Issuer Direct (ISDR) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for Issuer Direct Corporation, including the balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows for the periods ended March 31, 2024 and 2023, along with detailed notes on accounting policies and agreements Consolidated Balance Sheets Consolidated Balance Sheets (in thousands) | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $5,399 | $5,714 | | Total current assets | $11,099 | $11,504 | | Total assets | $64,371 | $65,152 | | Total current liabilities | $13,215 | $12,650 | | Total liabilities | $29,191 | $29,732 | | Total stockholders' equity | $35,180 | $35,420 | - Total assets decreased by $781 thousand from December 31, 2023, to March 31, 2024[14] - Total liabilities decreased by $541 thousand, while total stockholders' equity decreased by $240 thousand[16] Unaudited Consolidated Statements of Operations Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Revenues | $6,962 | $8,619 | | Gross profit | $5,241 | $6,790 | | Operating (loss) income | $(52) | $581 | | Net loss | $(139) | $(144) | | Loss per share – basic | $(0.04) | $(0.04) | | Loss per share – fully diluted | $(0.04) | $(0.04) | - Revenues decreased by 19% from $8.6 million in Q1 2023 to $7.0 million in Q1 2024[19] - The company reported an operating loss of $52 thousand in Q1 2024, a significant decline from an operating income of $581 thousand in Q1 2023[19] - Net loss remained relatively stable at $(139) thousand in Q1 2024 compared to $(144) thousand in Q1 2023, resulting in a consistent basic and diluted loss per share of $(0.04)[19][20] Unaudited Consolidated Statements of Comprehensive Loss Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(139) | $(144) | | Foreign currency translation adjustment | $(34) | $1 | | Comprehensive loss | $(173) | $(143) | - Comprehensive loss increased to $(173) thousand in Q1 2024 from $(143) thousand in Q1 2023, primarily due to a negative foreign currency translation adjustment of $(34) thousand in 2024[22] Unaudited Consolidated Statement of Stockholders' Equity Changes in Stockholders' Equity (in thousands) | Item | Balance at Dec 31, 2023 (in thousands) | Stock-based Compensation Expense (in thousands) | Exercise of Stock Awards, net of tax (in thousands) | Foreign Currency Translation (in thousands) | Net Loss (in thousands) | Balance at Mar 31, 2024 (in thousands) | | :-------------------------- | :---------------------- | :------------------------------- | :--------------------------------- | :--------------------------- | :------- | :---------------------- | | Common Stock | $4 | $0 | $0 | $0 | $0 | $4 | | Additional Paid-in Capital | $23,531 | $(67) | $0 | $0 | $0 | $23,464 | | Other Accumulated Comprehensive Loss | $(49) | $0 | $0 | $(34) | $0 | $(83) | | Retained Earnings | $11,934 | $0 | $0 | $0 | $(139) | $11,795 | | Total Stockholders' Equity | $35,420 | $(67) | $0 | $(34) | $(139) | $35,180 | - Total stockholders' equity decreased from $35.4 million at December 31, 2023, to $35.2 million at March 31, 2024, primarily due to net loss and foreign currency translation adjustments[24] - Stock-based compensation expense resulted in a $(67) thousand decrease in additional paid-in capital during Q1 2024[24] Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $986 | $272 | | Net cash (used in) provided by investing activities | $(261) | $345 | | Net cash used in financing activities | $(1,000) | $(2,100) | | Net change in cash and cash equivalents | $(275) | $(1,483) | | Cash and cash equivalents – ending | $5,399 | $3,349 | - Net cash provided by operating activities significantly increased to $986 thousand in Q1 2024 from $272 thousand in Q1 2023[25] - Net cash used in investing activities was $(261) thousand in Q1 2024, compared to net cash provided of $345 thousand in Q1 2023, primarily due to capitalized software investments[25] - Net cash used in financing activities decreased to $(1.0) million in Q1 2024 from $(2.1) million in Q1 2023, mainly due to lower long-term debt payments[25] Notes to Unaudited Consolidated Financial Statements Note 1. Basis of Presentation - The unaudited interim consolidated financial statements are prepared in accordance with Form 10-Q instructions and Article 10 of Regulation S-X, including all normal recurring adjustments necessary for fair presentation[27] - Interim results are not indicative of the entire year, and certain US GAAP disclosures have been condensed or omitted[27] Note 2. Summary of Significant Accounting Policies - The Company's revenue primarily comes from subscriptions to cloud-based products and Communications and Compliance services, with revenue recognized over the contract period for subscriptions and upon completion for per-release/event services[32][33][34] - The Company adopted ASC Topic 326 for credit losses, using an expected losses model, which did not have a material financial impact[40] Allowance for Credit Losses (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------ | :-------------------------------- | :-------------------------------- | | Beginning balance | $1,119 | $745 | | Provision for credit losses | $282 | $151 | | Write-offs | $(257) | $(38) | | Ending balance | $1,144 | $858 | - Costs incurred to develop cloud-based platform products are capitalized when the preliminary project phase is complete and amortized over an estimated useful life of typically four years[48] - Operating lease agreements for office space are recognized as ROU assets and lease liabilities, measured at the present value of lease payments using the incremental borrowing rate[50][51] Note 3: Equity - No dividends were paid during the three-month periods ended March 31, 2024 and 2023[60] - The 2023 Equity Incentive Plan authorizes the issuance of up to 300,000 shares for incentive awards, with 349,244 shares remaining to be granted as of March 31, 2024 (including shares assumed from the 2014 Plan)[64] Stock Options Outstanding and Exercisable at March 31, 2024 | Exercise Price Range | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | | :------------------- | :----------------- | :------------------------------------------ | :------------------------------ | :----------------- | | $0.01 - 8.00 | 5,000 | 1.64 | $6.80 | 5,000 | | $8.01 - 11.00 | 3,000 | 3.75 | $10.25 | 3,000 | | $11.01 - 16.00 | 18,000 | 4.28 | $13.12 | 18,000 | | $16.01 - 27.00 | 53,000 | 7.80 | $25.26 | 30,500 | | $27.01 - 27.71 | 12,750 | 7.80 | $27.71 | 0 | | Total | 91,750 | 6.64 | $21.72 | 56,500 | - Unrecognized stock compensation related to options was $331 thousand as of March 31, 2024, to be recognized through 2027[65] - 26,500 restricted stock units were granted in Q1 2024 (average fair value $14.86/share), compared to 60,500 in Q1 2023 (average fair value $27.82/share). Unrecognized compensation cost for RSUs was $1.3 million as of March 31, 2024[66] Note 4: Income Taxes - Income tax expense was $16 thousand for Q1 2024, compared to a benefit of $48 thousand for Q1 2023[67] - The variance from the U.S. statutory rate of 21% is primarily due to state income tax and, for Q1 2024, additional expense from vesting of stock-based compensation[67] Note 5: Leases - Lease liabilities totaled $1.3 million as of March 31, 2024, with a current portion of $379 thousand[69] Lease Expense (in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense | $76 | $76 | | Variable lease expense | $14 | $6 | | Total Rent expense | $90 | $82 | - The weighted-average remaining non-cancelable lease term was 3.75 years, and the weighted-average discount rate was 3.77% as of March 31, 2024[70] Note 6: Revenue Revenue Disaggregated by Stream (in thousands) | Revenue Streams | 2024 Amount (in thousands) | 2024 % of Total | 2023 Amount (in thousands) | 2023 % of Total | | :-------------- | :---------- | :-------------- | :---------- | :-------------- | | Communications | $5,459 | 78.4% | $6,566 | 76.2% | | Compliance | $1,503 | 21.6% | $2,053 | 23.8% | | Total | $6,962 | 100.0% | $8,619 | 100.0% | - Total revenue decreased by 19% year-over-year. Communications revenue decreased by 17%, while Compliance revenue decreased by 27%[71] Note 7: Credit Agreement - On March 20, 2023, the Company entered into a $25 million credit agreement with Pinnacle Bank, comprising a $20 million Term Loan and a $5 million Revolving Line of Credit[73] - The Term Loan has a fixed interest rate of 6.217% due to an interest rate swap agreement[74] - Monthly principal payments of $333 thousand plus interest began on January 1, 2024, with maturity on December 20, 2028[75] - Proceeds from the Term Loan were used to repay the $22.9 million Seller Note from the iNewswire acquisition, with the Seller forgiving $440 thousand of interest[76][77] - The Credit Agreement includes financial covenants: a fixed charge coverage ratio of no less than 1.20:1.00 and a leverage ratio not exceeding 2.50:1.00 for fiscal quarters ending after December 31, 2023[78] Note 8: Interest Rate Swap - The Company uses a $20 million notional interest rate swap to convert variable interest rate exposure (SOFR + 2.35%) to a fixed rate of 6.217%[82] - The swap does not qualify for hedge accounting. Its fair value was a net asset of $184 thousand as of March 31, 2024, compared to a net liability of $21 thousand at December 31, 2023[83] - A gain of $205 thousand was recognized in Other income (expense) in Q1 2024 from the interest rate swap, compared to a loss of $165 thousand in Q1 2023[83] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section provides management's perspective on the Company's financial performance and condition for the three months ended March 31, 2024, compared to the same period in 2023, covering business overview, revenue analysis, operating results, liquidity, capital resources, outlook, and non-GAAP financial measure reconciliations Overview - Issuer Direct Corporation is a leading communications and compliance company offering solutions for public relations and investor relations professionals[87] - The Company's platform addresses customer needs for distributing messaging to key constituents, investors, markets, and regulatory systems globally[87] - Revenue is disclosed in two main categories: Communications and Compliance, with an expectation for the Communications portion to continue increasing[88][89] Communications - The Communications platform includes ACCESSWIRE and Newswire for press release distribution, webcasting and events, professional conference software, and investor relations website technology[92] - ACCESSWIRE focuses on news dissemination and media outreach, offering self-editing or editorial staff services, expanding distribution, and enhancing analytics[93] - Newswire, acquired in November 2022, operates independently for private companies, with its distribution fully integrated into ACCESSWIRE[94] - Media Suite, a subscription add-on, offers Media Database, Media Pitching (with AI engine AIMee), and Media Monitoring solutions[97][98][99][100][101] - The Webcasting Platform provides cloud-based live and on-demand streaming for various events, expanding beyond historical earnings-based events[105] Compliance - Compliance offerings include disclosure software for financial reporting, stock transfer services, whistleblower hotline, and related annual meeting, print, and shareholder distribution services[111] - The disclosure reporting module assists companies and professionals with document conversion, editing, and filing to the SEC's EDGAR system[112] - The whistleblower hotline, a supported product of NYSE offerings, provides secure notifications and incident workflow management[113] - The stock transfer module offers real-time information on shareholders, stock ledgers, and reports, and enables new share issuance from a cloud-based system[114] - The proxy module is an integrated, real-time voting platform for annual or special meetings, incorporating shareholder and guest registration, voting, and real-time statistics[115][116] Results of Operations Key Financial Results (in thousands, except percentages) | Item | Q1 2024 Amount (in thousands) | Q1 2024 % of Revenue | Q1 2023 Amount (in thousands) | Q1 2023 % of Revenue | YoY Change (Amount, in thousands) | YoY Change (%) | | :-------------------------------- | :------------- | :------------------- | :------------- | :------------------- | :------------------ | :------------- | | Total revenue | $6,962 | 100% | $8,619 | 100% | $(1,657) | -19% | | Communications revenue | $5,459 | 78% | $6,566 | 76% | $(1,107) | -17% | | Compliance revenue | $1,503 | 22% | $2,053 | 24% | $(550) | -27% | | Total cost of revenue | $1,721 | 25% | $1,829 | 21% | $(108) | -6% | | Total gross margin | $5,241 | 75% | $6,790 | 79% | $(1,549) | -23% | | General and administrative expenses | $1,819 | 26% | $2,332 | 27% | $(513) | -22% | | Sales and marketing expenses | $2,096 | 30% | $2,381 | 28% | $(285) | -12% | | Product development expenses | $654 | 9% | $774 | 9% | $(120) | -16% | | Depreciation and amortization | $724 | 10% | $722 | 8% | $2 | 0% | | Total operating costs and expenses | $5,293 | 76% | $6,209 | 72% | $(916) | -15% | | Operating (loss) income | $(52) | (1)% | $581 | 7% | $(633) | -109% | | Interest expense, net | $(276) | (4)% | $(238) | (3)% | $(38) | 16% | | Other income (expense) | $205 | 3% | $(535) | (6)% | $740 | -138% | | Net (loss) income | $(139) | (2)% | $(144) | (2)% | $5 | -3% | - The decrease in Communications revenue was due to lower volume in the Newswire business, decreased pricing mix from ACCESSWIRE, and the absence of a large conference present in Q1 2023[120] - Compliance revenue decreased primarily due to fewer and smaller print and proxy fulfillment transactions and a decrease in transfer agent services[121] - General and administrative expenses decreased by $513 thousand, or 22%, primarily due to a benefit to stock compensation expense from an executive officer's resignation and lower one-time transaction costs[126] - Product development expenses decreased by $120 thousand, or 16%, mainly due to the capitalization of $245 thousand for the Media Suite product and ACCESSWIRE enhancements in Q1 2024 (no capitalization in Q1 2023)[130] - Other income (expense) shifted from a $(535) thousand expense in Q1 2023 to a $205 thousand income in Q1 2024, driven by the change in fair value of the interest rate swap and the absence of the Seller Note extinguishment payment[133] Liquidity and Capital Resources Liquidity Position (in thousands) | Item | March 31, 2024 (in thousands) | | :-------------------------- | :------------- | | Cash and cash equivalents | $5,399 | | Net accounts receivable | $4,201 | | Total current liabilities | $13,215 | | Current liabilities exceeding current assets | $2,116 | - The Company's current liabilities exceeded current assets by $2.1 million as of March 31, 2024[135] - The $25 million credit agreement with Pinnacle Bank includes a $20 million Term Loan and a $5 million Revolving Line of Credit, with the Term Loan having a fixed interest rate of 6.217% via an interest rate swap[136][137] - Monthly principal payments on the Term Loan began January 1, 2024, and the Revolving LOC had no outstanding balance as of March 31, 2024[138][140] - The Credit Agreement contains financial covenants, including a fixed charge coverage ratio of no less than 1.20:1.00 and a leverage ratio not exceeding 2.50:1.00 for fiscal quarters ending after December 31, 2023[140] Disclosure about Off-Balance Sheet Arrangements - The Company does not have any transactions, agreements, or contractual arrangements that constitute off-balance sheet arrangements[144] Non-GAAP Measures - Management uses non-GAAP measures like free cash flow, adjusted free cash flow, adjusted EBITDA, and adjusted net income to assess financial performance and compare operating results[145] Free Cash Flow and Adjusted Free Cash Flow (Non-GAAP, in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities (US GAAP) | $986 | $272 | | Payments for purchase of fixed assets and capitalized software | $(261) | $(5) | | Free cash flow (Non-GAAP) | $725 | $267 | | Cash paid for acquisition and integration related items | $23 | $77 | | Cash paid for other unusual items | $35 | $395 | | Adjusted free cash flow (Non-GAAP) | $783 | $739 | Reconciliation of Net Loss to Adjusted EBITDA (Non-GAAP, in thousands) | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(139) | $(144) | | Depreciation and amortization | $770 | $736 | | Interest expense, net | $276 | $238 | | Income tax expense (benefit) | $16 | $(48) | | EBITDA | $923 | $782 | | Acquisition and/or integration costs | $65 | $234 | | Other non-recurring expenses | $(170) | $535 | | Stock-based compensation expense | $(67) | $337 | | Adjusted EBITDA | $751 | $1,888 | Reconciliation of Net Loss to Non-GAAP Net Income (in thousands, except per share amounts) | Item | Q1 2024 Amount (in thousands) | Q1 2024 Per Diluted Share | Q1 2023 Amount (in thousands) | Q1 2023 Per Diluted Share | | :------------------------------------ | :------------- | :------------------------ | :------------- | :------------------------ | | Net loss | $(139) | $(0.04) | $(144) | $(0.04) | | Amortization of intangible assets | $685 | $0.18 | $685 | $0.18 | | Stock-based compensation expense | $(67) | $(0.01) | $337 | $0.09 | | Other unusual items | $(105) | $(0.03) | $769 | $0.20 | | Discrete items impacting income tax expense | $55 | $0.01 | $0 | $0 | | Tax impact of adjustments | $(108) | $(0.03) | $(376) | $(0.10) | | Non-GAAP net income | $321 | $0.08 | $1,271 | $0.33 | Outlook - Despite global economic uncertainties, the Company believes demand for its platforms and services remains stable in most markets[154] - The Company's strategic initiatives for 2024 include continued investment in product sets, platforms, and intellectual property development via internal efforts and acquisitions[156] - Key strategic focus areas include expanding Communications products, evaluating strategic acquisitions, growing sales and marketing teams, expanding customer base and newswire distribution, investing in technology, and generating profitable, sustainable growth and cash flows[156][164] - There is a potential risk of goodwill and/or intangible asset write-downs, particularly related to the Newswire acquisition, if the stock price declines or demand for the combined newswire business does not stabilize or increase[155] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company - The Company has no applicable quantitative and qualitative disclosures about market risk[158] ITEM 4. CONTROLS AND PROCEDURES. This section details the evaluation of the Company's disclosure controls and procedures, confirming their effectiveness as of March 31, 2024, and notes a change in the Chief Financial Officer position - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[159] - Timothy Pitoniak resigned as Chief Financial Officer on March 8, 2024, and Steven Knerr was appointed Interim Chief Financial Officer[159] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. This section states that the Company is not currently a party to any material litigation nor is it aware of any threatened or pending litigation that would have a material adverse effect on its business - The Company is not a party to, nor aware of, any material legal proceedings or threatened litigation[160] ITEM 1A. RISK FACTORS. This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's most recent Form 10-K filing - No material changes to risk factors have occurred since the most recent Form 10-K filing[161] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds[162] ITEM 3. DEFAULTS UPON SENIOR SECURITIES. This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[163] ITEM 4. MINE SAFETY DISCLOSURE. This section indicates that mine safety disclosure is not applicable to the Company - Mine safety disclosure is not applicable to the Company[165] ITEM 5. OTHER INFORMATION. This section states that there is no other information to report - No other information is reported in this section[166] ITEM 6. EXHIBITS. This section lists the exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act and XBRL taxonomy documents Exhibits Filed | Exhibit Number | Description | | :------------- | :------------------------------------------------------------------- | | 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Calculation Linkbase Document | | 101.LAB | XBRL Taxonomy Label Linkbase Document | | 101.PRE | XBRL Taxonomy Presentation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | SIGNATURES This section contains the signatures of the Chief Executive Officer and Interim Chief Financial Officer, certifying the filing of the report - The report was signed by Brian R. Balbirnie, Chief Executive Officer, and Steven Knerr, Interim Chief Financial Officer, on May 9, 2024[171]