Q2 2023 Issuer Direct Corporation Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the issuer Direct Corporation second quarter 2023 earnings Conference call. My name is David Chatrooms host of issuer direct Hello. My name is an employee driven get to know each other theories whereby we feature a new employee each week or something.

Extremely cool happening in our company me doing this today is our way of ensuring our shareholders get to know all of us as well each quarter, we'll feature one of our very own here at the company to introduce our executives and read the safe Harbor language on each call.

It's my pleasure to introduce the company's founder and Chief Executive Officer, Brian Bold Bernie and its Chief Financial Officer, Tim It's Sony Act before I turn the call over to Mr. Brian Bell Bernie I'd like to read you the company's abbreviated Safe Harbor statement.

To remind you that the statements made in this conference call concerning future revenues results from operations financial position markets economic conditions product releases partnerships and any other statements that may be construed as a prediction of future performances 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 in 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.

Your Bell Bernie.

Greetings, everyone and thank you David for today's introduction Super Cool for you to be doing this today and for all of your hard work on the Hello. My name is series I know when we first started talking about doing this podcast. It was employees first but we do have plans to expand it and our brand to include customers and partners at some point so keep up the good boxer.

We are pleased to everyone join us today to discuss our second quarter results. Our press release, which is accessible at our newsroom has just been released and provides the key takeaways our performance for the quarter and first half of 2023.

We are pleased with our second quarter results total revenue was up 67% year over year to 9.7 million driven by both our business lives something Tim will discuss shortly we also delivered solid performance on earnings for the quarter something we spoke about in our last call and earlier in the year.

EBITDA increased 7% year over year, and 21% for the prior quarter customers subscribing to our products also grew over 5% for the quarter and the average price per release in our core news business also increased these results were a direct effort of our entire team's ability to deliver on our operating plan and strategy for 2020 three.

We recognize that we still have work to do here customer growth is still our number one focus of our entire organization and we're building up a strong quarter to deliver but will be continued success in the back half of the year.

As always there is a lot more to talk about so I will turn the call over to Tim to cover the second quarter results Tim.

Thank you, Brian and good afternoon, everyone as Brian mentioned, we were able to reach a new record high for quarterly revenue and generate increased cash flow and EBITDA over the prior year I will now highlight some of the results we achieved during the quarter.

Total revenue for the second quarter of 2023 was $9 7 million, an increase of 66% compared to $5 8 million for the same period of 2022 for.

For the six months ending June 32023, total revenue was $18 3 million an increase of 65%.

$11 1 million for the first half of 2022 the.

The increase for both periods was primarily driven by our communications business, increasing $2 2 million or 61%.

$5 4 million or 77% for the three and six months ending June 30 of 2023, respectively.

Indication revenue represents 62% and 68% of total revenue during the three and six month periods ending June 30 of 2023 compared to 64% for the same period of 2022.

The increase in revenue was driven by the acquisition of Newswire, which all revenue is included in our communication revenue for the first half of 2023. We also generated increased revenue from our access wired business, which increased 10% compared to the same period of the prior year, primarily due to an increase in average price per release.

Increased for the three and six months ending period June 32023 was partially offset by a decrease in revenue from our webcasting and events business.

Compliance revenue increased 76% or $1 6 million and 43% or $1 7 million during the three and six months ended June 30 of 2023 compared to the same periods of 2022. This increase was primarily related to increase in revenue from our Britain proxies I fill in services business.

Due to a few significant transactions, which occurred during the period as well as an increase in revenue from our transfer agent services due to the increase in corporate actions and directives during the period.

Switching over to gross margins, our overall gross margin percentage was 76% and 77% for the second quarter and first half of 2023, respectively compared to 77% for the same periods of 2022 gross margins from our communications business, where 76% and 77%.

For the three and six months ended June 30 of 2023 compared to 80% and 79% in the same periods of 2022.

The decrease in gross margin percentages for the periods is primarily due to an increase in distribution cost as we continue to expand our global footprint.

Moving to operating income we posted operating income of $1 7 million for Q2 of 2023 compared to $1 1 million in Q2 of 2022.

Operating income was $2 3 million for the first half of 2023 compared to $1 8 million in the first half of 2022. The increase in operating income is primarily due to an increase in revenue partially offset by an increase in cost of revenue and operating expenses I will now discuss the items impacting the chain.

And operating expenses.

General and administrative cost increased 45% and 42% during the second quarter and first half of 2023, respectively. The increase was primarily driven by additional expenses associated with cost operate the newswire business, one time transaction and integration costs employee related expenses and stock compensation expense.

The increase for the first half of 2023 was partially offset by a reduction in recruiting fees.

Moving on to sales and marketing sales and marketing cost increased 49% for the second quarter and 68% for the first half of 2023 compared to the same periods of 2022.

This is due to the addition of the newswire sell team.

Finally product development.

Development cost increased 149% at 167% during the three and six months ended June 30 of 2023 compared to the same periods of 2022.

This increase is directly attributed to additional cost to operate the newswire business as well as the hiring of our new Chief Technology Officer isn't.

It is important to note that during the three and six months ended June 30th 2023, recapitalized $167000 in costs related to building, our new artificial intelligence rider that you know what Amy as well as upgrading our media database product.

Operating expenses were also impacted by an increase in amortization expense attributed to intangible assets acquired in the newswire acquisition.

On a GAAP basis. During Q2 of 2023, we generated net income of $1 4 million or <unk> 36 cents per diluted share compared to $841000 or 22 cents per diluted share during Q2 of 2022.

Net income for the first half of 2023 was $1 2 million or 32 cents per diluted share compared to $1 4 million or 36 cents per diluted share during the first half of 2022 netting.

Net income for the three and six months ended June 30 of 2023 was impacted by operating expense items discussed previously as well as additional interest expense associated with the newswire acquisition.

These increases were partially offset by income, resulting from the change in the fair value of our interest rate swaps and interest income.

Additionally, the six months ended June 30 of 2023 was impacted by a payment to extinguish our note payable resulting from the newswire transaction.

Looking at some non-GAAP metrics EBIT for Q2 of 2023 was $2 9 million or 30% of revenue compared to $1 3 million or 23% of revenue in Q2 of 2022.

For the first half of 2023, EBITDA was $3 6 million or 20% of revenue compared to $2 2 million or 19% of revenues during the first half of 2022.

Adjusted EBITDA for Q2 of 2023 was $3 million or 31% of revenue compared to $1 5 million or 26% of revenue for the same period of 2022.

Adjusted EBITDA for the first half of 2023 was $4 9 million or 27% of revenue compared to $2 6 million or 24% of revenue for the first half of 2022.

non-GAAP net income for Q2 of 2023 was $2 million or <unk> 53 per diluted share compared to $1 1 million or <unk> 29 per diluted share during the same period of 2022.

non-GAAP net income for the first half of 2023 was $3 3 million or <unk> 87 cents per diluted share compared to $1 9 million or 50 cents per diluted share during the first half of 2022.

The increase in our non-GAAP metrics for the three and six months ended June 30 of 2023 were driven by the positive results of the business as I discussed earlier in my remarks.

Switching over to the balance sheet and cash flow statement, our deferred revenue balance which is revenue we expect to recognize over the next 12 months increased to $5 7 million as of June 30 of 2023 compared to $5 4 million as of December 31, 2022.

And the cash flow statement, we generated cash flow from operations of $1 7 million and 2 million for the three and six months ended June 30th 2023, respectively, compared to $1 1 million and $1 6 million during the same periods of 2022.

Adjusted free cash flow was $1 8 million and $2 5 million for the three and six months ended June 32023, respectively, compared to $1 1 million and $1 7 million for the same periods of 2022.

This was our 34th consecutive quarter of positive cash flow for the company.

I will now hand, it back to Brian who will provide some updates on the business new products in the pipeline and everything else. We have planned for the second half of the year Brian .

Thank you Dan our second quarter was another record quarter of revenues and consistent gross margins customer growth and sustained subscribers to the most important products in our product lineup.

We cannot be more pleased with the progress, we're making and look forward to what is shaping up to be an amazing year for issuer direct.

As Tim and I, both mentioned revenues for the quarter were $9 7 million up year over year, partially because of the newswire acquisition and up sequentially by 13% or 1.1 million. This sequential increase was driven by our compliance business for the quarter. Conversely, Our news distribution business drove just over 5 million revenues for the quarter up or 51.

We set up our entire revenues, Conversely, up $2 3 million over the prior year, while still maintaining gross margins and the product range of 80%.

Our newest distribution business represents 84% of our communications business and 51% of our total revenues for the quarter. Conversely, We also saw gains in our compliance business is up 76% year over year for the quarter absent one time projects associated with these results our compliance business would have been in line with historical year over year and prior quarter results.

We had message and continue to feel our compliance business is not the growth driver for our business, whereas communications is.

For almost the last year, we have been seeing industry wide slowdowns of news volume something we talked about last quarter I would tell you that for the end of Q2, we are seeing this turnaround they continue and our collective brands in Q2 year over year news distribution growth was 14% and 15% sequentially over Q1 of this year.

This continued success is something we should be continuing to see and we believe we will be all back on track toward double due to growth in our news business.

We could not be happier to see this growth along with the synergies in the business combinations that are showing in our results on the bottom line our product pipeline is maturing at a swift pace and we're looking forward to seeing several new product come to market here in the coming months.

In our last quarterly call. We mentioned these products extensively to really database pitching monitoring and of course, Amy So I don't want to bother you with today to go through all of that little more time, but I would like to share. Some updates with you Amy has been in production just for a couple of weeks at almost 20% of our customers have used it.

Pretty impressive as we've only launched it to one of our product platforms to date with plans to hit our entire 10000 customer database by year's end to summarize Amy is our AI writer and recommendation engine that helps our customers create improve and control. The tonality of the stories. Our next step is to continue to grow customer usage get the necessary feedback and lastly measure the.

They come from mainly assisted releases to illustrate the engagement benefits. This ultimately will lead us to a paid version coming next year.

You will find Amy also sprinkled in other products coming to market in the coming months. The first will be our pitching platform whereby our customers will be able to send campaigns to they'll do their lists or our media lists ask Amy to help improve their pitch to journalists shareholders and other key constituents. This pitching component on our platform will be part of our new annual subscription.

As we sit here in Q4. This is a feature we did not foresee coming in our first release and I'm happy to see the hard work of our development teams delivering what we believe will be a sticky component to our ecosystem.

As we have said before one of the benefits we receive from the newswire acquisition with some amazing technology, which one component was the media database, we have invested heavily in people and process and interfaces to move this product to the top of our R&D teams focus this year and in fact have built an entire data curation team of 14 people that are hard at work analyzing and updating of our.

It almost near real time now.

As we all should know would expect a good pitch starts with the database of curated accurate and up to date contacts are immediate database will be just that with live curation support coming in early Q4.

Along with monitoring they subscribe old products will help drive our IRR from a mid 8000 range to over 12000 and beyond.

Speaking of subscriptions, we ended the quarter with 1015 customers subscribing to our products with an average spend of $8523 up from $9 66 subscribers and $71 65 in revenue. This is a 19% of revenue expansion and 5% customer growth on a year over year basis, we firmly believe our new products will continue to help.

Drive these metrics in the future. We also have a good bit of headway in the market not only by continually taking share from the incumbents, but also winning new business and of course, having a more comprehensive subscription platform will give our sales organization the ability to sell into the full tam of the communication space.

Moving along to customers total customers grew to 10449 from 7440 last year. This total includes customers from the newswire platform acquired.

This 40% year over year customer growth another goal that we set.

We talked last year of getting our customer accounts to 10000 and beyond.

As always it was nice spending time with you today and discussing the results for our second quarter. We look forward to talking to you on our follow up calls we remain confident in the business our teams and our product platforms, our revenue margins and customer wins as well as average revenue per subscriber growing our brands continue to service well in the market and we look forward to sharing more updates with you next quarter operator.

There can be please begin the Q&A portion of the call.

Absolutely. Thank you.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from Mike Grondahl from Northland Securities. Mike. Please proceed.

Hey, guys good afternoon.

What's sort of your outlook in the back half of the year for news wire and axis way or sort of how do you see that trending.

Nothing like.

This is Brian I'll answer that for you if you'd like Oh look I said did they like we talked about in the prepared remarks that there is a indicator here that we're seeing over the last few months that volumes are beginning to bounce back to normal levels with growth like we experienced last year and the prior years. So for for our combined news businesses with our added in it.

Expanded distribution and our sales team is focused on that product with its new add ons.

We're very confident that that that volume will continue to expand both internationally.

Internationally as well as domestically.

Got it and then.

Okay.

What are sort of like the next steps, we should watch or listen for with Amy Your AI product and if you could just also sort of address the cost side, maybe repeat what costs were capitalized in and how you think about that investment going forward.

And so does our product summary, right from a capitalization perspective, we wanted to build the product to a very mature M. V. P right minimal viable product get it to market to a segment of our clients and what we're looking for now is to gather analytic upon the benefits of using.

AI written content compared to what you know now.

So processing done by you know PR professionals and in company professionals. So that's the indicator of getting 20% of our customers using it. They did release isn't this measurement period right. So the number of releases actually gives us comfort that there's gonna be a baseline to sample against and so what we'll look for is what would the benefits.

The engagement from articles written by any competitive not by industry and sector. So that we could break it out to provide customers a more premium level of service. So at some point. We can then suggested them based on the tonality as you make these changes you you could very well see an increased benefit in these industries and sectors and here's how and that's what you'll pay for.

So that will be the paid version if you want to think of it as a premium product. That's what that will be today. There is no cost brainy for customers are we capitalized about 160 <unk> hundred $70000 during the period.

You've probably got about another 75 to 100 left.

Here in this third quarter to complete that product.

And the reason for the additional is because our developers were working.

Working late or just burning the midnight oil and figure out how to integrate Amy much quicker than we thought into our other products like we talked about today. So it will go into pitching next giving.

Giving our customers the ability to licenses prescribed to the pitching product immediate database and then have a plug in for me to be able to help them right or recommend a better way the tonality to help their writing and engagement with media general shareholders and everybody else.

Got it and then maybe lastly.

What is sort of early thoughts on monetization I know, it's early I know, it's not till 'twenty four but how are you thinking about it.

I'm looking at it in two ways. So so we're going to go to market in Q4, and I don't want this to be a leading indicator that we're building we're suggesting revenue here, we're going to go to market in Q4 to build a pipeline for a new subscription product that will be media database analytics monitoring product pitching profits newsroom and news distribution.

Powered by Amy all for one flat fees, but let's say, it's 500 to $2000 a month.

We then believe that additional customers that don't subscribe will be able to take Amy or we can monetize it on a per release basis. So if you sign up for your contracted press releases for U S. National at 795 were released you do 10 releases a year youre pretty pretty close to our average revenue per customer we hope to then get another 10%.

15% to 20% lift on revenue on a customer by having them by some of these items in and we've done this successfully in the past because remember we used to sell media targeting.

Very early on and they can be accessed via days and we were able to get double digit 20, 30% of our customers paying for upgrades on some of those things and so that's where we can move those customers into the database product, which will mean more revenue for us and we will look to then monetize Amy as a as a as a per unit.

Benefit to the customer and obviously to us.

Got it got it helpful. Okay, Hey, thank you.

Thank you Mike.

Once again, if you have a question or a comment please press star one on your Touchtone phone. The next question comes from Walter Ramsey with R. Squared. Please proceed.

Hey, Thanks, Brian pretty Awesome a report.

The no matter what metric you want to use the profitability of the company you know as you.

Zooming, a 31% adjusted EBITDA for starters.

I mean is that a.

A sustainable number you think.

Yeah.

Well I mean, Walter first thank them right and we talked about this in the last couple of quarters that we believe the full synergy savings for our newswire and actually if I can interject combined entities would would truly show through in Q2, when it ends up to be fair right. We lived to that commitment and the number is printed there are our illustration of that it's a great question.

As you know are you providing guidance to suggest that this is going to be your new baseline going forward and I look I would tell you absent of investments made absent the one time charges or absence of something bad happening in the market as long as our revenue continues to grow the way. It has we feel comfortable that we're going to be in the high end twenties and in some quarters hit into the 30 so.

So it's it's a it's an EBITDA machine, it's a cash flow machine and it's all dependent on what I said in the call back number one focus as customers as long as we continue to get the new customers that we want to get yes. The answer is yes.

Okay. That's all I have congratulations.

Thank you Walter.

If there any final questions. Please indicate so now by pressing star one.

We have no further questions in queue. We've reached the end of the question and answer session I would now like to turn the call over to management for closing remarks.

Thank you. We appreciate everybody's time under 30 minutes, maybe a record for us today, but as always we welcome to follow up calls we welcome seeing you at the next couple of conferences will be out here in September .

And have yourself, a safe and a good evening.

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