Q3 2021 Issuer Direct Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the issuer Direct Corporation third quarter 2021 earnings Conference call.
Today's call will be conducted by the company's founder and Chief Executive Officer, Brian Bob Bernie and its Chief Financial Officer, Steven Knerr.
Before I turn the call over to Mr. Brian Bob Bernie I'd like to read you the company's abbreviated Safe Harbor statements.
I'd like to remind you that statements made in this conference call concerning future revenues results from operations financial positions markets economic conditions product releases partnerships and <unk>.
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 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 Mr. Bob Ernie. Thank.
Thank you operator, good afternoon, everyone and thank you for joining us today to discuss the company's third quarter results at.
At the market close we issued a press release announcing our results for the quarter.
During today's call we will reference these results as well as discuss the remaining quarter of this year.
Your convenience and reference a copy of the press release is now available in our newsroom at newsroom Dot issuer direct dot com.
We are pleased with the results for the quarter, our communications business continued to show strong signs of growth, while our compliance business continues to benefit from both regulatory and strong capital markets activity.
Q3 revenues were up 12% over the prior year to $5 5 million compared to $4 9 million in Q3 of last year.
Total revenues for the nine months ended September 30 were up 17% to $16 2 million from $13 eight last year Steve.
Steve will expand upon the results for the quarter in a few minutes.
Changing gears to customers on a year over year basis, our total customer count grew 14% for the quarter from 3072, 3000, and 498, our private customers grew to 815.
597 in the prior year and our public companies also grew to 683 from 2575.
Also in the prior year.
There is no doubt that regardless, how we look at our business from our Covid adjusted basis are not our customers continued to grow year over year and in many product categories. Our sequential revenues continue to grow.
As an example access via grew double digit sequentially to over 30% year over year for the third quarter.
However, our indirect private customers slowed during the quarter due to our strategic decision to end relationships with certain resellers. We do not believe this will impact our ability to continue to gain customers and reach our customer goals going forward are direct customers. In this category continued to show strong signs of growth in fact, and because our brand is further strengthening our average.
Price of releases increased for the third quarter.
We are of the opinion, we want to own the customer journey more so now than ever and it is important to make these small changes in our business today as we invest for long term continued sustainable growth.
I will let Steve talk you through the numbers and after his prepared remarks, we can discuss the business and what's ahead for the quarter and next year Steve.
Thank you, Brian and good afternoon, everyone. The third quarter was another solid quarter for us as we continue focusing on growing our communications business.
<unk> continues to help drive overall revenue and subscription growth expand margins something I will touch on in a little bit.
So continuing to invest in our sales and marketing and product development teams and last our newsroom product midway through the quarter, which we believe will help further increase sales of excess wire in subscriptions of platform I'd day.
Total revenue for the third quarter of 2021 was $5 million and $465000, an increase of $583000 or 12% compared to $4 million $882000 in Q3 of 2024.
For the nine months ended September 32021, total revenue was $16 million $165000, an increase of $2 4 billion or 17% from the first nine months of 2020.
The increase was due to double digit increases in both our communications and compliance revenue streams.
I'll begin with the communications revenue stream, which generated $3 million $686000 in revenue, an increase of $330000 or 10% compared to Q3 of 2020.
For the nine months ended September 32021 communications revenue was $10 million and $383000, an increase of $1 6 million or 18% compared to the same period of the prior year.
The increase in revenue was driven by our access wire branded newswire, which drove both Standalone press release revenue and also new subscriptions of platform I'd.
<unk> revenue increased 31% and 37% for the third quarter and first nine months of 2021 compared to the same periods of 2020 due to an increase in volume and revenue per release. This.
As Brian and I will talk about further over the past couple of quarters, we have been moving customers from our unlimited press release plans to bundles of releases.
We have seen is increase revenue per release and also helped to drive revenue per customer over access for our product.
This has led to some customers moving from what we define as platform subscriptions. However, the majority of those cases, we were able to maintain or increase customer spend with their new package offering.
Speaking of platform subscriptions also continued to generate increased revenue for licenses of platform I'd day.
During the third quarter, we signed 40, new contracts with annual contract value or <unk> of $306000, bringing our overall contracts to 418 <unk> of approximately $3 $5 million.
This compares to 341 contracts with an <unk> of approximately $2 $7 million at the beginning of 2021.
Flex and increase in average revenue per contract, which is $8373 as of September 32021% to $7850 as of December 31, 2020.
During Q3, 2021 communications revenue accounted for 67% of our total revenue of 64% of total revenue for the first nine months of 2021.
The prior year Communications revenue was 69% and 64% of total revenue respectively.
A decrease in communications revenue as a percentage of overall revenue is partially due to lower revenue from our webcasting and events product as well as the higher than expected increase in compliance revenue due to market activity.
Compliance revenue increased $253000 or 17%.
$777000 or 16% during the three and nine month periods ended September 32021, as compared to the same periods of 2020.
Both the capital markets and corporate transactions sparked an increase in revenue for both print and proxy fulfillment services as well as transfer agent services.
Each of the reliance on the markets and timing of certain projects revenue from these services tends to fluctuate from quarter to quarter.
Moving onto gross margin, our overall gross margin increased 18% or $615000.
22% for $2 billion $156000 during the three and nine months ended September 32021, compared to the same periods of the prior year.
Overall gross margin percentage was 75% for the third quarter of 2021.
94% for the first nine months of 2021 compared to 72%, 71% for the same periods of last year.
Gross margin from our communications business increased to 78% for the quarter, 75% year to date compared to 74%, 73% for the same periods of the prior year. The increase is due partly to product mix as a higher percentage of communications revenue came from our press release business compared to lower margin webcasting business.
Additionally, we experienced lower distribution and teleconference costs during the quarter.
Gross margin percentage from our compliance business improved to 69%, 71% for the third quarter of 2021, and the first nine months of 2021, respectively from 67% during the same periods of the prior year.
Kris and compliance margin is due to the increase in transfer agent revenue on a relatively fixed cost base.
The decrease in amortization of our compliance software.
Continuing on to operating income our operating income was $977000 for the third quarter of 2021 compared to $1 $76000. During Q3 of 2020.
For the nine months ended September 32021, operating income increased 31% to $3 $45 $2.325 million during the first nine months of 2020.
Third quarter of 2021 decrease in operating income was due to an increase in operating expenses due to continued investment primarily in our sales and marketing and product development teams.
Sales and marketing costs increased 39% during the third quarter and 29% year to date due to increased head count and higher sales commissions.
Product development cost increased 76% for the quarter at 54% year to date compared to the same periods of the prior year also due to an increase in head count of our development team.
We also capitalized $54000 of costs related to the development of our newsroom product.
On a GAAP basis. During Q3 2021 that we generated net income of $1 $24000 27 per diluted share compared to $789000 or 21 per diluted share during Q3 of 2020.
Net income was $2 $675000 or <unk> 70 per diluted share for the first nine months of 2021 compared to net income of $1 $787000 or <unk> 47 per diluted share for the first nine months of 2020.
Included in net income for both the three and nine months ended September 32021, the benefit of $366000 related to the filing of our employee retention credits under the cares Act.
Looking at some non-GAAP metrics EBITDA for the second quarter of 2021 was $1 million $632000 for 30% of revenue compared to $1 million and $401000 or 29% of revenue for Q3 of 2020.
For the first nine months of 2021, EBITDA was $4 $265000 for 26% of revenue compared to $3.377 million or 25% of revenue during the first nine months of 2020 EBIT.
EBITDA for the three and nine months ended September 32021 includes secrets I just spoke about.
Non-GAAP net income was $906000 or 24% per diluted share for Q3 of 2021 compared to $963000 or 26 per diluted share during Q3 of 2020 for.
For the first nine months of 2021, non-GAAP net income increased to $2 million $778000 or <unk> 73 per diluted share compared to $2 million $334000 or <unk> 62 per diluted share for the first nine months of 2020.
On the cash flow statement, we continue to generate positive cash flow from operations as we generated $1 $238000 during the quarter compared to $1.321 million in the prior year.
For the first nine months of 2021 cash flow from operations amounted to $3 million $319000 compared to $3 million $400000 during the prior year.
Slight decrease in cash flow from operations is due to the investment in our sales and marketing and product development teams I spoke about earlier.
On the balance sheet, our deferred revenue balance, which is revenue we expect to recognize primarily over the next 12 months increased to $2 million $696000 as of September 32021, compared to $2 million and $212000 as of December 31, 2020 increase of 22%.
We are now looking to finish the year strong with record annual revenue. The sales team is hitting its stride, it's bringing in new platform subscriptions and revenue from our <unk> platform continues to grow.
Also begin to look to new sales of our newsroom product to aid in increasing overall revenue.
Lastly, we will continue to push for overall customer EBITDA and cash flow growth.
Thank you for your time I'll now hand, it back over to Brian who will provide some updates on the business, our new products and everything else. We have planned for the remainder of the year and start of 2022, Brian.
Thank you Steve this year is really flown by not sure about all of you for US it's hard to believe we're already in November.
Lots to discuss as always so I'll jump right in.
As most of you know, we launched our newsroom sweet about five weeks into the third quarter. This is a solid initial launch well beyond the traditional minimal viable product and in fact.
<unk> had been much since Q3, using this feature of the newsroom brand asset manager and contact management.
We envision this product being added to our communications platform subscription for all new customers.
We also envision it being used as a tool for renewal and retention to our current customers and.
In fact, the newsroom sold in the eight weeks before quarter end included about 60% going to current customers and approximately 40% to new customers. We have a pipeline that is growing everyday because of this product and something we feel confident will help our communications business continued to grow as it has for the last several years.
At the end of the quarter. We also released a new event management module, giving current and new customers the ability to build their quarterly earnings analyst day key opinion leader calls and annual meeting events in real time with our intuitive events Wizard.
Platform as integrations with zoom teams and other leading DIY type solutions.
This will give customers the option to connect schedule and <unk> meetings in a self managed way and use our production events engineers to produce a white glove service, we have done for customers like Johnson, <unk>, Johnson, Dell and Sherwin Williams for years.
Upgrading our front end to our already robust platform was key for us as we move more to a hybrid event from what was completely virtual in the last year and a half we believe the marketplaces learned the value of our technologies and are more willing today to embrace hybrid concepts coupled with our event management platform. We believe we have an industry leading solution for hosting a hyper.
That event in the Investor relation space.
Overall, our platform business, specifically communication platform business performed well for the quarter.
Selling 40, new customers during the period and ending the period with 418 with an average annual price of $8305 up slightly from 80 to 100 in the second quarter.
This tells US a couple of things first we still continue to work through some of the unlimited subscriptions from prior years based on this the third quarter resulted in 25 platform I'd customers churning out of the subscription during the period, but only 13, where customers actually launched between 12 of the 25 opted to subscribe to single products that they had deeper.
Value for causing them to be platform might be losses.
Not true customer losses, and in fact, the dozen customers half of contract value that increased 11000 for the period.
This is something we talked about in our last quarterly call and message clearly that we anticipate the last quarter of this year will be better, but we still will see some customers, leaving the unlimited plans and entering into valued subscriptions on a standalone product or into level way.
Second we need to entirely changed the way, we talk about customers subscribing to our platform we.
We need to be telling you the total subscriptions to our platform and the <unk> associated with it that's giving you a churn percentage to benchmark.
This is something that we're prepared to do looking forward next to nexgen is keeping us.
Our newswire business continues to show strong signs of significant growth as Steve said.
Increasing over 30% for the third quarter compared to last year, a percentage, we messaged level over a year ago, we needed to achieve equally.
Equally interesting is the first time customers subscribing to access via our digital sales efforts.
We've seen the average deal sizes grow to $850. This is 40% higher than it was in Q2 of this year and in fact, the current quarter that we're in is showing strong signs of expanding even from the third quarter numbers.
Our compliance business saw sharper gains than we anticipated both from regulatory filing requirements imposed by the SEC and from the general capital markets activity in Ips.
During the quarter the business was up 14% from the last year. So in the fourth quarter, we should see similar activity from regulatory filings as well as capital markets activity. We will continue to evaluate this business on our next call will be able to provide some forward guidance on our expectations and business line performance for 2022 and beyond.
Moving along and something I think that is important to address is the investment we're making in the business.
These investments are critical and in order to continue to move up market, we have to meet certain security guidelines set forth in our framework referred to as <unk>.
If we were to examine similar market cap science companies out there today in less than 20% of them currently have an active start to and if we look further at our competitors approximately 50% of them adhere to the service organization controls.
This was <unk> compliant and penetration testing, we have made considerable investments in the resources and tools to meet and exceed our customer needs. So for context I think it is important to hear about these items in more detail opposed to just seeing G&A increased for the period.
We anticipate the majority of these costs will be completed this year, which sets us up for good success next year.
Adding to this we're also additional head count and our development team to help with these critical projects such as the newsroom and virtual events suites that we talked about and anticipated 2022, new products, both through integrations and internal developments.
<unk> pools had tightened in R&D and as well as other parts of our business and will likely contribute to upward labor cost pressures as we've seen and heard from many other industries, but nothing that we have not modeled into next year and beyond we do not anticipate this to have a negative effect on gross margins and if we continue to grow top line revenues like we have there will be no impact to EBITDA on a <unk>.
<unk> basis.
From a sales and marketing perspective like G&A, we have continued to make investments in our head count ending the quarter with 29 compared to just 24 in the prior year from a marketing perspective, we have also increased our budgets to be more opportunistic about what we're seeing in the business and in the industry.
Early indications are illustrating both our new customer wins and <unk> are beginning to expand as a result of this investment.
Obviously, I mentioned that the initial deal size in our news wire business growing this would not be possible without the added focus and investment in marketing that we have made.
Firstly from a component of compensation members of our sales team are paid on contract values upfront, whereas we earned the business over a contract period enter one or two years, having members of your new business team exceeding quota means youre upfront load sales cost commissions are higher thus, increasing your sales and marketing expense for the period evidence of this comes.
From deferred revenue growing by 20% over the prior period.
Continuing the momentum is important right now as we continue to accelerate our business released new products and demonstrates strong signs of average revenue per customer increasing in our subscription business, which is an area I would like to expand upon a bit for a minute.
Beginning next year, we will disclose the total number of customers subscribing to our product platform opposed to just the customers purchasing what we've referred to as platform I D.
I know we have spent considerable amount of time talking about platform I'd subscriptions and using that as the kpis for the investment community. However, as a subscription business. It is important to illustrate the number of customers subscribing to our IR platforms, our webcast solutions and newsroom products.
Those are all annual contracts when we examine this the total customers increased by over 50% from the 418 today. We're reporting is platform <unk> Standalone. This is super important for us to illustrated on the next call angling forward in the future.
Lastly, as we have said in the past, we view and take our capital allocation strategy is very seriously. We previously mentioned that we need to invest in the business continue to repurchase our shares when and where it's prudent and lastly, earmark capital to us when we find the assets, we believe can be transformational to the business.
During the quarter, we invested heavily in the business, perhaps slightly more than we had planned but as I. Previously mentioned this was critical components to our platform and the required customer demands security has to be top of mind for us at a price that we have to pay to continue to grow our business.
We're also looking at establishing another repurchasing plan early in 2022 and as most of you know we have completed the previously 2 million repurchase plan in the first part of this fiscal year.
And lastly, we continue to make progress in M&A and believe the markets of assets for us that can transform our business next year and beyond to be a market leader in a subscription based product that delivers customers messages monitors the impacts and engages audiences around the world from one ecosystem.
In closing our team remains excited about the business our customers and our continued growth, which we're seeing in our financial results and then our pipeline.
We look forward to sharing with you our entire year end fourth quarter results in February of next year as always we appreciate your listening today operator could we please open the call for questions.
Certainly ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pick up your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
And we have a question coming from Mike Grondahl from Northland.
Mike Your line is live please go ahead.
Hi, This is Michael on for Mike. Thanks for taking my questions and also congrats on the quarter first off just on the newest Rahm can you just talk about the sales strategy there.
At the same type of customers or is there somewhat.
We should think about for that product.
Yeah, Thanks, Michael I hope, you're doing well there is room product is.
A very big focus for us in bulk.
Public and our private customer practice business, we believe that the agencies over a period of time.
Proof of concept in the market, meaning the number of installs and subscriptions that we've got that we will see agencies begin to adopt the bigger focus for us today is a direct SMB style customer.
Typically does 4% to six press releases a year that may spend two to $4000 on PR believe that they are primed to increase their subscriptions for another 2000 plus to add in our newsroom products that's been our biggest focus.
We also that examine our current installed base that are not using a news feed our newsroom concept current customers and then renewing contracts and including that.
Is it as well so.
We're bullish on both of those categories, we're really not focused on a vertical we really do believe that when we examine the web by vast majority of SMB space less than 15% of customers are actually publishing news on their website live when it hits, a newswire, whether it's us or somebody else.
We're going to focus on our current clients to.
To sell this product and then begin to expand into the market into a competing newswire friends and sell their customers our newsroom suites.
Got it and then just.
Sales and marketing team I think you mentioned 29 kind of headcount today up from 24, a year ago should kind of think about a similar growth rate.
Over the next year.
Sort of mid <unk> area.
I would I think optimum plans for next year is probably 35% to 36.
Our sales team and we believe that our digital strategies, our go to market and the SMB categories.
Are really going to help us get there and the investment that we need to make in those folks will will pay for themselves very quickly in those categories.
But thats the right number to think about.
Okay.
Maybe just on gross margin some nice gains year over year. It sounds like a lot driven by like axis wires that continues to get more scale should.
Should we continue to see steady.
Incremental progress there.
Yes, Youre right <unk> is a big component in fueling gross margin, obviously and revenue driver for our communications categories.
Product is.
Typically higher gross margins and news than it is in telecommunications, So I think leverage and access we are continuing to expand continuing to do what it's doing it at 30% or greater.
Year over year basis is going to be a driving component to that as long as we can continue to do that which we believe we can we should see gross margins in that category at 78%, 80% and likely with scale in the low eighties and years in the future.
Thanks, Paul I'll back in the queue.
Thank you Mike Thank you.
Once again, ladies and gentlemen, the Q does remain open for questions. If there was any more questions from the lines. Please press star one on your phone at this time Thats Star one on your phone if you wish to enter the queue to ask a question.
And there were no other questions from the lines at this time.
Perfect. Paul. Thank you so much thank you to our investors and analysts and shareholders listening to today.
As always we look forward to.
To visiting with you again I think it's March 3rd actually is our.
Earnings date for our annual.
Fourth quarter numbers I think I previously said February till 2022, so it will be March.
I appreciate that very much and thank you again.