ACCESS Newswire Inc (ACCS) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Issuer Direct Corporation second-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, sir. You may begin.

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 and 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 the 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 is 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 the related tables for GAAP information and a reconciliation of GAAP to non-GAAP information. We also posted to our website in an Investor Relations tab a description, as well as a reconciliation of GAAP measures to which we will refer on this call.

With that, I will turn it over to Brian.

Thank you, Wes, and welcome, everyone, to Issuer Direct's earnings call for the second quarter 2014. Over the next few minutes I would like to talk to you about our business and review some of our activities for the quarter. Following my remarks, our Chief Financial Officer, Mr. Wes Pollard, will discuss our operating results and key metrics in greater detail. We will then be happy to answer any of your 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 $3.6 million for the second quarter 2014 compared to 70% gross margin on revenues of $1.7 million for the same period last year. This represents a year-over-year revenue growth of 111%. For the remaining part of fiscal 2014, we believe margins will continue in the 70% range.

In previous calls we've touched on the impact of PrecisionIR and what it has had on our operations. We continue to see its material impacts on our overall business, not only in revenues and profits but also on our strategy of building our disclosure management system to the communities.

It has been almost a year since this acquisition and the integration efforts are all but done. Our focus is now on expanding our sales and marketing efforts as we begin to sell one cohesive offering to the corporate issuer marketplace. This planned sales and marketing expansion is critical to our overall business, not only for our top-line revenue growth but also in EBITDA.

Even though our EBITDA increased just 2% year-over-year to $659,000 we have reached a point where our business is highly scalable and subsequent increases in revenue should have a significant impact on our bottom line as our operational costs should not substantially increase as we add incremental revenues. With sustained margins any revenue in excess of that achieved would significantly increase the net income and EBITDA. And we will help start to demonstrate this going forward via our growth initiatives, which include adding additional partners, cross sales between our core accounts of PrecisionIR and Issuer Direct, and of course, organic customer acquisition and growth.

During the second quarter, we have continued spend time on our channel partners and reseller businesses. We have added two new partners with many additional opportunities in the pipeline and continue to look at ways to expand our disclosure management system to a broader audience.

In previous calls, we talked about our cross-selling initiatives and how these efforts will not be seen overnight, as several of our products and services are generally purchased an annual commitments. Since true cross-selling in our sales organization did not begin until halfway through the integration with PrecisionIR, we feel good about the impact it will have on our combined businesses year-over-year. This is something that we will start see the end of this year and beginning and throughout fiscal next year and continuing forward.

Our disclosure management business decreased for the period to $1.2 million to $915,000. The decrease was primarily from our reseller business. This is an area where we continue to see pricing pressures on trade work that is done indirectly for the corporate issuer community.

Realistically it is a volume play now and XBRL has worked its way through the entire issuer community here in the US, so we readjusted our model and believe that we can remain competitive while sustaining our margins. As an example, the two new resellers that we have signed this period are on this new revenue model and we believe that we can garner additional resellers based on this new strategy.

In our shareholder communications business, revenue increased $2.5 million from just $460,000 in the same period last year. Also, our gross margins in the business improved to 68% from 46% the previous year. Our software licensing revenue for the period also increased to $234,000 from $95,000 in the previous year. This is a direct result of our combined client bases utilizing certain platform products from our disclosure management system, specifically webcasting as well as our market stream and IR website modules.

Although we experienced a slight decrease in our disclosure business for the second quarter, we are encouraged by the overall markets and long-term demands for our platforms. In contrast, a good portion of our overall growth we have seen is directly attributable to the acquisition of PrecisionIR, but we are seeing growth in our core Investor Relations products, a Platform-as-a-Service to the corporate issuer marketplace.

For the better part of past 10 months since the acquisition, our teams have focused entirely on operational efficiencies, systems, people, and brand. And to a degree this has taken longer than what we have liked, but it was important to get it right the first time.

In the remaining part of 2014, we're going to focus on new client acquisition as well as cross-selling opportunities between both companies. To help kickstart the initiative, we have begun expanding our sales and marketing teams. The team will significantly grow as we expand our activities in both client reach and new client acquisition, and that will begin this quarter.

The 1,500 corporate issuers -- mutual funds, banks, brokers, and resellers and compliance professionals -- remain strong in our network. In closing, it would like to reiterate that the integration of our backend systems and operations with PrecisionIR are now substantially completed and we will remain optimistic about the remaining part of 2014 as management can focus on executing our core business and expanding our combined companies.

With that, I would like to turn the call back to Mr. Wes Pollard, our Chief Financial Officer, who will take you through the summary of our financial results for the quarter. Wes?

Thank you, Brian. Highlights of the second quarter of 2014 are as follows.

Our revenues increased 111% to $3.6 million as compared to just $1.7 million in the second quarter of 2013. Gross profit increased 112% to $2.6 million as compared to just $1.2 million in the second quarter of 2013. Non-GAAP net income reached $501,000, or $0.24 per share, as compared to $435,000, or $0.21 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. In fact, our cash balance increased to $2.2 million at June 30, 2014, as compared to just $1.7 million at the end of fiscal 2013. The second quarter of 2014 was our ninth consecutive quarter in which we generated positive cash flows from operations.

For GAAP purposes, we recorded net income of $68,000, or $0.03 per share, for the three-month period ended June 30, 2014, as compared to $365,000, or $0.19 per share, in the same period of fiscal 2013. Consistent with the prior quarter, our 2014 GAAP income is burdened with non-cash interest expense of $313,000 related to a convertible note payable used to finance the acquisition of PrecisionIR, as well as $230,000 of amortization expense for intangible assets primarily related to assets acquired from PrecisionIR.

Highlights of the six-month period ended June 30, 2014, are as follows. Our revenues increased 128% to $7.1 million as compared to just $3.1 million in the same period of 2013. Gross profit increased 126% to $5 million as compared to just $2.2 million in the same period of 2013.

Non-GAAP net income reached $903,000, or $0.43 per share, as compared to $708,000, or $0.34 per share, in the same period of fiscal 2013. For GAAP purposes, we recorded net income of $31,000, or $0.02 per share, for the six-month period ended June 30, 2014, as compared to $580,000, or $0.30 per share, in the same period of fiscal 2013. Consistent with the quarterly results, our 2014 GAAP income is burdened with non-cash interest expense of $625,000 related to a convertible note payable used to finance the acquisition of PrecisionIR as well as $460,000 of amortization expense for intangible assets primarily related to assets acquired from PrecisionIR.

For both the three- and six-month periods ended June 30, 2014, we again achieved gross 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 be positive as compared to 2013. Furthermore, we anticipate that we will start to see reductions in our general and administrative expenses as integration expense related to the acquisition of PrecisionIR should continue to diminish.

I would like to make a final point on our financial results. We have been talking for much of last year about our transition to a recurring revenue model. At the end of June 2013 we had only $64,000 in deferred revenue. However, due both to the acquisition of PrecisionIR and our continued focus on long-term contracts, at the end of June 2014 our deferred revenue balance has grown to $1.3 million. This is revenue that we will recognize over the next 12 months or sooner.

As in the past, we will strive to keep all of our operating costs in line with our revenue growth so that we can continue our history of achieving positive cash flows from operations. We believe that this management team has demonstrated a history of managing our operating expenses to stay in line with our revenues, which has allowed us to consistently generate cash flows from operations, and we have firmly focused on maintaining this track record going forward.

With that I will turn it back to Brian.

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

(Operator Instructions) Eric Weinstein, Chancellor Capital.

Thanks, good quarter. I'm going to have to get used to the sequential improvement in 2Q from Q1. I think it's the second time we've seen that, but I want to explore the underlying leverage in the business model you sort of talked about a little bit.

On the revenue side, obviously you talked a little bit about pressure on the disclosure management side. But the big not now with PrecisionIR is shareholder communications. And when you bought that my understanding was that was sort of in decline we could sort of see through most of last year and even the first quarter that there were declines in that business.

But based on what I'm looking at in terms of the second quarter and the statement about the second half of 2014 being over and above 2013, has that halted at this point? Are you turning that business around from a revenue growth standpoint?

Thank you, Eric. Yes, to a degree you are right. If you looked at the pro formas and the consolidated nature from the past of what we had filed, there was no question that we had made it very clear at the very beginning that business was on the decline. We've stabilized those core clients and began to now bundle some of those services with some new product offerings from Issuer Direct.

So we are seeing new client renewals. We are seeing engagements, long-term contracts, and a more predictable path to growth, specifically in our EU operations.

Okay. It certainly looks like there's -- that's where the potential for the growth is coming from. And certainly if it's stabilized that is why it was an improvement over the last two quarters.

Then just on the expense side, it just seems to jump around a little bit. On G&A we are down quite a bit from the first quarter. On sales and marketing we are up a lot from the first quarter despite sort of the same revenues. What can we expect from those lines going forward and total OpEx?

I think that you'll see the G&A will continue to decline or at least stabilize. The decline that you have seen has been largely as we work through that acquisition-related activity, integration-related activities that came along with the acquisition of PrecisionIR.

Obviously we went through some cost-saving exercises. We had some redundancies so we have worked through that. We've spent money to integrate the operations, integrate accounting systems, etc. So I think you will continue to see a decrease, maybe not as much as you saw from Q1 to Q2, but if you've been following the Company for a while I think you know that we do manage our G&A expenses and try to keep them in line with revenue. And we will continue to look at that.

On the sales and marketing side, a lot of that, quite frankly, is just timing with some of that marketing activity that got pushed from the end of Q1 into Q2. So that is more related to a timing issue, but I think as a percent of revenue those should be somewhat consistent going forward. So I don't think you will see the wild swings, except to the extent that we have wild swings in revenue, which hopefully we won't.

All right, thanks a lot.

(inaudible), [GEO Investments].

Nice quarter. I had a couple questions for now. The first one is about the XBRL and launch of XBRL. I was reading an article recently about I guess some people weren't really giving high grades to the whole XBRL platform and the way companies are using it. And I thought maybe that's an opportunity for you guys. I guess more confusion might be better for you.

I'm wondering if you see that as opportunity that there's some problems with the way it's being adopted or a negative issue for you guys. So I will let you answer that one first.

Thanks, this is Brian. You are absolutely right. I think that in -- if you take a step back and go back to 2004 and 2005 when Chairman Cox at the SEC at that time talked about XBRL and the process for financial reporting, streamlined compliance, audit purposes, there was a good amount of hype. And corporate issuers embraced that ability to integrate into their ERP and back office accounting systems as a way to improve financial reporting.

But the reality is, at the end of the day, a lot of those back-office systems and accounting ERP systems didn't catch up right away, so there was a good amount of a few years of we have to comply, we have to pay for this regulatory requirement. And now it has started to get to the point where service providers are now starting to embrace it.

It's been integrated into a good amount of our platforms. Today our corporate issuers can log on to the disclosure management systems and use a product that we call XBRL compare. You can very quickly type in the symbol or company name of somebody in your sector you want to compare your financials to, pick a period of report, and with a matter of seconds we can stack you up side-by-side with 10 or 15 variables that are important to you based on your financial statements.

I was just going to finish up; those tools aren't out there today. I think the market needed a few years of historical data to catch up and to be able to use the algorithms and XBRL tags to their benefits, much like our stock charts and our performance data.

One of the issues that the article was talking about at the time was that, regarding the tagging, that companies are getting confused because there might be several ways to define a particular financial line and that kind of confusion, again, makes it harder to standardize things. So I was wondering what role do you play in that. Do you try and help these companies understand that process more and help them pick the right tags for the right items that is more searchable and it works better?

Yes, absolutely, and that's the trade-off, right? It's sometimes driven by price, sometimes driven by quality. And you can imagine there is a good amount of the corporate issuer marketplace that's focused on price alone and that's where we do see those pricing pressures.

Those are the companies that tend to just want to comply and not care about the quality of the work and what's being done. So to your point and to the article's point and many others is that at the end of the day the wrong tags are being used, [different] tags are being used. Previous taxonomy years are being used and they are not being rolled forward to current US GAAP taxonomy rules.

That is inherent through the industry and so our objective was a year ago to focus on the quality of clients that cared about the impact of the work to want to ensure that, for compliance reasons, they are utilizing the same taxonomies to give a fair presentation of their financial data.

The corporate issuer marketplace on the reseller side isn't about that. It's about price. It's about turn around, and that's where we've seen the pressure. So what we tended to do before is provide the same level of service to those reseller clients as we did our core clients, so we've changed that model to be able to be competitive to do what we refer to now as first pass work.

We do the first pass amount of XBRL tagging as quickly as we can, push it to our reseller partners to let them finish up the work. And that model seems to work well for them. It aligns with their type of clients that they have that tend to be more concerned on price.

But long-term our focus, to your point, really is about the quality of the data. We can improve that quality of data. We can utilize that big data thinking to build other product platforms based on those (multiple speakers).

Right, absolutely. That is what I was getting at. That really helps with that goal. A lot of problems you have with some of these that are buyers is they just -- garbage in, garbage out. Data for the sake of data doesn't mean much if it's not good quality.

So I would think confusion is actually -- inefficiency in the middle market is actually good for you. It's a selling point, I would think.

Absolutely is. Our sales team has used that to their advantage as much as they can, correct.

One more question and then I will come back later. Regarding more the popularity of the OTC markets dot-com; they are getting companied to list there and stuff. There's a lot of bad quality, but there's some good quality stuff on there, too.

Are you exploring opportunities there to -- they might not use any SEC reporting tools or XBRL. Is there anything you're looking at on that venue to help improve the quality of some of the numbers of some of the good companies on those exchanges or on that platform?

If they are SEC reporting or SEDAR reporting, yes, we are and we work with those companies as much as we possibly can on a daily basis. If they are a non-SEC reporting, we tend to not and that is again I think a maturity of XBRL. When it gets to a point that this country catches up to the rest of the world and the XBRL data sets are used for tax reporting purposes and overall state financial reporting, you can then get into a situation that we can more broadly help a larger group of clients.

And that really holds true for non-public companies who are non-SEC reporting. As much as we look at 9,000 potential US companies here and maybe 14,000 that report to the SEC that could possibly use XBRL, there's exponentially more of those that are reporting to their revenue departments, whether it's federal or state, that at some point this XBRL element is going to be used for.

I was thinking there might be a data opportunity, integration opportunity to provide products to investors for those quality OTC companies that aren't using XBRL yet. If there's something you can build on that venue, that's where I was going with that thought I guess.

Today, no, to answer more specifically. Today, no, we are not doing that.

Cool. So I will come back if my other questions aren't answered later in the call. Thanks, Brian.

(Operator Instructions) Walter Ramsley, Walrus Partners.

Congratulations, Brian and Wes. It looks like a really good quarter. I was hoping you might be able to spend a minute and talk about the Company's new products and product extensions. Is there anything that you can tell us on that front?

Thanks a lot, this is Brian. One of the things that we've spent a significant amount of time in our development, and I think we've talked about this on previous calls, is this platform we tend to give that acronym of DMS or disclosure management system. It really is the heartbeat of what we are about to do from a strategy perspective going forward.

And it encompasses both the regulatory side of moving documents to the exchange to regulatory bodies such as the markets and even its shareholders, but we are beginning to fold in all of the legacy PrecisionIR products, whether rebuild or refresh. And that really is going to come over the next three to six months that we're going to give not only the legacy PrecisionIR clients, but all of the Issuer Direct clients and banks and brokers. We have the ability to get insight into who is holding a position in their company, what types of shareholders they are, and a platform to communicate with those folks.

As we all know from our past filings and looking at Precision IR's legacy business, it's always been about distributing materials, investor kits. And that investment distribution of content has always been -- [there is no more] hard copies and we all can appreciate that hard copy business is tending to shift.

And we would expect it to shift because folks are looking for in demand, they are looking for information now as it happens with a company. Much like today, when we run our earnings at 4:01, a good percentage of our interested new shareholders received alerts to get copies of all of this. They can visit companyspotlight.com and listen to our live webcast stream and get all of our financial data through our investor relations platform.

So we are going to begin to really integrate all of our current systems that we have been selling for years, but also with that shareholder intelligence to really understand the shareholder base of the Company, and give these CEOs and CFOs an opportunity to engage them much quicker in the process, rather than much later in the process.

Okay. In addition to that, the Company has given some thought at least to starting to look at the private company market. Is that really being emphasized yet or is that still sort of on the back burner?

I think it's on the horizon. It has to be on the horizon. It really always has. For us, we have to look at our current core products and the current focus of what we have, and that's the public company marketplace. And that includes banks and brokers, which by default a good percentage of them are private entities, but they are in the financial services space.

If you kind of look outside of the financial services space and look at the product sets that we have, what applies to a certain other industry or market that we could tap into? News distribution is a big part of that. There are more news announcements that are run on a daily basis for companies that are not public than they are public. There are a good amount of press releases and data distributed to the market and/or news aggregators of companies doing product releases compared to earnings type releases.

So we spent a good amount of time there. We're going to spend even more time on that over the next couple of quarters to find a product offering that matches and aligns with distribution that can be advantageous for us to find avenues to be able to tap into the private company marketplace.

If you don't mind me just asking one more, the mobile distribution, is that something that you are pursuing right away or is that down the road a little bit?

It's kind of funny you bring that up. That's a good point because a lot of folks in this market tend to talk about things about think three screens -- there's the desktop, the tablet, and the mobile environment. And we tend to have a very different view of that.

Our expectation is, if our platform works on the desktop, it should extend to your tablet or mobile by default. We shouldn't even have to have that conversation, so we tend to think about things differently and I think the reason why is we tend to think about it from the investment community side. We tend to think about it from Wall Street's side.

You are at your desk and you are looking at streaming earnings of companies that you are following and you are leaving catch the 4:45 train, you want to take that information with you on the go, whether that is a tablet or a handheld. And you should be able to see it in that same environment without the dependencies of having clipping or redistribution of that content through a native app or anything else.

So we tend to view it differently. As much as we believe mobility is a big portion of what we are doing from an investor relations content distribution, it by default is just part of our network.

Okay. Well, thanks very much. That was great.

(Operator Instructions) Thank you. We're showing no further questions at this time. I will turn the floor back over to management for any additional or closing comments.

Thank you, Donna. I would like to thank everyone today for taking the time to listen to our second-quarter 2014 results. We look forward to talking with you again on our next earnings call.

Meanwhile, if any of you have any additional questions, either follow-up or new that you didn't get a chance to ask today, we, both Wes and I, invite you to reach out to us. And we look forward to talking to you again. Thank you.

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