Q1 2024 Issuer Direct Corp Earnings Call
Ladies and gentlemen, thank you for standing by and walk out on to the issuer Direct Corporation first quarter 2024 earnings Conference call. My name is Jennifer Hammers Executive Vice President of sales and marketing I've been with issuer direct for three years, leading an amazing team of 32 professionals like I they care.
Passionately about our customers and our branch like my fellow employees doing this in previous quarters. This is our way of ensuring our shareholders get to know all of US here at our company with that said it is my pleasure to introduce the company's founder and Chief Executive Officer, Brian Got Bernie and I were Chief Financial Officer, Steve Nurse before I turn the call over to.
Speaker Change: Mr Bell Bernie I'd like to read you the company's abbreviated Safe Harbor statement.
Speaker Change: I'd like to remind you that the statements made on 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.
Speaker Change: Which may cause actual results to differ materially from those expressed or implied by such statements. non-GAAP results will also be discussed on this 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, Brian I hand, it over to.
Speaker Change: Yeah.
Brian R. Balbirnie: Thank you John and happy third year anniversary to you I believe it's next week actually.
Brian R. Balbirnie: As of you that don't know Jan is the quintessential leader of our sales and marketing team high energy always pushing for more and working tirelessly on moving the business forward in every way possible.
Brian R. Balbirnie: Brian We started 18 years ago is stronger today because of her and her team's efforts the new product names like Amy PR Optimizer, and our new media suite or her creations keep it up I can't wait to do our rebrand with you.
Speaker Change: With that said greetings, everyone and thank you for joining us today to discuss the company's first quarter 2024 results.
Speaker Change: I'm pleased with our first quarter total revenue was down 19% year over year to $7 million.
Speaker Change: <unk> said in the past quarters, our compliance business with decreased by single digits, each quarter actually always performed or exceeded in those prior years. Unfortunately this quarter, our compliance business was down 27%. Our communications business also was down 17% year over year basis.
Speaker Change: There are leading indicators as to why this is occurring in our business, which I will discuss later as well as what our plans are to correct insulate and regain our growth trajectory.
Speaker Change: A lot more to talk about so I will turn the call over to Steve to cover the first quarter highlights Steve.
Steve Nurse: Thank you, Brian and good afternoon, everyone as Brian mentioned 'twenty 'twenty four is off to a slow start. However, we are encouraged by our ability to continue to generate positive cash flow from operations.
Steve Nurse: Now I'll highlight some of the results we achieved during the first quarter of 2024 total revenue was $7 million, a decrease of $1 7 million or 19% compared to $8 $6 million for the same period of 2023.
Steve Nurse: The decrease was due to decreases in both our communications and compliance revenue streams for communications business decreased $1 1 million or 17%, the $5 5 million or 78% of total revenue.
Steve Nurse: For the first quarter of 2023 communication revenue accounted for 76% of total revenue.
Steve Nurse: Decrease was due to decreases in volumes and pricing in both our <unk> and newswire news distribution brands.
Steve Nurse: Additionally, we had a decrease in our webcasting an events business.
Steve Nurse: Large conference that occurred in the first quarter of last year did not occur this year.
Steve Nurse: Compliance revenue decreased 27% for $550000 during the first quarter of 2024 compared to the same period of 2023.
Steve Nurse: Decrease was primarily related to a decrease in revenue from print and proxy fulfillment services due to fewer and smaller transactions than in the prior year.
Steve Nurse: Additionally, we had a decrease in revenue from our transfer agent services due to a decrease in corporate actions indirectly is during the period.
Steve Nurse: Revenue from these two services tends to fluctuate from quarter to quarter, because they are project based and dependent on market activity.
Steve Nurse: Switching over to gross margins, our overall gross margin decreased 23% for $1 $5 million to $5 $2 million gross margin percentage was 75% for the first quarter of 2024 compared to 79% for the same period of 2023.
Steve Nurse: Gross margin from our communications business decreased from 79% in Q1 of 2023, 75% for the first quarter of 2020 quarter. This was primarily attributable to the lower revenue just discussed.
Steve Nurse: Gross margin percentage from our compliance business also decreased to 75% compared to 78% during the first quarter of 2023. This decrease is primarily due to lower margins on smaller print and proxy solar projects the lower transfer agent revenue.
Steve Nurse: Moving to operating loss, we posted an operating loss of $52000 for the first quarter of 2024 compares to operating income of $581000. During the first quarter of 2023 <unk>.
Steve Nurse: The decrease in operating income is primarily due to the decrease in revenue and margins I just noted partially offset by a decrease in operating expenses.
Steve Nurse: General and administrative costs decreased $513000 or 22% due primarily to 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, partially offset by an increase in bad debt expense sales and.
Steve Nurse: <unk> costs decreased $285000 or 12% as compared to the same quarter of the prior year due to lower headcount and a reduction in sales commissions lastly, product development cost decreased to $120000 or 16% as compared to the prior year.
Steve Nurse: This decrease was primarily due to the capitalization of $245000 of costs related to additional development of our media suite product as well as enhancements to our <unk> system.
Steve Nurse: No costs were capitalized during the first quarter of 2023.
Steve Nurse: On a GAAP basis, we reported a net loss of $139000 for four cents per diluted share during the first quarter of 2024 compared to a net loss of $144000 also four cents per diluted share during the first quarter of 2023.
Steve Nurse: Net income for the first quarter of 'twenty 'twenty four is consistent with that of the first quarter of 2023.
Steve Nurse: Lower operating income because we recorded a gain on the change of fair value of our interest rate swaps was $205000. During the first quarter of 2024 compared to a loss of $165000 in the prior year.
Steve Nurse: Also had a loss of $370000 recorded in the first quarter of 2023 related to the early extinguishment of debt associated with the newswire purchase.
Steve Nurse: Looking to some non-GAAP metrics, we generated EBITDA of $923000 in the first quarter of 2024.
Steve Nurse: Increase of $141000 or 18% compared to the first quarter of 2023.
Steve Nurse: As a percentage of revenue EBITDA increased to 13% for the first quarter of 2024 compared to 9% during the first quarter of 2023. However.
Steve Nurse: However, adjusted EBITDA for the first quarter of 2024 decreased 60% to $751000 compared to $1 $9 million. During the first quarter of 2023 as a percentage of revenue adjusted EBITDA was 11% for the first quarter of 2024 compared to 22% for the first quarter of 2023.
Steve Nurse: non-GAAP net income for the first quarter of 'twenty 'twenty, four decreased to $321000 or <unk> <unk> per diluted share to $1 3 million or.
Steve Nurse: <unk> 33 per diluted share during the first quarter of 2023.
Steve Nurse: 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 increased 3% to $5 6 million as of March 31, 2024, compared to $5 4 million as of December 31, 2023.
Steve Nurse: The cash flow statement, we generated cash flow from operations of $986000 for the first quarter of 2024 compared to $272000. During the first quarter of 2023. This marks our 37th consecutive quarter of positive cash flows from operations for the company.
Steve Nurse: Adjusted free cash flow was $783000 for the first quarter of 2024 compared to $739000 for the first quarter of 2023.
Steve Nurse: I will now turn it back over to Brian who will provide some updates on the business customers volumes and everything else. We have plans for the remainder of the year.
Steve Nurse: Brian.
Brian R. Balbirnie: Thank you Steve for the remaining time today I want to speak about an address several things such as our customer counts for the period, our subscriptions, where we're going with our subscriptions industry volumes utilization and backlog as well as the market conditions and a large segment of our business Lastly, I will spend some time talking about how we're addressing it.
Brian R. Balbirnie: These results and early indicators and assumptions for the remaining part of the year.
Brian R. Balbirnie: Total customers were up 20% to 12093 from 10053 year over year, we continue to be pleased with this indicator and believe that will continue throughout the remaining part of the year and beyond.
Brian R. Balbirnie: A good portion of our growth comes from our singles and bundles of press releases from both our access via Newswire brands, which we are working hard to move these customers into media suite and other subscription products.
Steve Nurse: Seeing this growth is key to our overall business brands and market share. Additionally, deferred revenue grew 8% year over year and 3% from Q4 of last year and backlog grew 17% year over year and is consistent with Q4 of last year.
Steve Nurse: We ended the quarter with 1043 subscriptions up 4% from the prior year and down 1% from the end of last year. The decrease in sequential subscription customers are attributable to customer concentrations in the micro and nano cap space.
Steve Nurse: We are seeing these customers have cash flow issues and access to capital constraints, which we believe will continue for the remaining part of the year and affect our overall customer accounts in that market sector.
Steve Nurse: We expect our subscription business, however to continue to grow 5% to 10% range on a year over year basis. This growth is going to come from our media suite platform and our <unk> optimizer subscriptions, which both performed to our forecast and expectations in Q1, Conversely, we will see growth in our earnings call business and IR websites. These two.
Steve Nurse: Product subscriptions are leading the way and moving up market to mid large and Mega cap companies during Q1.
Steve Nurse: Something else, we believe will continue.
Steve Nurse: Additionally, we are going to begin to test new distributions subscriptions in certain markets and customers to determine if this is a viable model for our overall business. Yes. This will be a limited this is not going to be a one subscription fits all its going to be tailored by industry as well as public and private.
Steve Nurse: <unk> results for the quarter don't show it but with a fairly new sales team here for four months needing time to build pipeline as well as knowing the ebb and flow of volumes I am confident that we are going to be fine and growth will come back to the business and will return to our normal narrative about gross business in the back half of this year. This.
Steve Nurse: This year. So far we have won some big names, the Saudi Aramco, lubricity and Gannett as well as several other brands.
Steve Nurse: This is where a good portion of our focus is to move up market.
Steve Nurse: It accomplishes a couple of things for the business one the lifetime values of our larger customers tend to be 4% to five times of our Microcap and example of Sherwin Williams has been doing the earnings calls and Investor day meetings with us for over 10 years and currently spending double our annual target.
Steve Nurse: Second it Insulates us from having to take bad debt charges like we did this quarter and in Q4 related to our micro cap nano cap customers something that we're going to continue to look hard at each quarter from a credit policy perspective to moving customers off the platform that are demonstrating their inability to pay for their services. So in summary, as I said.
Steve Nurse: Subscription growth in the 5% to 10% range each quarter for the remaining part of the year is likely.
Steve Nurse: <unk> to 18%, New then offset by customers that no longer can pay for their services. This will make up those losses.
Steve Nurse: Nine out of 10 situations, our customer churn is attributable to accounts receivable not service or product performance.
Steve Nurse: Albeit some noise in these numbers I'm encouraged to see the progress that we're making across the board.
Speaker Change: I've always said we want more.
Speaker Change: As we all know volumes in the market drive revenues bundled press releases don't drive immediate revenues, they're spread around the term of the contract as they are used.
Speaker Change: As an example, we saw a $500000 increase in our unbilled balances because of multiyear contracts and almost $400000 increase in deferred revenue year over year perspective.
Speaker Change: Which leads me to volumes in the market they remained flat and shifted around from provider to provider hi, there. Thank you.
Speaker Change: Example, since Q2 of last year, when we began doing the review of market volumes in house, we are seeing some of our competitors dropped from 63000 releases in a quarter down to 55000. So just four quarters. Later, we've seen this decrease whereas we saw our volumes move in the same comparative period from 16 to 25.
Speaker Change: Awesome.
Steve Nurse: Ending the quarter with about 13, 5% market share total.
Steve Nurse: Others remained essentially 1% to 3% up or down or nearly flat. We believe that volumes in the market will continue to be flat for the remaining part of the year and beyond but we do see growth and taking share from the incumbents. We have continued to have success there and we do not believe that that will stop our sales team having done a great job at that and we're seeing more.
Steve Nurse: More and more brands come inbound to us today than ever before looking for a competitive replacement for their current contract this year.
Steve Nurse: Also it was imperative to get our solution to a full addressable market sale media suite is the answer and that we're able to now be able to continue to build pipeline and close our target rates to enable our market share through accelerate EBIT at a higher rate.
Steve Nurse: Lastly, we did see our PR optimize our immediate sweet new sales perform at our expectations. This quarter meeting our internal forecast numbers as a matter of fact pro new business in Q1 was for a record for newswire and as a number we feel confident that we can continue to deliver each quarter. This year.
Steve Nurse: <unk> suite as well performed pipeline is growing and like any other enterprise type sale they have longer sales cycles than press releases.
Steve Nurse: Follows the pattern like our IR subscription webcast solutions, where we do see six to nine month timelines from initial call to close.
Steve Nurse: As always it was nice spending time with you today in discussing the results for our first quarter. We look forward to talking with you all and follow up calls we remain confident in the business like I have always said that has not changed our products and the markets that we serve we are also believing next year and beyond the micro and nano cap space will start to come back and we will see a surgeons.
Steve Nurse: Growth in hair, our brands continue to service well, we look forward to sharing more updates with you next quarter. Operator go ahead with the Q&A portion of the call. Please.
Steve Nurse: Certainly.
Steve Nurse: 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.
Speaker Change: We do ask that what posing a question. Please pickup your handset if you're listing on speaker phone to provide optimum sound quality.
Steve Nurse: Once again, if you have any questions or comments. Please press star one on your phone.
Steve Nurse: Please hold while we poll for questions.
Steve Nurse: Your first question comes from Mike Grondahl from Northland Capital markets. Your line is live.
Steve Nurse: Hey, guys. This is Luke on for Mike.
Luke: Just wanted to touch obviously with the slowness in the press release distribution. Just you can help us kind of quantify between access wire in newswire.
Speaker Change: With axis wire historically outperforming.
Luke: Relative to newswire, which.
Luke: <unk> has been kind of lacking.
Luke: Any sort of flavor for.
Luke: The tradeoff between the two during the quarter.
Luke: Yeah, Hey look this is Brian.
Brian R. Balbirnie: I would tell you. This is a this is probably one of the first quarter as we've seen access why are down on a year over year basis, or a sequential basis and revenues. We yes, we have had.
Luke: Good one of nine plus years of growth in the teens and twenty's and beyond in that business, but.
Luke: As I alluded to in the call.
Luke: There is likely a significant amount more headroom than we believed or even the market believed in the micro and nano cap space that number of customers releases.
Luke: Likely about 50% down in those categories compared to other markets that we serve including private company. So that did impact acts as wire this period.
Luke: Newswire also Conversely is is and continues to be down in its volumes. Its pricing power is strong. It is at the top of the tier of the entire industry, when we compare pricing to PRN PR newswire.
Luke: Others against Newswire.
Luke: We are a premium brand pricing product there, we're holding price there which is good.
Luke: Gonna look to incentivize and and and reduce prices and includes subscription testing there to see if we can spur volumes, but I will tell you that very late in the quarter and more recently.
Luke: Now, we're starting to see volumes come back in both of those categories. So we saw this happen in a year and a half ago, where volumes slow down and they did pick right back up again in the quarter after and so the early indicators, we're seeing that already happened happening yet.
Speaker Change: Okay got it and then just to go off your comment on pricing there.
Speaker Change: The press release, there was some mention of lower pricing during the quarter was that a function of of some customers not being able to pay or was that you guys lowering price to kind of pick up for the slower volume or kind of what were the puts and takes for the the pricing coming in lower.
Speaker Change: Yeah, I I think it really is about being aggressive on price. It is being aggressive in certain certain industries that we are testing our API products that we firmly believe will expand its early this year.
Luke: And what that precisely means is that as you get to critical mass and news distribution your fixed costs.
Luke: Our then at a point at which you can enter into to large volume contracts without incrementally hurting your gross margin very much and so we're about halfway through that first interval. So it did impact gross margins slightly because we still got some low cost from editors and that process, but we expect to clean the rest of that up in a development effort here at the end of the quarter.
Luke: But we will be able to light on 20% to 30% more in volume and actually improved gross margins, because we're able to reduce head count entirely from touching those articles. So some of it's attributable to that we're really working hard and believe that API integrations are a way to take even further market share.
Luke: But you know look at the end of the day, we want to walk prices up on our core customers and that is the public company marketplace and you know the smbs on the private side. So.
Luke: So we're trying to accomplish both at the same time, so sometimes in combination there's a little noise there, but we'll definitely talk about that a good deal in the sense of how it looks between both.
Speaker Change: Okay got it thats helpful.
Speaker Change: And then how are you guys kind of thinking of capital allocation as we go through 2024.
Speaker Change: We're either investments into the business or buybacks or paying down some debt.
Speaker Change: Whereas you guys had outlined.
Speaker Change: Capital allocation.
Speaker Change: Yeah look we we've done a fantastic job of bringing immediately hit the market quickly we're going to continue to invest in some product categories. There's further AI attributions that we want to do for natural language translation processing on top of it.
Speaker Change: You know so that that's not gonna change youre going to see our R&D budgets, you know kind of in line with what they've been in the last few quarters.
Speaker Change: But I look I'm going to tell you. The overall, we're going to look at.
Speaker Change: At our expenses and really manage the business, but not sacrifice growth and investment the organization. We've got to continue to do that as long as we feel confident in the market and what we're doing in our products and other customers. We've seen more enterprise deals come our way in the last you know call. It 100 days of the year that we've seen you know.
Speaker Change: Years past in combination so what we're building momentum there and to be fair. The sales team that we brought in with years of experience is driving some of those opportunities and that is important to us and what we're trying to accomplish as you would well understand and as everybody understands the microcap space is not a growth market for US right now that's just the <unk>.
Speaker Change: Reality.
Speaker Change: So on the flip side of it you know dividend likely not pay down debt likely not.
Speaker Change: Hold cash right and continue to execute to meet our covenants and accelerate the business is the optimum way to get through this year and then that puts us into a good position next year they'll have a lot more options than and as Steve talked about we generated almost another $1 million in cash this quarter.
Speaker Change: Do this consecutively.
Speaker Change: And I think I was fat check at a conference last week that an.
Speaker Change: And investors that it's actually 36 quarters of consecutive cash flow from operations, so call it a quarter or not off that's a trend that we're going to continue so we want to accumulate that cash but look at the end of the day if the markets, we're serving or are fulfilling what our estimates are and we have to use cash to do something with that we're prepared to do.
Speaker Change: Do that.
Speaker Change: We're confident in what we need to run the business from a cash perspective so.
Speaker Change: So we keep ourselves with a lot of options by holding on to that at this present time.
Speaker Change: Stock prices what it is excuse me is the key right, we need to execute and we clearly understand that and we know what we need to do.
Speaker Change: But again, we accumulate more cash that also could be an option for us in the future as well.
Speaker Change: Okay got it. Thank you guys for taking the time today to answer the questions and.
Speaker Change: Have a good one.
Speaker Change: Thank you Luke.
Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Speaker Change: Please hold while we poll for questions.
Speaker Change: Thank you that concludes our Q&A session I'll now hand, the conference back to issue directs founder and Chief Executive Officer, Brian Bell Bernie for closing remarks. Please go ahead.
Speaker Change: Thank you Matthew although not as not the results that we wanted this quarter everyone. We are diligently working through and optimizing our organization our brands managing expenses and really focusing on our pipeline and what we need to do to deliver.
Speaker Change: Albeit uphill we've been there before we've done it and we've come in return back even stronger.
Speaker Change: We are confident we're going to be able to continue to do that in the back half of this year like we spoke about.
Speaker Change: I Hope you all have a good night, thank you very much.
Speaker Change: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day.
Speaker Change: You for your participation.