market share of 14%, up from 11% in the prior quarter ended September. We have been heavily tracking volumes in North America, learning from the trends and analysis, which we believe will help us accomplish several things. First, customer insight and usage to accurately predict the market size; second, flesh out opportunities we see for tech enablement with large volume customers that could result in better-than-average gross margins; and third, leverage our brands and continue to move up market to a larger installed base, typically owned by our larger incumbents.
Also having a comprehensive solution also allows us to support customer needs across the entire communications and public relations ecosystem. As we talked about in the last couple of calls, the last 60 days has been a busy time for us, whereby we released our new Media Suite into both ACCESSWIRE and Newswire-branded platforms. For those of you that don't know much about our Media Suite, please go to our website to learn more, watch a video, request a demo, if you wish. We would really love to show it to you. Our teams have been able to put together what we think is a great public relations communications platform that includes media database, pitching, monitoring as well as the existing media rooms, reporting platforms and our news distribution offerings.
We are excited to officially launch these products in a fully annual recurring revenue model, beginning at $6,750 a year, at entry point less than we mentioned on our last call. However, plans do go up in tiers from $6,750 to just over $10,000, then a customer enterprise, which ranges from $18,000 and up. We will continue to learn the market needs and are building a backlog of features not available in the market. This will help us produce stickier subscribing customers that give us staying power and retention as well as brand loyalty in the market. It is early in the sales cycle for the Media Suite. We have been building a pipeline since January, demoing daily, and early indications has yielded a limited number of subscribers, about a dozen, with hundreds in the pipeline.
The progress to move to ARR business is deliberate. As we spoke about earlier, we have 1,053 subscribers to our products. I want to see the number increase significantly by the end of 2024 and be able to report to you ARR retention, churn and dollar buy retention on renewals and lifetime value as we mature our full subscription business. Our peer optimizer, formerly MAP product suite, performed well in the fourth quarter, driving another $200,000 in new ARR. This moved us to over 50 customers at the year-end totaling $1.3 million in contract value. Our IR business, which includes our quarterly earnings call business and Investor Relations websites, ended the year with over 600 customers. Brands like Sherwin-Williams, Alma Bank, Life Storage, O'Reilly Automotive, The Trade Desk, AutoZone, Bausch + Lomb, Kimberly-Clark, and the National Guardian Life trust our teams and technologies to power their message to the investor community.
These solutions experienced growth in 2023, and we can't wait to share some new brands coming this year already under contract. We continue to believe our IR business will experience high single-digit to low double-digit growth in 2024. This is why we invested significant upgrades in our infrastructure, platform tech and customer workloads in real-time editing and publishing components. Our Compliance business, which includes our AGM, stock transfer and regulatory filing business as well as our NYSE supported whistleblower platform, ended the year with over 800 customers. Brands like LoanDepot, Manchester United, Fiber, DoorDash, Arlo, Ethan Allen, Celsius and Royal Business Bank, as well as Smith & Wesson, use our compliance products to help keep them compliant with the SEC and the exchanges their trade.
Our news business under both brands, ACCESSWIRE and Newswire, is where we have and we'll see our biggest customer growth and collectively, the majority of our overall revenues. Last year, thousands of customers told their stories with our news distribution network things like Moderna, Amdocs, MicroVision, Bosch Health, right local businesses in your community. Also worth mentioning via partnership is the world's largest brands telling us about their ESG news. We are confident in our news business, both from a growth perspective, but also brands and global reach over the next several years. With that said, we should consider what growth looks like for us, for the industry and what is realistic and where we see opportunity to outpace the industry.
According to Burton Taylor and Gartner, the PR business has grown 5% to 6% CAGR over the last few years. We have far outpaced those numbers in our results. And like Steve said, we grew 12% year-over-year in the fourth quarter. We are optimistic going into 2024 that our year-over-year basis will see continued double-digit growth. Products like the Media Suite and PR Optimizer will help drive utilization volumes, but we also believe we will see further lift in price over the years as we still have pricing leverage in the market. Steve did a good job laying out the numbers for the quarter and year. So I'm happy to pause at this point and open the call up for questions. But before we do, I'd like to reaffirm, we remain confident in our business, our products and the market we serve.
Our brands continue to serve us well, and we look forward to sharing more updates with you next quarter. Operator, please go ahead.
See also 15 Countries with Most Car Exports in the World and 17 Countries with Highest CD Rates in 2024.
To continue reading the Q&A session, please click here.
