ACCESS Newswire Inc (ACCS) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation third-quarter 2015 earnings conference call. 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 interim Chief Financial Officer, Steve Knerr. I'll now turn the call over to Mr. Steve Knerr. Please go ahead.

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 risks 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 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 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 reconciliation of GAAP measures to which we will refer on this call.

With that out of the way, I'll begin by going over financial highlights, and then turn it over to Brian for his operational review and outlook, followed by a questions-and-answer session.

Q3 financial highlights with prior-year quarter comparisons are as follows. We achieved revenue of $2.8 million, compared to $3.2 million. Gross margin percentage increased to 70% from 69%. EBITDA margin was 22% compared to 23%.

The Company's GAAP earnings per share increased to $0.05 per share compared to $0.04 per share. Non-GAAP net income was $0.4 million, or $0.19 per share, as compared to $0.5 million, or $0.23 per share.

Once again, we continued our trend of generating positive cash flows from operations and increasing our cash balance over the prior quarter, as we generated $0.4 million of cash flow from operations and increased our cash balance to $3.7 million at September 30, 2015, compared to $3.4 million at June 30, 2015.

In August, Red Oak converted the remaining $1.7 million of principal on our 8% note into approximately 418,000 shares of the Company's common stock. On November 2, we paid a quarterly dividend of $0.03 per share.

Highlights for the nine months ended September 30, 2015, with the prior year nine months comparison are as follows. We achieved revenue of $8.9 million compared to $10.4 million. Gross margin remained at 70%. EBITDA margin remained at 20%.

The Company's GAAP earnings per share increased to $0.18 per share from $0.05 per share. Non-GAAP net income was $1.4 million or $0.56 per share, as compared to $1.4 million or $0.66 per share.

The change in EPS despite relatively similar non-GAAP net income was a result of more shares outstanding, primarily as a result of the conversion of the Red Oak note to shares of the Company's common stock, as I mentioned earlier. The Company generated cash flows of $2.3 million compared to $1.6 million.

For GAAP purposes, we recorded net income of approximately $137,000 or $0.05 per share for the three-month period ended September 30, 2015, as compared to net income of approximately $76,000 or $0.04 per share in the same period of fiscal 2014. We recorded net income of approximately $438,000 for the first nine months of 2015 compared to approximately $107,000 for the same period of the prior year.

Net income for the first nine months of 2015 included an income tax benefit resulting from the release of a valuation allowance on certain net operating losses, as discussed in detail during our earnings call for the first quarter of 2015. We also benefited from lower interest expense for the three- and nine-month periods ended September 30, 2015, due to the partial conversion of Red Oak's 8% to note payable during the fourth quarter of 2014 and the conversion of the remaining shares during the third quarter of 2015. It is important to highlight that as a result of the conversion the Company will no longer have any non-cash or cash interest expense associated with the note.

During both the third quarter and the first nine months of 2015, we achieved gross margin of 70%, a result we expect to maintain going forward as we continue to transition customers from hardcopy fulfillment of annual reports to digital fulfillment and release our new cloud-based products that Brian will discuss in more detail in a few minutes. During the quarter, we continued to experience declines in revenue from our traditional service product offering, a trend that we expect to continue. However, we remain optimistic that beginning in 2016 we will begin to offset these declines through the licensing of our new cloud-based products that I mentioned earlier.

Disclosure management revenue decreased $118,000 or 17%, and $530,000 or 21% during the three- and nine-month periods ended September 30, 2015, respectively, as compared to the same periods of fiscal 2014. Revenue from our XBRL, EDGAR, and transfer agent businesses all decreased during these periods as we continue to face pricing pressure in the XBRL and EDGAR markets and experienced less corporate directives, as well as faced an industrywide shift from physical paper to electronic delivery in our stock transfer business, similar to what we are experiencing in our ARS and proxy businesses.

Shareholder communication revenue decreased approximately $338,000 or 15%, and $865,000 or 12% during the three- and nine-month periods ended September 30, 2015, respectively, as compared to the same periods of fiscal 2014. As with last quarter, the decrease in shareholder communication revenue is due to a decline in revenue associated with our ARS service offering, as issuers shift from hardcopy fulfillment of annual reports to digital fulfillment and as a result have elected to downgrade their service or leave the service altogether.

However, we experienced another strong quarter in our press release business, due to the acquisition of Accesswire, to increase revenue by $175,000 and $698,000 during the three- and nine-month periods ended September 30, 2015, respectively, over the same periods of the prior year. Additionally, due to special projects in our print and proxy business, revenue increased $93,000 for the third quarter of fiscal 2015 compared to the same period of the prior year; however, print and proxy revenue remains down slightly on a year-to-date basis.

During the quarter, we saw an increase in revenue from our platform and technology products, which includes the licensing of our existing investor network, webcasting, IR portal, and transfer agent cloud-based platforms. As we mentioned in prior quarters, the Company is focused on increasing revenue in this category through not only the products mentioned above but through the launch of our new cloud-based products. These products will be delivered through a subscription model, which will allow us to have a more predictable revenue base and will also come at a higher margin.

During the three- and nine-month periods ended September 30, 2015, we were able to continue our trend of lowering operating costs by streamlining costs associated with PrecisionIR and developing a targeted marketing plan. We will continue to strive to keep all of our operating costs in line with revenue, in order to continue our history of achieving positive cash flow from operations.

As I noted earlier and Brian will discuss shortly, we have been developing some new products to accompany our current product and service offerings. As a result, we have increased our investment in product development and have capitalized approximately $242,000 and $526,000 of software development costs during the three- and nine-month periods ended December 30, 2015.

I will now turn it over to Brian who will discuss further the steps we are taking to transform the business with our new set of cloud-based products. We expect these steps will help us continue to generate positive cash flow, pay dividends, and maintain profit and EBITDA margins as we move throughout 2015 and into 2016.

Thank you, Steve, and good afternoon, everyone. In previous quarters I have tended to recap some of the financial highlights that were just reported by our CFO. Today and going forward, I am going to spend my time talking to you about some of the key metrics that are important to us all, as well as our strategy, focus, and new product platform developments. Not to mention, the detailed recap of Steve's discussion today can be found at our Investor Relations section of our website and, of course as part of our FD disclosure process, on Twitter and other social media accounts.

For the three-month period ended September 30, our ARPU was $2,868. Although our quarterly ARPU is down slightly, we remain confident that our ARPU on an annualized basis will be within our expectations for the current business.

Looking ahead, with the addition of our cloud-based expansion, we believe our new product platforms will play a role in our overall annual revenues per client, specifically as it relates to the multiple licenses per organization, and not to mention at a higher gross margin than today's averages. We have and continue to achieve these ARPU numbers even though the majority of our clients are still purchasing a single product or service from us today.

Of the little less than 1,000 clients actively billed during the third quarter, 31% were under agreement for two or more services. We remain encouraged that these are not only significant potential in the market for our product platforms, but also within our own installed base.

As most of you know, our business has historically been driven by our service organization. Transitioning our business model to a cloud-based company does not change who we are as an organization, but it does set us up for long-term growth, relevance, and market disruption -- positions we have succeeded with in the past when we experienced double-digit revenue growth. We understood that this transition needed to begin early in our platform evolution; so if I may, I'd like to discuss a couple of the areas whereby you are going to see our platform expand.

Our first of many platform add-ons was recently released. We're calling it Blueprint: a secure, cloud-based, SEC reporting platform for corporate clients and the legal community.

Blueprint is a part of our DNA. It brings together the history of who we are from our founding principals and adds together the industry veterans that are now part of our disclosure team. The Blueprint product can be easily licensed as an add-on to our cloud-based disclosure management system.

There are several advantages of Blueprint for reporting companies of all sizes. It's not only easy to use, but we demonstrate a clear ROI when compared to others in the market; and its straightforward user permissions allow clients to have unlimited amounts of view-only users at no additional charge. Lastly, our filing scheduler is built into the platform, putting control in the hands of the companies that need to file these regulatory disclosure documents on a regular basis.

There is some significant IP being developed here with Blueprint, so appropriately we are currently evaluating our ability to adequately protect these developments with either a business methods patent or a utility patent.

In addition to Blueprint this year, we also have a much-anticipated Outreach 2.0. It's our intelligence tool that utilizes our proprietary data sets and algorithms to gather, serve, and maintain both media and investor contacts. We're calling it Classify. Soon to be released, Classify will be strategically targeted at the less than $1 billion market cap issuers, giving them the affordable dataset for thousands per year less than currently available today.

This powerful add-on to our disclosure management system and Accesswire network gives corporate issuers the ability to engage and build new relationships with over 3.5 million records globally and growing. Understanding your stakeholders is vital for corporate messaging. Classify puts both media and professional investors in their reach and on the same platform, something that is currently not available in the market today.

We expect Classify will initially be licensed to current legacy clients that we acquired via the PrecisionIR acquisition in 2013, as well as new clients in the public relations sector. This product impact will assist us in the shift of our business from a print and fulfillment operation to a full cloud-based platform, resulting in higher margins and increased ARPU.

Our newswire business has seen strong year-over-year growth both in revenues and client counts. We have seen marginal increases in the average price per release over the first three quarters of this year, up sequentially quarter over quarter.

For the three months ended September, there were almost 1,000 customers that completed their news with Accesswire. This compares to 1,187 in the second quarter of this year.

We've spoken about our focus here and how we're making a transparent change from select reseller business to a direct account focus, where we see average revenues per release are significantly higher. On a year-over-year basis, our newswire business is strong and continues to show signs of growth both in revenue and client counts. We expect to see this trend continue as we become even more of a viable contender for public company news.

During the quarter, we upgraded our distribution report engine for our clients and partners, giving them an even more dynamic seven-day pickup and distribution report that includes social integration and interactive charts. This is the second step in our planned 2015 Accesswire upgrade.

During the fourth quarter, we will be expanding our Outreach brands into and with our Accesswire brands: specifically, our new media dataset that includes publishers, editors, writers, bloggers, and social media personalities. This featured platform add-on will aid in our goals of increasing our Accesswire ARPU on an annualized basis of over $2,000 for clients that elect this feature add-on.

Looking forward I'm confident we will continue to benefit from our positive cash flows, above-average industry margins, and double-digit EBITDA margins as well as both GAAP and non-GAAP earnings. I would like to see gains in our quarterly ARPU numbers and believe that we are positioning our business to get there in 2016.

In conclusion, I want everyone to know that management remains fully committed and is satisfied with the progress of the business transition. Like I have said before, plenty of other industries have gone through this, and we're no different.

We began this platform shift over a year ago and have spent considerable amount of times both in our development initiatives as well as our operations to be adequately prepared. Our platform is the key driver, and it gives us the competitive advantage to win clients over the long term. Therefore, both client growth and retention is the most important internal metric that we are focused on today.

With that I would like to turn the call back to the operator so we can open up the call for questions. Operator?

(Operator Instructions) [Michael Crawford], private investor.

Hey guys, thanks for the call. Great numbers out there. A couple quick questions.

Given the margin expansion you expect from new products next year, what do you think the non-GAAP EPS looks like? Also, at revenue levels of around $10 million, $12 million, and $14 million in 2016?

I think, Michael, at this point, as we continue to roll out our cloud-based products, it's a little early for us to provide some guidance on both GAAP, non-GAAP, and EBITDA numbers. I think you're going to see some expansion there naturally. Margins will begin to shift.

But we've got to scale operations for those product platforms, and as we begin to tail them in at the beginning of 2016 and beyond, it's going to be a few quarters before we're going to feel comfortable providing any sort of estimates.

Okay. Well, why do you think growth in your new products will be high enough to exceed the decline in the print business in order to have your year-over-year growth in 2016?

I think what's important to us is that our dataset product is going to be able to stop some of the attrition that we're seeing in our traditional fulfillment businesses. It's not necessarily just print. Some of that is by way of our legacy Order Annual Reports Service.

And our Outreach 2.0 platform -- or Classify, as we call it -- is designed to be produced and used in conjunction with the traditional ARS model. So we believe we're going to be able to hold some of those clients and continue their contracts as well as add on new services that are cloud-based to them.

Secondly, conversely, not all of our business historically has been based on print, right? We don't -- we tend to see good print revenues and margins late first quarter and into second quarter as most of the clients, 80% of the market, conducts annual meetings. But as you work through the back half of the year, not a lot of our revenues and/or margins and profits are generated from just pure print play business.

Well, based on that answer, what part of your business do you expect to grow the fastest in 2016?

It's going to be our shareholder communications and platform and technologies. Two critical components to each -- just to further, if I could, Michael.

The two critical components to each of our disclosure and communications businesses, both, are Blueprint and Classify products. So you'll see revenues for those products that will be represented in our platform and technology's revenue stream. However, you're still going to see some stable renewals as a result of product expansion for those clients that will still be attributable to both disclosure and our shareholder communications.

Got it. Thanks.

(Operator Instructions) Scott Billeadeau with Walrus Partners.

Hi, guys. Could you maybe talk -- like you said, I think the most important metrics are client growth and client retention, and I think you mentioned just under 1,000 clients this quarter. Where do you think that bottoms, or have you bottomed?

And what percentage of those convert to the platform? What's the game plan there? And is that the early game plan, to convert those first?

There's going to be a blended focus. Our sales organization is divided into two groups. One is our strategic teams to focus on our current accounts to fight against possible attrition and holding those numbers firm with product expansion opportunities for cloud.

I think conversely, the Accesswire side as well, each of those sides of our business are in around 1,000 clients for each. So we're confident that part of our dataset product will be used in our Accesswire network, where we'll see some further growth there.

Our Accesswire business remains very strong on a year-over-year and a sequential-quarter basis as far as client counts are concerned and average revenue per release. So we're going to continue to see strong growth there.

There is no doubt going to be some of our Annual Report Service clients that don't opt for renewal on that product platform. That's simply just a virtue of their own initiatives of cost-cutting, green initiatives, and things that they no longer wish to distribute hardcopy reports. But we feel confident that we're going to be able to keep their digital distribution and be able to add to that average client contract over a longer period with some of our cloud platforms and digital technologies.

How much -- just a follow up of that is, as you tell, you are going to focus on the under $1 billion. Where do you see yourself from the current customer base moving up cap scale? Will success for you guys require you to do so?

Yes, that's a great question, Scott. We are doing well climbing upstream. The financial services marketplace, community banks that are larger caps, we're doing well within that space, growing clients every quarter. We continue to do it in each one of our product focus segments that we climb upstream.

When we tend to release new product to the markets, specifically cloud-based systems, we tend to focus on the $1 billion market cap less, because of the sheer quantity of the numbers of them in comparison to the $1 billion-plus.

So there's no doubt efforts from our strategic team will be focused on the larger cap clients: the Sherwin-Williams, the BPs, the Shells, the larger accounts that we have, Yum! Brands. We're going to continue to expand our product platforms with them. But the focus really is going to be on the $100 million to $1 billion folks.

Right now, they don't have a cloud platform? I mean, what do they -- who do you displace? Or what's the plan of attack for those?

You're going to displace several ways. There are companies within the segment we talked about that have made decisions to go with a cloud system to some back-office function. Maybe it is financial reporting, for example, and they've chosen a current cloud platform that is there today, that may be meeting their needs at a cost that's perhaps over their budget. And in order to scale and bring on users within their organization, it's just not become affordable; or the product does not give them the ability for flexibility.

So we feel confident that the larger cap clients are going to see value in our platform. But I think the reality is, as our messaging has been for the last four years with our disclosure management platform, that we're not a silo-based approach. We tend to focus on back-office functions that we can aggregate multiple service offerings into one cloud platform.

That's the clear ROI for us. That gives us the competitive advantage against a typical organization that uses four or five service providers or technology providers to conduct their disclosure and communications.

Our disclosure management platform as well as the additional products that are being integrated address all this from one central location. So SSAE certification is important; security is important; cloud-based environments and moving that way is important for organizations. But at the end of the day, we can't ignore the fact that we have to have a clear ROI and a very straightforward platform to use. We've built and continue to market our products and platforms that way and have had good success doing that.

If we were a silo-based company and we sold one product or service, we would become commoditized, and we would be difficult in this market to succeed long term. So, what we're doing from a long-term approach we feel is going to provide us the utmost opportunity for client expansion, margin expansion, and ARPU numbers, ultimately.

Right. Then last follow up is, can you just maybe give us an example of the data? You talked about dataset products, or being able to use the database, leverage the database you have. Could you maybe give us an example of that?

Yes, I think I referenced it here a few minutes ago; we call it Outreach 2.0. It's really the next evolution of what PrecisionIR had and what Issuer Direct was already building prior to that acquisition.

In the annual report services market, our Company Spotlight products are really good as a passive way of engagement. Your material is going to be presented to the potential investors when they look at your company and/or seek to find information. And that is a good part of an investor relations strategy.

The second part, really, is to be proactive and to go out and target individuals that you're looking for. Every company has those needs, whether it's a lack of retail shareholders, or a lack of institution, or maybe just a story that needs to be told to a certain segment of the market that doesn't understand that vertical or that company, whether they're a new IPO or an existing organization that's gone through a business change.

So our dataset addresses that. It gives the corporate issuers the ability -- and their constituents, the IROs and the IR and PR firms -- the ability to find individuals, whether they're advisors, family offices, brokers, hedge fund folks, retail investors, you name it. The platform's got 3.5 million-plus folks geographically all over the globe.

You can target those audiences. For example, Scott, if you were visiting a conference in LA, and you needed to find five or six individuals to fill some appointments and expand your scope of knowledge of people in the financial services market that knew your company, you could use our dataset to find those individuals and book those appointments.

Great, appreciate it. Thanks, guys.

Thank you. At this time I would like to turn the call back over to management for closing remarks.

Thank you, everyone, for attending today's call, as always, and we look forward to talking to you again on our next earnings call. Meanwhile if you have any questions or would be interested in taking some time to see our platforms, take them for a test drive; or Steve or I would be happy to answer further questions that you may have.

Thank you all. Have a good day.