ACCESS Newswire Inc (ACCS) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Issuer Direct Corporation first-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, today's call is being recorded. Earlier today, Issuer Direct Corporation issued a press release that included certain cautionary language with respect to forward-looking statements. The Company would ask you to review the language in the press release regarding forward-looking statements as they are equally applicable to any forward-looking statements made during this conference call. Today's call will be conducted by the Company's Chief Executive Officer, Brian Balbirnie and its Chief Financial Officer, Wes Pollard. I will now turn the call over to Mr. Wes Pollard.

Thank you and good afternoon, everyone. Before we begin, I need to read the following Safe Harbor statement. Statements or comments made on this conference call may be forward-looking statements that include financial projections or other statements of the Company's plans, objectives, expectations or intentions. These matters involve certain risk and uncertainties. Our actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, which are discussed in detail in our recent SEC filings.

Further, we will discuss both GAAP and non-GAAP financial information on this call. We believe the presentation of non-GAAP information provides you with useful supplementary data concerning the Company's ongoing operations and it's an appropriate way for you to evaluate the Company's performance. Non-GAAP results are however provided for informational purposes only. Please refer to the press release and related tables for GAAP information and a reconciliation of GAAP to non-GAAP information. We also posted to our website in our Investor Relations tab a description, as well as a reconciliation of GAAP measures to which we will refer on this call. And now I will turn the call back over to Brian.

Thank you, Wes and welcome, everybody, to Issuer Direct's earnings call for the first quarter 2014. Over the next few minutes, I'd like to talk to you about our business and review some of our activities for the quarter. Following my remarks, our Chief Financial Officer, Wes Pollard, will discuss our operating results and key metrics in greater detail. We will then be happy to answer any questions that you may have for us today.

As we announced in our press release this afternoon, we achieved overall gross margins of 71% on revenues of $3.5 million in the first quarter of 2014 compared to 72% gross margins on revenues of just $1.4 million in the same period last year. This represents a year-over-year revenue growth of 147%. For the remaining part of fiscal 2014, we believe margins will continue in the 70% range.

In previous calls, we had touched on how accretive the PrecisionIR acquisition has been. We continue to see its material impacts on our overall operations not only in revenues and profits, but also in the strategy of building out our disclosure management business. We continue to leverage our assets, brands and offerings to cross-sell our platforms and services into our client base, which has now doubled in size with the acquisition. The cross-selling initiative is something that will not be seen overnight and its impacts will come over the period of a year as several of our products and services are generally purchased on annual commitments.

During the first quarter, we have spent a good amount of time retooling the marketing, channel partners and resellers of our products and services. We are off to a great start this year with several new key partners, which will be offering our best-of-breed products, specifically the New York Stock Exchange where we will provide our whistleblower platforms to newly listed and currently listed issuers. Not only does this relationship with the NYSE have great revenue opportunity for us, but also from a branding perspective it helps us raise our profile and enhance our ability to cross-sell our other products and services. It also will further extend the disclosure management platform and brand.

Now I'd like to touch on our revenue streams and a few notable points for the quarter ended March 31. Our disclosure management business decreased for the period from $1.1 million to $983,000. The decrease came primarily from our temporary reduction in our stock transfer business. However, revenues increased from $250,000 to $2.3 million for the current quarter ended March 31 in our shareholder communications business. Gross margin also improved in that business to 69% from 41% in the previous year.

Our software licensing business is also beginning to take flight and revenues there increased to $237,000 from just $52,000 in the previous year. Although we experienced a slight decrease in our disclosure business for the first quarter, we are encouraged by the overall market and the long-term demands for our products.

During the quarter, we completed several key initiatives. We increased our channel partners and reseller networks with the addition of four new partners, including the annual report and marketing design firm, Curran & Connors, as well as the New York Stock Exchange. We created a customer loyalty and retention program and equally as important as the business initiatives I just mentioned, ISDR also began trading on the NYSE markets on March 11.

We continue to be very pleased with the acquisition of PrecisionIR, which was completed August 22, 2013. The integration is on track and we are now focused entirely on the cross-selling opportunities and brand-building with our products and services. For the past nine months since the acquisition, our teams have been focused entirely on operational efficiencies, systems, people and branding. In the remaining part of 2014, we will focus on strategic cross-selling opportunities between both companies' client bases. Like Issuer Direct, PrecisionIR has approximately 750 clients. The combined client count is now over 1500 public companies, mutual funds, banks, brokers and compliance professionals.

Our business remains healthy. Approximately 75% of our revenues continue to be under contract and we do not anticipate this changing. The benefits that we get from the annualized contracts are tremendous. Not only does it make it easier to illustrate our business to the markets, but it also allows us to present useful year-over-year comparative results that are more reflective of our true core business.

I'd like to talk for a minute on our technology. At the end of the quarter, we officially launched our disclosure management system to the entire Issuer Direct client base of approximately 750 corporate issuers and over the next quarter, we will do the same with the legacy PrecisionIR clients, again approximately 750 corporate issuers and mutual funds. This new platform as a service or a PaaS as some folks call it will enable us to leverage our technology data sets and improve the disclosure and communication processes of our clients. The new platform will continue to receive upgrades that will only broaden the ability to generate greater software license revenues, but also equally as important improve the reach our clients have on the markets and their shareholders.

In closing, I would like to reiterate that the integration of our back-office systems with PrecisionIR are now substantially complete and we remain optimistic about the remainder of 2014 as management can focus on executing our business plan and expanding the Company. With that, I will now turn the call over to Mr. Wes Pollard, our Chief Financial Officer, who will take you through our financials in greater detail. Wes?

Thank you, Brian. Highlights of the first quarter of 2014 are as follows. Our revenues increased 147% to $3.5 million as compared to just $1.4 million in the first quarter of 2013. EBITDA increased 63% to $657,000 in the first quarter of 2014 as compared to $403,000 in the first quarter of 2013. Non-GAAP net income increased 50% to $409,000, or $0.20 per share as compared to $273,000, or $0.13 per share in the first quarter of 2013.

Once again, we continued our trend of generating positive cash flows from operations and increasing our cash balance over the prior quarter. For GAAP purposes, we recorded a net loss of $37,000, or $0.02 per share for the three-month period ended March 31, 2014 as compared to net income of $216,000, or $0.11 per share in the same period of fiscal 2013. Consistent with the prior quarter, our 2014 income is burdened with noncash interest expense of $313,000 related to a convertible note payable used to finance the acquisition of PrecisionIR, as well as $293,000 of amortization of intangible assets for PrecisionIR.

During the first quarter of 2014, we again achieved margins in excess of 70% and we expect to maintain our goal of keeping margins above 70% going forward. Also, for the remainder of 2014, we anticipate that our revenues and EBITDA will continue to increase as compared to 2013. Furthermore, we anticipate that we will start to see reductions in our general and administrative expenses as integration expenses related to the acquisition of PrecisionIR should begin to diminish.

During the first quarter of 2014, we had nonrecurring expenses totaling approximately $120,000 included in our G&A expenses associated with our integration of PrecisionIR, as well as fees associated with our uplist into the NYSE markets. As in the past, we will strive to keep all of our operating costs in line with our revenue growth so that we continue our history of achieving positive cash flow from operations and so that our non-GAAP net income continues to increase. And with that, I will turn it back to Brian.

Thank you, Wes. Operator, can we now please open up the call for questions?

(Operator Instructions). Ed Kissel, Forager.

Hi, this is Gene for Ed. Ed's question is operating cash flow before working capital was much better than expected in the quarter, but working capital was a large use of cash. Please discuss the dynamics behind that use of cash and if there is a seasonal component.

Thank you. And I didn't catch your name again, just that you are filling in for Ed, but this is Wes and I can answer that question. During the first quarter and it is actually noted on our cash flow statement, if you look at the supplemental disclosure for noncash investment planning and activities, you will see that we paid our income taxes during Q1 and that amount totaled $331,000. During 2013, we obviously paid estimated taxes based on prior year income. But when we actually trued it up and filed our returns in March or filed our extension, we ended up paying, as I said, $331,000. Plus we also paid $50,000 of interest related to our convertible notes. So those two components are the primary factor there.

Thank you.

(Operator Instructions). Walter Ramsley, Walrus Partners.

Thank you. Congratulations. It looks like the Company is off to a very good start. I had a couple of questions. First of all, can you just spend a minute and explain once again I suppose what the seasonality is and how that might affect the remaining quarters?

Hey, Walter, thank you. This is Brian. I appreciate the kind words. The seasonality is starting to subside a little bit for a big portion of our business now that most of our clients are on annualized contracts for our disclosure reporting and for a good portion of our shareholder communications businesses. You will tend to see the 25% variance that will come by way of first and second quarters and that is due largely in part to the majority of corporate issuers that have a fiscal year ended 12/31 have to file their annual reports and conduct their annual meetings within 120 days from that fiscal year-end. So you get a good portion of that transactional work that happens within that period. But a large part, 75% of that revenue is now annualized and very predictive from quarter to quarter. So we expect that it will normalize.

Okay, that sounds good for us. We are pretty lazy here when we do our analysis. So that is good. The other question I had I guess, you mentioned that a lot of new customers that you brought in have these annual contracts that come up at different times during the year. Is there any real variation to that or is that just going to be kind of a regular pickup as you move along and what sort of success have you had in the early going converting some of those annuals when they do become available?

Yes, your first portion and comment is correct. Those contracts thankfully come at all portions and times of the year because we wouldn't want -- that would indicate we wouldn't be having success throughout the year. So we tend to always find new contracts in the way of our process here from our sales department and right through to accounting on a daily and weekly basis. So those accounts are renewed. What we are working hard today is if a client had under contract for either a one, two or three-year service engagement for a service or two services, we are tending to now bundle technologies and software licensing, as well as an additional product offering so that we are beginning to get deeper and wider into each account so that we can begin that cross-selling and become a lot more sticky in their organization compared to just being a single source provider.

Okay, that sounds good. And I mean I haven't done the numbers, but maybe, Wes, could you just kind of give us an idea of what the non-GAAP tax rate is that we should be applying?

In the reconciliation that we did, the non-GAAP reconciliation, we use 38%, which is our combined weighted estimated federal, state and foreign tax rate.

Okay.

As always, there are things that we won't be able to control, like the benefits we get from stock option exercises, etc. but, as a baseline, that is what we use.

Okay, that sounds good. Thanks again for taking the questions and congratulations.

Thank you.

Thank you, Walter.

(Operator Instructions). At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you, Donna. I'd like to thank everyone today for joining us for our March 31, 2014 earnings call and to discuss our operating results. We look forward to talking to each of you again in our next call and in the meanwhile if anything comes up that you would like to discuss, Wes and I are always glad to take calls from our shareholders. Thank you, everybody and have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.