Q3 2023 Issuer Direct Corp Earnings Call
Good day, everyone and welcome to the issuer direct third quarter 2023 earnings Conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
This is not my pleasure to turn the floor over to your host D. Brown ma'am the floor is yours.
Ladies and gentlemen, thank you for standing by and welcome to the issuer Direct Corporation third quarter 2023 earnings Conference call. My name is D. Brown director of human resources here at issuer direct I've been with the company for almost six years and I'm happy to meet you. All today like David did last quarter. This is our way of ensuring our shareholders get to know all of us.
Here is your direct we are both committed and excited to continue this each carton with that said it is my pleasure to introduce the company's founder and Chief Executive Officer, Brian Belt, Ernie and its Chief Financial Officer Chimps, Tanya before I turn the call over to Mr. Bell Bernie I'd like to read you the company's abbreviated Safe Harbor statement I'd like to remind you that.
<unk> 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 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.
Mr Bell Bernie.
Greetings, everyone and thank you Dave for today's introduction, so happy you're able to do this for US today. Your tenure with US has produced so many improvements to our culture, our HR tools processes and systems Supercool for you to be doing this today and for your hard work and the Hello. My name is series with David.
As I said before we will introduce new employees each quarter I can't wait for the next quarter's call as well, where we'll have our longest standing employee give his interim Mr. James Michael get ready Sir.
Now, let's talk about the quarter. We appreciate everyone joining us today to discuss our third quarter results. Our press release, which is accessible at our newsroom has just been released and provides the key takeaways on our performance for the quarter.
We are thrilled with the third quarter results today total revenue was up 43% year over year to $7 6 million driven by excess wire in the newswire acquisition, Tim will discuss this in detail. Shortly we've also delivered solid performance on earnings for the quarter something we spoke about in our last call and earlier this year adjusted EBITDA was up 45% to $1 8 million.
And year over year.
Subscription business also grew 8% for the quarter and our average prices per our press release and our core news business is held steadily.
We'll talk about why that's important to a bit later.
We have continued to be bullish on our communications platform led by access via news brands, we are gaining market share each month customers and further brand recognition we.
We recognize that we still have a lot to do here is I've said and even though that we're in a challenging environment with budget cuts and economic uncertainty, we still have grown our core products at our news distribution corollary earnings calls at IR website businesses, something we feel confident we will continue to do for years to come.
As always there's a lot to talk about I'll turn the call over to Tim to cover the third quarter highlights Tim.
Thank you, Brian and good afternoon, everyone as Brian mentioned, we continued to deliver positive quarterly results and topline revenues earnings and cash flows not including the benefit from our newswire acquisition. Our news distribution business has grown 10% year to date on a standalone basis and as a result has helped drive quarterly revenue.
I will now highlight some of the results we achieved during the third quarter.
Total revenue for the third quarter of 2023 was $7 6 million an increase of 43%.
Compared to $5 3 million for the same periods of 2022.
For the nine months ended September 30 of 2023 total revenue was $25 8 million an increase of 58% from $16 4 million for the same period of 2022.
The increase for both periods was primarily driven by our communications business, increasing 74% and 76% for the three and nine months ended September 30 of 2023, respectively.
Communication revenue represents 80% and 72% of total revenue during the three and nine months ended September 30 of 2023 compared to 66% and 65% for the same periods of 2022.
The increase in revenue was driven by the acquisition of Newswire, which all revenue is included in the communication revenue.
For the first nine months of 2023, we also generated increased revenue from our axis wire business, which increased 10% compared to the same period of the prior year.
The increases for these three and nine months ended September 32023 were partially offset by decrease in webcasting and events revenue compared to the same periods of the prior year.
Compliance revenue decreased 17% and increased 25% during the three and nine months ended September 32023, respectively compared to the same periods of 2022.
The decrease in compliance revenue for the quarter is attributed to a decline in revenue from our transfer agent and print and proxy fulfillment services businesses due to a decrease in corporate activity and projects during the quarter the.
The year to date increase in compliance revenue is related to an increase in revenue from our print and proxy fulfillment services business do you have a few significant transactions, which occurred during the first half of the year as well as an increase in revenue from our transfer agent services business due to an increase in corporate actions and directed during the first half of 2023 switching or.
<unk> to gross margin our overall gross margin percentage was 76% and 77% for the third quarter and first nine months of 2023, respectively compared to 77% for the same periods of 2022.
Gross margins from our communications business, where 75% and 77% for the three and nine months ended September 30 of 2023, respectively compared to 77% and 78% for the same periods of 2022.
The decrease in gross margin percentage for the quarter is primarily related to an increase in distribution cost as we continued to expand our reach and global footprint.
Moving to operating income we posted operating income of $593000 for Q3 of 2023 compared to $789000. In Q3 of 2022 operating income was $2 9 million for the first nine months of 2023 compared to $2 6 million during the first nine months of 2022.
The decrease in quarterly operating income is primarily related to the additional amortization expense attributed to intangible assets acquired in the newswire acquisition. The increase in year to date operating income is primarily due to an increase in revenue, partially offset by an increase in cost of revenues and operating expenses.
General and administrative cost increased 23% and 35% during the third quarter and the first nine months of 2023, respectively. The increase was primarily driven by additional expenses associated with cost to operate the newswire business employee related expenses and stock compensation expense.
For the nine months ended September 32023. The increase is also related to one time transaction costs, partially offset by a reduction in exactly recruiting fees.
Sales and marketing cost increased 49% for the third quarter and 62% for the first nine months of 2023 compared to the same periods of 2022 due to the addition of the newswire sales team.
Product development cost increased 137% and 157% during the three and nine months ended September 30 of 2023 compared to the same periods of 2022. The increase is directly attributed to additional costs associated with operating the newswire business.
As well as the hiring of our new Chief Technology Officer.
It is also important to note that during the three to nine months ended September 30 of 2020, Threep, Recapitalized, 152000, and $319000, respectively and costs related to building, our new artificial intelligent component of our newswire known as Amy as well as upgrades to our immediate database product.
On a GAAP basis. During Q3 of 2023, we generated net income of $273000 or seven cents per diluted share compared to $686000 or <unk> 19 per diluted share during Q3 of 2022.
Net income for the first nine months of 2023 was $1 5 million or 39 cents per diluted share compared to 2 million or <unk> 55 per diluted share for the first nine months of 2022.
Net income for the three and nine months ended September 30 of 2023 were 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 nine months ended September 30 of 2023 was impacted by a payment to extinguish our note payable resulting from the newswire transaction.
Looking to some non-GAAP metrics EBITDA for the third quarter of 2023 was $1 5 million or 20% of revenue compared to $952000 or 18% of revenue in Q3 of 2022.
For the first nine months of 2023, EBITDA was $5 1 million or 20% of revenue.
Compared to $3 1 million or 19% of revenue during the first nine months of 2022 <unk>.
Adjusted EBITDA for Q3 of 2023 was $1 8 million or 23% of revenue compared to $1 2 million or 23% of revenue for the same period of 2022.
Adjusted EBITDA for the first nine months of 2023 was $6 7 million or 26% of revenue compared to $3 9 million or 24% of revenue.
For the first nine months of 2022.
non-GAAP net income for Q3 of 2023 was $1 million or 27 cents per diluted share compared to $978000 or 27 cents per diluted share during the same period of 2022.
non-GAAP net income for the first nine months of 2023 was $4 3 million or $1.13 per diluted share compared to $2 9 million or <unk> 77 per diluted share during the first nine months of 2020 to switch.
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 decreased to $5 2 million as of September 30 of 2023 compared to $5 4 million as of December 31 of 2022. The decrease in deferred revenue was driven by an opening.
Balance sheet adjustment recorded during the period attributed to the newswire acquisition.
On the cash flow statement, we generated cash flow from operations of $287000 and $2 $3 million for the three and nine months ended September 30 of 2023, respectively compared to $1 4 million and $3 million during the same periods of 2022.
Adjusted free cash flow was $127000 or $2 $6 million for the three and nine months ended September 30 of 2023, respectively compared to $1 4 million and $3 1 million for the same periods of 2022.
Cash flows for the three months ended September 30 of 2023 was negatively impacted by year over year increase in tax payments of approximately $700000.
I'll now hand, it back over to Brian who will provide some updates on the business new products in the pipeline and everything else. We have planned for the remainder of the year Brian.
Thank you Tim as we have said before our customer growth is an important kpis for US total customers grew to 12171 up from 7084 last year. This.
This total includes customers that were acquired in the newswire acquisition late last year.
This is a 72% year over year customer growth with some of the new things that we planned this coming year, we feel confident that we can continue to see customer increases with a goal of seeing 20% plus growth by the end of 2024.
Moving along to subscriptions. So we ended the quarter with 1050 customers subscribing to our products with an average spend of $9447, which is up from 971 <unk> $7154 to prior year.
This is a 32% revenue expansion and 8% customer growth on a year over year basis.
Part of the increase was attributable to the success of our P. Our optimizer product for the quarter.
We have a busy fourth quarter with our new products that are in prelaunch marketing stage and we are confident that these new products will further drive these metrics and continue to increase a clearer a RR model for us next year.
We still are seeing a good bit of headway here in the U S. We continue to take share from incumbents and win new business and obviously, having a more comprehensive subscription platform gives our sales organization the ability to sell into a full total addressable market of the communications space. Conversely in Canada, we are beginning to see signs of new customer activity slowing slightly.
Not just in our results, but the industry as a whole.
As we've talked about in prior quarters. This fourth quarter is the period in which we will release, our full new media suite, a new subscription product that will include our media database pitching products monitoring as well as existing newsrooms reporting platforms and our global news distribution offerings. We are excited to offer and launch these products in a full angle rare.
Occurring revenue model beginning of 10 to $12000 a year.
We anticipate having a few different plans that will go all the way up to 18000, a year as we learn what the market needs further and meets customers' values and features that may not be available in the market.
One example is our AI engine Amy the solution has been fully integrated into both our storytelling process, but also into our pitching processes and now are mentioning tools that scan millions of articles with our AI engine to examine content for our customers and report those mentioned back to them in near real time.
Our goal is to assist in a contextual way that we can anticipate journalists to engage cover and bring brands to life by making our customers aware of who these individuals are in our platform.
The progression here to move to where they are our business is deliberate as we spoke about earlier, we have 1050 subscribers to our products I want to see the number increase significantly by the end of 'twenty 'twenty four and be able to report to you. Our a R. R. A retention ensuring our dollar value of retention on renewals and lifetime values as we mature to a full subscription business.
As I mentioned earlier, our peer optimizer, formerly map products, we performed well for the quarter driving an over $200000 of new E. R. R. From just a handful of customers. We are continuing to build momentum on this new product for us and are encouraged by the upgrades that we've made and the branches will continue to show results in our pipeline and the results in the coming quarters.
But truth be told it's early on in this product lifecycle. So on the year end call, we will discuss a year and a review of all of our products their performance and where we will guide for growth from each of our product going forward.
Not to be fully repetitive, but our third quarter was a strong year over year growth quarter in revenues consistent gross margins customer growth and sustained subscribers and the most important product in our product lineup, we could not be more pleased with the progress that 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 $7 6 million up year over year, mostly because of the newswire acquisition you will see in our compliance business. It did slow down for the quarter something I have said this year would occur and had not until this recent quarter. The decrease was driven by one time projects moving as well as capital markets activity being significantly more challenging than in <unk>.
<unk> passed we do anticipate that this business unit to be soft for the fourth quarter and into 2024 as it is our belief the numbers of deals being financed and overall corporate actions work is continuing to weaken with that said if we benefit from any of the onetime projects, we will see our compliance business top line revenues grow for that particular quarter.
Conversely, our news distribution business drove $5 $3 million in revenue for the quarter, 87% of our communications business and 70% of our entire business for the quarter came from our news platforms, which is more than double the prior year of 2.6 million, we're seeing industry volumes flat, but however, we continue to see growth both in volumes as well as revenues.
Which is our accessory business was up 9% for the quarter.
As always it was nice spending time with you today in discussing the results for the quarter. We look forward to talking with you on our follow up calls we remain confident in the business. So much. So that we were expanding our sales organization to capitalize on the opportunities that we see next year, both on our new products, but also in our new media suite coming to market. Our brands continue to serve us well in the market and we look forward to share.
Any more updates with you next quarter operator can we please begin the question and answer period of the call.
Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
We do ask them about posing your question. Please pick up your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Mike Grondahl from Northland Securities. Your line is live.
Yeah, Hey, guys. This is Luke on for Mike.
Just wanted to touch quickly on the new product pipeline.
Sort of how you see that playing out here in the 'twenty 'twenty four I know, we'll probably get a better update on it next earnings call, but just trying to think of of understanding. So is this gonna be Oh, all of these products coming to market at once and then it'll be kind of customers they'll get a pick and choose what they want to include in there.
And that will affect their pricing or sort of.
Kind of how this is being launched.
Yeah, It's a hey look it's as Brian that's a great question the.
Media suite product is gonna be lodged in three different variations will be one that will include a immediate database of pitching solution.
That particular product suite.
Well sit around the entry points will be discussed earlier in today's call and that will be focused on customers that are doing between three and 25 press releases currently with us today.
Way to to increase their annual spend and moving them more towards and they are a type of solution. The other options are going to be.
The media database pitching monitoring product along with our news room.
And their news distribution included in that and so you maybe think about the the latter two options being a basic pro model or a some sort of premium version level scale up to the higher number we discussed of 18000, it and what that really means the two differences, but the latter two plans will be added.
No ways to pitch additional press releases more robust newsrooms more customization on the platform.
Assisted media targeting compared to maybe more of a novel solution. So this product is perfectly aligned with the customers that would not be a candidate to buy a P. Our optimizer product from US which are looking goes with deferred is looking for us to build strategy right content Calendaring and do earn media outreach for them.
This solution is geared towards copies of the discipline internally to do it themselves. They want those solutions all wrapped up into one.
Okay got it and then as far as Amy going in with this product suite is that it's the pricing of amey gonna be baked into these offerings or is that something that would be an additional cost with that wants to be included or.
Yeah, I think the way the AI World is today is that you have to expect that its going to be part of a solution. There is no additional add ons and so we released it in our news platform earlier this year as a way for customers to help build brand.
Ality on their messaging.
And then have the ability to optimize from there we've done the same with pitching and we're doing it with with monitoring of articles.
Price point would included correct.
Okay got it and then what's the strategy behind growing the customer base here to that 20% growth by 2024 that you had mentioned or kind of how do you bridge that gap.
Yeah, it's actually quite simple right. We've we've as we've talked about for the last couple of years. Our news distribution business continues to grow it outpaced the market and growth in percentage of market, but we are also only dealing with customers that can only buy press releases from us and all of the public companies tend to do utilize our IR platform.
At our earnings call platforms like we're doing on today's call the larger market opportunity for us that Tam fits in the private company marketplace and those customers are looking for me to a database analytics of pitching products that we're going to be bringing it to market here. So we're going to see significant customer growth as a result of having those additional <unk>.
<unk> that allow us to seat at the table with the incumbents for longer when we're going to bake off with customers in our Rfps and everything else. So actually have the entire suite the customers are looking for.
Got it.
It makes sense well, thanks for taking the questions guys and looking forward to hearing some updates about the new products getting launched here.
Thank you Luke.
Thank you once again, everyone. If you have any questions or comments. Please press star then one on yourself.
These hold while we poll for questions.
Thank you that concludes our Q&A session I'll now hand, the conference back to CEO and founder Brian Bell Bernie for closing remarks. Please go ahead.
Matthew. Thank you. We appreciate the help as always and we appreciate everybody spending time with us today and listening todays third quarter earnings call. We look forward to the follow up as we do normally we're excited to remain part of the year and beyond and we look forward to you all being a part of issuer direct thank you so much.
Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank.
Thank you for your participation.