Issuer Direct (ISDR) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents unaudited consolidated financial statements and management's discussion and analysis for Issuer Direct Corporation ITEM 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flows, with notes on accounting policies, acquisitions, and taxes Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands): | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Assets | $30,089 | $28,952 | +$1,137 | | Cash & Cash Equivalents | $15,807 | $17,222 | -$1,415 | | Accounts Receivable (net) | $2,054 | $1,593 | +$461 | | Goodwill | $6,051 | $5,032 | +$1,019 | | Intangible Assets (net) | $3,984 | $2,802 | +$1,182 | | Total Liabilities | $3,670 | $3,289 | +$381 | | Deferred Revenue | $1,566 | $1,249 | +$317 | | Total Stockholders' Equity | $26,419 | $25,663 | +$756 | Unaudited Consolidated Statements of Operations Details the company's revenues, expenses, and net income over specific interim periods Consolidated Statements of Operations (in thousands, except per share amounts): | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Revenues | $4,019 | $3,255 | 23.5% | $12,336 | $10,584 | 16.5% | | Gross profit | $2,797 | $2,274 | 23.0% | $8,562 | $7,552 | 13.4% | | Operating income | $180 | $119 | 51.3% | $457 | $1,029 | -55.6% | | Net income | $200 | $86 | 132.6% | $617 | $772 | -20.2% | | Basic EPS | $0.05 | $0.02 | 150.0% | $0.16 | $0.24 | -33.3% | | Diluted EPS | $0.05 | $0.02 | 150.0% | $0.16 | $0.23 | -30.4% | Unaudited Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income items, such as foreign currency translation adjustments Consolidated Statements of Comprehensive Income (in thousands): | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $200 | $86 | $617 | $772 | | Foreign currency translation adjustment | $(7) | $(10) | $(20) | $(43) | | Comprehensive income | $193 | $76 | $597 | $729 | Unaudited Consolidated Statements of Stockholders' Equity Outlines changes in equity components, including net income, stock-based compensation, and share repurchases - Total stockholders' equity increased by $756,000 from December 31, 2018, to September 30, 2019, primarily due to net income ($617,000 for nine months) and stock-based compensation ($396,000 for nine months), partially offset by a $236,000 share repurchase[19][11][21] Stockholders' Equity Changes (in thousands): | Metric | Dec 31, 2018 | Sep 30, 2019 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $25,663 | $26,419 | +$756 | | Retained Earnings | $3,151 | $3,768 | +$617 | | Additional Paid-in Capital | $22,525 | $22,684 | +$159 | | Common Stock Shares Outstanding | 3,829,572 | 3,837,588 | +8,016 | Unaudited Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands): | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $1,955 | $2,153 | -$198 | | Net cash used in investing activities | $(3,110) | $(1,192) | -$1,918 | | Net cash provided by (used in) financing activities | $(236) | $13,610 | -$13,846 | | Net change in cash | $(1,391) | $14,571 | -$15,962 | | Cash – ending | $15,807 | $19,444 | -$3,637 | - The significant increase in cash used in investing activities was primarily due to the $2.788 million purchase of the VisualWebcaster Platform in 2019, compared to the $1.123 million acquisition of Filing Services Canada, Inc. in 2018[21][53][59] - The shift in financing activities from a large inflow in 2018 to an outflow in 2019 was mainly due to proceeds from a $13.323 million secondary stock offering in 2018 and a $236,000 payment for stock repurchase and retirement in 2019[21][148] Notes to Unaudited Consolidated Financial Statements Provides context for financial statements, detailing accounting policies, recent acquisitions, equity changes, income taxes, and lease accounting standards Note 1. Basis of Presentation Explains the preparation of interim financial statements in accordance with Form 10-Q and Regulation S-X - The unaudited interim consolidated financial statements are prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, including all normal recurring adjustments necessary for fair presentation, with certain information and footnote disclosures condensed or omitted[23] Note 2. Summary of Significant Accounting Policies Details the accounting principles for revenue recognition, lease accounting, and other material financial items - Revenue is primarily from cloud-based product subscriptions and compliance/other services, recognized over contract periods for subscriptions and upon event completion for per-event services[26][27][28] - The company adopted ASC Topic 842, Leases, on January 1, 2019, recognizing ROU assets and lease liabilities on the balance sheet for leases with terms longer than 12 months[50][52] Balance Sheet Impact of ASC 842 Adoption (Jan 1, 2019, in 000's): | Metric | Amount | | :---------------- | :----- | | ROU asset | $102 | | Lease liability | $135 | | Deferred rent | $(33) | Note 3: Recent Acquisitions Provides details on the acquisitions of Visual Webcaster Platform (VWP) and Filing Services Canada Inc. (FSCwire) - Acquired Visual Webcaster Platform (VWP) on January 3, 2019, for $2.788 million cash, adding over 120 customers and strengthening webcasting offerings[53][103] VWP Acquisition Intangible Assets (in 000's): | Asset | Value | | :-------------------------- | :----- | | Customer relationships | $1,190 | | Technology | $497 | | Non-compete agreement | $69 | | Goodwill | $1,019 | | Total | $2,775 | - Acquired Filing Services Canada Inc. (FSCwire) on July 3, 2018, for $1.14 million cash and 3,402 shares of restricted common stock ($62,000 fair value), enhancing global news distribution[59][61] FSCwire Acquisition Intangible Assets (in 000's): | Asset | Value | | :-------------------------- | :----- | | Customer relationships | $311 | | Distribution partner relationships | $153 | | Goodwill | $962 | | Total | $1,426 | Note 4: Equity Discusses changes in equity, including stock incentive plans and the share repurchase program - As of September 30, 2019, 23,500 shares remain to be granted under the 2014 Equity Incentive Plan, with $115,000 of unrecognized stock compensation[64][65] - The Company repurchased 24,980 shares for $236,000 under a $1,000,000 share repurchase program announced on August 7, 2019[67] Note 5: Income taxes Presents the company's income tax expense and the factors influencing its effective tax rate Income Tax Expense (in thousands): | Period | 2019 | 2018 | | :-------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $59 | $32 | | Nine Months Ended Sep 30 | $105 | $246 | - For the nine months ended September 30, 2019, the variance from the 21% U.S. statutory rate was primarily due to a $24,000 stock-based compensation tax benefit, return to provision adjustment, and tax credits, offset by state income taxes[68] Note 6: Leases Details the impact of ASC Topic 842 adoption on ROU assets, lease liabilities, and lease expenses - As of September 30, 2019, ROU assets totaled $104,000 and lease liabilities totaled $108,000, following the adoption of Topic 842[73] Lease Expense (in thousands): | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease expense | $41 | $29 | $124 | $88 | | Variable lease expense | $41 | $29 | $120 | $96 | | Total Rent expense | $82 | $58 | $244 | $184 | - A new lease for corporate headquarters in Raleigh, NC, commencing October 2, 2019, has minimum lease payments of $2.997 million through December 31, 2027[75] Note 7: Revenue Disaggregates revenue by stream (Platform & Technology, Services) and geographic region Revenue Streams (in thousands): | Revenue Streams | 3 Months Ended Sep 30, 2019 | % of Total | 3 Months Ended Sep 30, 2018 | % of Total | 9 Months Ended Sep 30, 2019 | % of Total | 9 Months Ended Sep 30, 2018 | % of Total | | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :--------- | :-------------------------- | :--------- | :-------------------------- | :--------- | | Platform and Technology | $2,712 | 67.5% | $2,085 | 64.1% | $8,038 | 65.2% | $6,363 | 60.1% | | Services | $1,307 | 32.5% | $1,170 | 35.9% | $4,298 | 34.8% | $4,221 | 39.9% | | Total | $4,019 | 100.0% | $3,255 | 100.0% | $12,336 | 100.0% | $10,584 | 100.0% | Geographic Revenue (in thousands): | Geographic region | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North America | $3,908 | $3,078 | $11,928 | $10,000 | | Europe | $111 | $177 | $408 | $584 | | Total revenues | $4,019 | $3,255 | $12,336 | $10,584 | Note 8: Line of Credit Describes the company's revolving line of credit, including its terms and current utilization - The Line of Credit was renewed on October 4, 2018, increasing available funds from $2.5 million to $3.0 million and reducing the interest rate from LIBOR + 2.50% to LIBOR + 1.75%[79] - As of September 30, 2019, no amounts were owed on the Line of Credit[79] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Analyzes Issuer Direct's financial performance, liquidity, capital resources, and strategic outlook, emphasizing the shift to a cloud-based subscription model Overview Introduces Issuer Direct's business model, its cloud-based platform, and strategic focus on subscription revenue - Issuer Direct provides communications and compliance technology solutions via its Platform id.™ to a diverse customer base including corporate issuers, private companies, investment banks, and professional firms[85][86] - The company is transitioning to a cloud-based subscription business, with Platform and Technology revenue increasing to 65% of total revenue for the first nine months of 2019, up from 60% in 2018[89] - Future investments will focus on current and additional Platform id. offerings to establish an ecosystem bringing issuers and investors closer, including understanding shareholder composition[90] Platform id. Modules The core cloud-based Platform id. offers integrated modules for shareholder communications and compliance needs Communications Modules Details modules like ACCESSWIRE, Professional Conference Organizer, and webcasting for investor communications - ACCESSWIRE news business grew 67% during Q3 2019 (excluding investment commentary business), despite the industry-wide loss of investment commentary content which previously generated significant revenue[96][115] - The new Professional Conference Organizer (PCO) Module, released in late 2018, is a cloud-based platform and mobile app for managing investor conferences, integrating with other Platform id. communication tools[97][98] - The acquisition of VWP significantly strengthened the webcasting product, adding over 120 customers and expanding capabilities beyond earnings events to include corporate meetings and training sessions[103] Compliance Modules Describes modules for disclosure reporting (EDGAR, SEDAR, iXBRL) and stock transfer services - The Disclosure Reporting module supports document conversion, editing, and filing to SEC EDGAR and SEDAR, including newly mandated Inline XBRL (iXBRL) and IFRS taxonomies[106][107] - The Stock Transfer module provides real-time access to shareholder information, stock ledgers, and reporting, enabling customers to manage capitalization tables and issue new shares from a cloud-based system[109] Services Discusses traditional service offerings and the anticipated decline due to the shift towards digital subscriptions - The company expects decreases in Services revenue due to the focus on cloud-based subscriptions and customer attrition from legacy Annual Report Service (ARS) to digital fulfillment[111][112] - Services include SEC document conversion, XBRL tagging, telecommunications, and print/fulfillment of stock certificates, proxy materials, or annual reports[111] Results of Operations Revenue increased due to acquisitions, with Platform & Technology growth; operating expenses rose, leading to a nine-month net income decline Revenues Analyzes total revenue growth, highlighting contributions from Platform & Technology, Services, and acquisitions Revenue Performance (in thousands): | Revenue (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Total Revenue | $4,019 | $3,255 | 23.5% | $12,336 | $10,584 | 16.5% | | Platform & Technology | $2,712 | $2,085 | 30.1% | $8,038 | $6,363 | 26.3% | | Services | $1,307 | $1,170 | 11.7% | $4,298 | $4,221 | 1.8% | - Acquisitions of VWP and FSCwire contributed $494,000 and $1,477,000 to total revenue for the three and nine months ended September 30, 2019, respectively[114] - ACCESSWIRE revenue (excluding investment commentary business) increased 67% and 39% for the three and nine months ended September 30, 2019, respectively[115] Revenue Backlog Reports on deferred revenue, new contract values, and total Platform id. subscriptions Deferred Revenue (in thousands): | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Deferred Revenue | $1,566 | $1,249 | +$317 | - During the nine months ended September 30, 2019, the company entered into new contracts with 114 net new or existing customers, representing an annualized contract value of $748,000[118] - Total Platform id. subscriptions reached 219 with an annual contract value of $1,873,000 as of September 30, 2019[118] Cost of Revenues and Gross Margin Examines changes in cost of revenues and gross margin percentages across different revenue streams Cost of Revenues and Gross Margin Performance (in thousands): | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Cost of Revenues | $1,222 | $981 | 24.6% | $3,774 | $3,032 | 24.5% | | Gross Profit | $2,797 | $2,274 | 23.0% | $8,562 | $7,552 | 13.4% | | Gross Margin % (Total) | 70% | 70% | 0 pp | 69% | 71% | -2 pp | | P&T Gross Margin % | 74% | 77% | -3 pp | 74% | 79% | -5 pp | | Services Gross Margin % | 60% | 57% | +3 pp | 61% | 60% | +1 pp | Operating Expenses Details trends in general and administrative, sales and marketing, product development, and depreciation expenses Operating Expenses (in thousands): | Operating Expenses | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | YoY Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | YoY Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | General and administrative | $1,229 | $944 | 30.2% | $3,912 | $2,896 | 35.1% | | Sales and marketing expenses | $871 | $723 | 20.5% | $2,566 | $2,272 | 13.0% | | Product development | $288 | $333 | -13.6% | $968 | $916 | 5.7% | | Depreciation and amortization | $229 | $155 | 47.7% | $659 | $439 | 50.1% | - General and administrative expenses for the nine months ended September 30, 2019, included a $550,000 increase in bad debt provision, primarily for investment commentary newswire customers[122] - Depreciation and amortization increased significantly due to the amortization of intangible assets acquired in the VWP and FSCwire acquisitions[128] Interest income (expense), net Covers interest income from deposits and non-cash interest expense related to acquisitions - Net interest income (expense) includes interest income on deposits and money market accounts, partially offset by non-cash interest expense related to the Interwest acquisition[129] Income tax (benefit) expense Presents income tax expense and factors influencing the effective tax rate for the reporting periods Income Tax Expense (in thousands): | Period | 2019 | 2018 | | :-------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $59 | $32 | | Nine Months Ended Sep 30 | $105 | $246 | - For the nine months ended September 30, 2019, the variance from the 21% U.S. statutory rate was primarily due to a $24,000 stock-based compensation tax benefit, return to provision adjustment, and tax credits, offset by state income taxes[130] Net Income Analyzes the drivers behind changes in net income for the three and nine-month periods Net Income (in thousands): | Period | 2019 | 2018 | YoY Change (%) | | :-------------------------- | :----- | :----- | :------------- | | Three Months Ended Sep 30 | $200 | $86 | 132.6% | | Nine Months Ended Sep 30 | $617 | $772 | -20.2% | - The nine-month net income decline was primarily due to increased operating expenses, including bad debt and acquisition-related costs, and higher depreciation and amortization, offsetting revenue and gross margin growth[132] Liquidity and Capital Resources Assesses the company's cash position, working capital, and available credit facilities Liquidity Position (in thousands, as of Sep 30, 2019): | Metric | Amount | | :-------------------------- | :----- | | Cash and cash equivalents | $15,807 | | Net accounts receivable | $2,054 | | Total current assets | $18,171 | | Total current liabilities | $2,958 | | Working Capital | $15,213 | - The Line of Credit was renewed, increasing available borrowing to $3.0 million with a reduced interest rate (LIBOR + 1.75%), and no amounts were owed as of September 30, 2019[134][135] 2019 Outlook Outlines strategic initiatives and expectations for continued growth and transition to subscription models - The company anticipates stable demand for its platforms, with a continued shift from traditional service-based engagements to cloud-based subscription models and digital distribution[137] - Key strategic initiatives for the remainder of 2019 include expanding Platform and Technology business development, pursuing strategic acquisitions, growing the customer base, migrating acquired businesses to the current platform, expanding newswire distribution, investing in technology advancements, developing the Insight and Analytics module, and generating profitable, sustainable growth and cash flows[139][140][141] Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements impacting financial condition - The company has no off-balance sheet arrangements that are material to its financial condition or results of operations[141] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company - This item is not applicable to the company[142] ITEM 4. CONTROLS AND PROCEDURES. Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, and there have been no material changes in internal control over financial reporting during the period - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[142] - There were no material changes in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q[143] PART II – OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and other relevant information ITEM 1. LEGAL PROCEEDINGS. The company is not currently a party to any material litigation, nor is it aware of any threatened or pending litigation that could have a material adverse effect on its business - The company is not a party to any material litigation and is unaware of any threatened or pending litigation that might result in a material adverse effect to its business[146] ITEM 1A. RISK FACTORS. There have been no material changes to the company's risk factors as previously disclosed in its most recent Form 10-K filing - There have been no material changes to the company's risk factors as previously disclosed in its most recent Form 10-K filing[147] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. Details the share repurchase program initiated in August 2019, including shares repurchased and aggregate cost Share Repurchase Program (as of Sep 30, 2019): | Metric | Value | | :-------------------------- | :----- | | Total Number of Shares Repurchased | 24,980 | | Average Price Paid Per Share | $9.41 | | Aggregate Cost | $236,000 | | Maximum Dollar Value Remaining | $764,000 | ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[149] ITEM 4. MINE SAFETY DISCLOSURE. This item is not applicable to the company - This item is not applicable to the company[150] ITEM 5. OTHER INFORMATION. The company has no other information to disclose under this item - There is no other information to disclose[151] ITEM 6. EXHIBITS. This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and various XBRL taxonomy documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as various XBRL taxonomy documents (Instance, Schema, Calculation, Label, Presentation, and Definition Linkbase Documents)[153] Signatures The report is duly signed on behalf of Issuer Direct Corporation by its Chief Executive Officer, Brian R. Balbirnie, and Chief Financial Officer, Steven Knerr, as of October 31, 2019 - The report was signed by Brian R. Balbirnie, Chief Executive Officer, and Steven Knerr, Chief Financial Officer, on October 31, 2019[157]