Issuer Direct Corp

AMEX:ISDR

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation Third Quarter 2024 Earnings Conference Call. My name is John, and I am your host of today's earnings call.

I'd like to remind you that statements made in the 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 and 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 said, it's my pleasure to introduce the company's Founder and Chief Executive Officer, Brian Balbirnie; and our Chief Financial Officer, Steve Knerr. Brian?

[Brian Balbirnie, executive]

Good afternoon, everyone, and thank you for joining us today to discuss the company's third quarter 2024 results. Our press release, which is accessible in our newsroom, was just released premarket this morning and provides key takeaways to our performance for the quarter and 9 months ended September 30.

Despite a decrease in overall revenues for the quarter, we made significant strides in our transition towards a reoccurring revenue model focused on our new Media suite products in the third quarter. This shift contributed to a rise in total subscriptions reaching 1,121 by the end of the quarter, a 9% increase from the previous quarter and 7% year-over-year.

As a result, our annual reoccurring revenue grew by nearly $1 million compared to the prior quarter and over $1.4 million compared to last year. Customers' average revenues per subscriber also grew 7% year-over-year to $10,114 per customer from $9,477. As we have mentioned in previous calls, we believe we can continue to increase our ARR for the foreseeable future.

Later in the call, we will discuss the additional KPIs we are tracking for the business this quarter and going forward. As we round out our go-to-market offerings for 2025, we are going to continue to focus the remainder of the year as well as selling our subscription platforms to our current installed base. Beginning next year, we will fully market both our refined brand and our subscription business to both public relations as well as Investor Relations professionals under one platform.

There's a lot more to talk about today, so I will turn the call over to Steve to cover the quarterly highlights. Steve?

[Steven Knerr, executive]

Thank you, Brian, and good afternoon, everyone. As Brian mentioned, we are excited about our new press release subscriptions and are encouraged by the number of customers who have moved to the subscription plan, leading to an increase in overall subscriptions by 9% from last quarter.

I'll now highlight some of our financial results we achieved during the third quarter and first 9 months of 2024. Total revenue was $7 million and $21.6 million for the third quarter and first 9 months of 2024, respectively, which was a decrease of $616,000 or 8% and $4.2 million or 16% compared to the same period of 2023. The decreases are attributable to both our compliance and communications revenue streams.

Communications revenue decreased $597,000 or 10% to $1.7 million or 9% for the quarter and 9 months ended September 30, 2024, as compared to the same periods of the prior year. The decrease for the quarter is due to declines in revenue from both our ACCESSWIRE and Newswire news distribution brands. Although volumes of our core releases were up for the quarter for ACCESSWIRE, the decrease is due to lower average revenue per release due to the mix of releases as a higher percentage of releases were from lower distribution tiers.

Revenue from our Newswire brand continues to decrease due to lower volumes and lower average revenue per release. Additionally, we had a decrease in our webcasting and events business due to a large conference that occurred in the first quarter of last year did not reoccur this year as well as lower revenue from our resellers.

Communications revenue represented 79% and 78% of total revenue during the 3 and 9 months ended September 30, 2024, respectively, as compared to 80% and 72% for the same periods of 2023. Compliance revenue decreased $19,000 or 1% and $2.5 million or 35% during the third quarter and first 9 months of 2024 compared to the same period of 2023. The decrease in compliance revenue for the year-to-date period is primarily related to a decrease in revenue from print and proxy fulfillment services due to a few onetime significant transactions, which occurred during the 9 months ended September 30, 2023, however, did not occur in the current year.

Switching over to gross margins. Our overall gross margin was $5.2 million and $16.1 million for Q3 and the first 9 months of 2024, respectively. This is a decrease of $600,000 or 10% and $3.7 million or 19% for the third quarter and first 9 months of 2024 compared to the same periods of the prior year. As a result, overall gross margin percentages decreased to 74% and 75% for the 3 and 9 months ended September 30, 2024, compared to 76% and 77% for the same periods of 2023.

Gross margin from our communications business also decreased to 75% and 76% for the 3 and 9 months ended September 30, 2024, compared to 76% and 78% for the same periods of the prior year. These decreases are primarily related to the decrease in revenue noted earlier. Gross margin percentage from our compliance business decreased to 74% and 72% for the 3 and 9 months ended September 30, 2024, compared to 76% and 75% for the same period of 2023. This decrease is primarily due to lower margins on smaller print and proxy fulfillment projects.

Moving to operating income. We posted operating income of $156,000 and $438,000 for the 3 and 9 months ended September 30, 2024, respectively, compared to operating income of $593,000 and $2.9 million for the same period of 2023. The decrease in operating income is primarily due to the decline in revenue, specifically for the year-to-date period from the significant print and proxy projects in the prior year.

Total operating expenses decreased $163,000 or 3% and $1.3 million or 7% for the 3 and 9 months ended September 30, 2024, respectively, compared to the same period of 2023. This was led by decreases in our G&A and sales and marketing expenses. G&A expenses were relatively flat for the quarter and decreased $827,000 or 12% for the 9 months ended September 30, 2024, as compared to the same period of 2023. This decrease was primarily the result of a benefit related to the reversal of previously recognized stock compensation expense associated with the resignation of an executive officer as well as lower nonrecurring transaction and integration expenses.

Sales and marketing expenses decreased $220,000 or 12% and $574,000 or 9% for the quarter and 9 months ended September 30, 2024, as compared to the prior year due to lower headcount and a reduction in sales commissions. Product development expenses increased $90,000 or 15% and $157,000 or 8% for the 3 and 9 months ended September 30, 2024, due to increased headcount within our development group as we continue to invest in our platform and product.

Additionally, our capitalized software spend decreased $15,000 for the quarter, however, has increased for the year-to-date period by $218,000. On a GAAP basis, we reported a net loss of $466,000 or $0.12 per diluted share during Q3 of 2024 compared to net income of $273,000 or $0.07 per diluted share during Q3 of 2023. For the first 9 months of 2024, we reported a net loss of $598,000 or $0.16 per diluted share compared to net income of $1.5 million or $0.39 per diluted share during the prior year.

Looking to some non-GAAP metrics. Non-GAAP net income was $641,000 or $0.17 per diluted share and $1.8 million or $0.47 per diluted share for Q3 and the first 9 months of 2024 compared to $1 million or $0.27 per diluted share and $4.3 million or $1.13 per diluted share for the same period of 2023. We generated EBITDA of $590,000 or 8% of revenue and $2.6 million or 12% of revenue for Q3 and first 9 months of 2024, respectively, compared to EBITDA of $1.5 million or 20% of revenue and $5.1 million, also 20% of revenue during the same period of 2023.

Adjusted EBITDA was $1.4 million or 20% of revenue and $3.6 million or 17% of revenue for Q3 and the first 9 months of 2024 compared to $1.8 million or 23% of revenue and $6.7 million or 26% of revenue for the same period of 2023.

Switching over to the balance sheet and cash flow statement. Our deferred revenue balance, which is revenue we expect to recognize primarily over the next 12 months, is $5.3 million as of September 30, 2024, a 2% decrease from year-end. On the cash flow statement, we had a solid quarter of generating cash as cash flow from operations were $1.5 million and $2.3 million for the quarter and 9 months ended September 30, 2024, as compared to $287,000 and $2.3 million for the same period of 2023.

I will now turn it back over to Brian, who will provide some more details on our business, things we are excited about as well as other updates on the customers, volumes and everything else we have planned for the remainder of the year and into 2025. Brian?

[Brian Balbirnie, executive]

Thank you, Steve. Something we typically do not do in great detail in our quarterly calls is talk about our product road map, strategy and where we're headed, and I'd like to do that with you today. In the opening remarks, I mentioned the subscription growth for the third quarter. I would like to further break down what made up these results.

Of the approximately 200 new PR platform subscriptions sold in the third quarter, it contributed $1.4 million in ARR or a 14% year-over-year increase. New subscriptions in the quarter resulted in a 92% retention going into Q4. 70% of those platform subscriptions resulted in a subscription net dollar retention of 125% or $640,000 in increased annual spend. 30% of those platform subscriptions came from new customers, yielding approximately $0.5 million in ARR.

This new PR platform subscription assisted in our growth, as we said earlier, to 1,121 subscribing customers that grew 7% year-over-year and 9% for the prior quarter, which in total resulted in a 94% retention. We believe that the market will continue to show interest in our new platform subscriptions that will continue to undergo significant upgrades in both features and functionality, which will result in further stickiness and uplifts in our ARR.

These planned upgrades as well as feature additions will help us get to what we guided last quarter, whereas we still continue to believe subscription values can grow to $14,000 by Q3 of 2025. What we have not stated in the past is what we're going to upgrade and/or include to get us there, and that's what we're hopeful to share with you today. Our product road map has a full slate of features coming throughout 2025 that will include the following: expansion of our media database beyond North America to more of a global footprint of the most active journalists and media professionals. Also significant upgrades to our distribution and engagement report. To be fair, we're setting out to build a gold standard in engagement reporting and analytics that is actionable and quantifiable engagement to our customer stories in real time.

Additional broadcast media, podcast and other conversational platforms that are growing in popularity, a trend both our teams, our partners and our customers are identifying with us. Also industry-first social engagement partnerships, our approach is very deliberate and straightforward. We do not intend to build or buy a social media component to our platform or technology. We have our sights set on strategic partnerships with leading social media management platforms with scale that will open up our architecture and plug directly into and with their core. We will see this happen midyear 2025 as a partnered integration and/or a small uplift in subscription costs to gain access to these leading platforms directly from within their communications platform with us.

Additionally, very pointed product add-ons that are geared towards a broader audience in the enterprise. Public relations is not the only department that we have our sights set on. Long term, we are building and tooling our systems to address the growing needs of both internal and external communication departments depending on the company size. Also enhance and broaden the use of our AI solution, Amy. We have spent over a year essentially gathering user stories, the engagement, practicality of AI and exactly what customers feel about it.

We have embraced it in both our press release creation process as well as our pitching product last year and early this year. Looking ahead in late 2025, we intend to offer a very unique product add-on to every press release, whereby our customers can choose to use our AI-supported video creation service that summarizes a story and narrative in 1 to 2 minutes and produces a full video for them to include in their press release or use in other marketing messaging.

To be very articulate, this technology has the capability of taking the narrative of today's prepared remarks, turning it into a fully produced video with my persona as well as my voice. We look at the traditional press release distribution business a bit differently. Traditional wire distributions today is the leader. But tomorrow, the advancements of AI and natural language modeling are going to bring so many options to life for both Investor Relations and public relations professionals.

To be clear, we will never replace the human editorial process. We are now, however, committed to bringing to market tools that extend the traditional press release into a full media, social snippet and earned media pitching product, all within one platform. Also, earned media exclusive components to our platform. We are working on finishing a partnership with a leading media company, whereby our customers will get direct access to have their press releases considered as a source for a full editorial written piece in one of the industry's top 5 brand publications with over 100 million unique visitors a month.

Having access to this type of media should be of interest to a good portion of our customers that are seeking to expand their brand, launch new products or even promote an event that's tied to a cause or a specific community. Also, something else that we are working on that is very special to us that we will not see becoming available to any of our competitor landscape anytime soon is the add-on for us to be able to create, contribute and monitor a company's individual Wikipedia page, which by recent Internet traffic reports rank it as one of the top 5 websites. This won't be for every customer, but brands that have presence, communal associations, media authority and facts surrounding who and what they are is an ideal candidate for this. And this is slated to be released mid-2025.

Adjacency departments, as we talked about earlier, are key add-ons for us, meaning what can we bolt into our communications platform that puts our business in a position to see a higher TAM opportunity, the total addressable market, from corporate communications, marketing and HR departments. These products have to address a problem and serve a real need to the business. Because we're all in on a customer-first approach, our teams have been looking at ways to expand and improve our monitoring product, not only for external but also internal people.

We intend to do this by way of producing a product add-on to our Media suite monitoring component, whereby customers will be able to identify their competitors, employees as well as other nontraditional monitoring targets and allow our technology to go deep and wide into every social media account possibly to gather, analyze and report in real time. What are my vendors, employees, partners as well as my shareholders, saying about my company, my brand, other competitors or even me. Every good communication strategy should include an element of brand protection.

With current technology today, this can be accomplished and fully integrated into our daily reporting to our customers delivered directly to their desktops via our monitoring solution. We believe there are several things that we will learn about bringing this product to life, one that could drive reasonable ARR expansion.

Lastly, and still directly focused on the corporate communications executives is to extend our Investor Relations CMS technology into an easy-to-use newsletter product for internal comms. This product enhancement will drive incremental value, but also give us a touch point to a broader budgetary pool of executives within our current customer base and beyond. If successful here, our technology, brand and our people will continue to create the trust and authority in the market as a leading platform to assist in the creation of the story, the monitoring and the brand and market sentiment, pitch audiences all the way to helping drive an improved communication with both internal and external constituents while monitoring all of this from one platform.

There are several areas our team is kicking around as we continue to gather customer product, marketing and development team feedback. These are exciting times for us, and we feel very fortunate to have a media suite platform that we can springboard from to add these new features as well as a path to see ARR moving towards our goals that we have spoken about previously.

In closing, we began providing unofficial industry volume and market share information on past calls. We have made so much progress here far ahead of our expectations and quantity of press releases disseminated daily. I recall sharing well over a year ago, we expected to double our industry volumes in the year.

To put that in context, 6 quarters ago, we accounted for just a little less than 8% of industry volumes. Without naming names, based on research, the large newswire in Q3 of this year accounted for 30.15% of quarterly volume distributed in the market. Second was 24.3%, a very similar newswire to us today. And lastly, 21.7% from a long-standing very brand-trusted institutional newswire. Then there's us, a highly focused team that is dedicated to disrupting the industry, putting the customer first in every way we can, creating distribution options more than anybody, making our pricing and platform flexible and reinventing how they can and should be turning to a subscription business.

We had to be able to do this without sacrificing operational quality and margin. The commitment has resulted in us now having 20.28% of the market share as of the end of Q3, something that we are proud of and believe that we can continue to grow and move through the market, build our brand further and expand our product sets.

To achieve this result, we had to focus on volume-based businesses this year to assist in driving growth. The benefit here is significant to us as we bring to market our new Media Suite platform subscriptions and add-ons we talked about today. The more our brand is visible, the better and easier it is going to be for our sales and marketing teams to execute on our strategy.

Also to set expectations, volumes, revenues and average prices per release is taking on new metrics, and we're focused on selling a full subscription platform and not a bundle or single releases as much as we had in the past. As we execute on the remaining weeks of the year, I can tell you our teams are focused not only on the business at hand, the product advancements discussed earlier for next year, but also the continued assessment of our compliance business as the possibilities of finding a buyer that strategically fits.

This move towards a comprehensive Investor Relations and public relations ARR subscription model has gained traction in both our current and new customers, strengthening our competitive advantage beyond what we expected. Lastly, as we discussed last quarter, we are excited about our new MRR subscription product and the add-ons coming next year that will further drive increases towards our ARR goals. This change has an effect on our overall revenues, deferred and backlog, something that we expected. However, long-term benefits we will see are expanded margins, a growing and predictable revenue stream, stronger KPIs for everyone and most importantly, a robust platform that is trusted in the market and illuminates our customers' voice.

As we continue to execute the strategy under one brand, we are and have been fiscally watching of the optimizations needed in our SG&A categories of our P&L as well as cost containment in the areas of the business further. This is and can be done in short order, providing a clear path to continue generating further cash flows from operations, increased earnings power as well as reducing the company's debt position. As always, it was nice spending time with you today and discussing the results for the third quarter with Steve.

Operator, can we please go ahead with the Q&A portion of the call?

[Operator]

[Operator Instructions] Okay. There are currently no questions in queue.

[Brian Balbirnie, executive]

John, thank you, as always, for assisting us today. Nice job. Thank you for the folks that joined the call today, both on the webcast and teleconference. We look forward to doing follow-up calls with you in the coming days. Look forward to sharing more about our strategy, our new brand coming as well as our new product time lines and add-ons. Again, a pleasure. Thank you so much. Have a good night.

[Operator]

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.