ACCESS Newswire Inc (ACCS) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Issuer Direct First Quarter 2017 Earnings Conference Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Steven Knerr. Sir, the floor is yours.

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 Investors 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, we'll begin by going over financial highlights, and then turn it over to Brian for his operational review and outlook, followed by a Q&A session.

The Q1 financial highlights with prior year quarter comparisons are as follows: revenue was $2,856,000, down compared to $3,277,000 in the first quarter of 2016. Absent a one-time benefit of $316,000, which I'll discuss in more detail, revenue for the first quarter of 2016 would have been $2,961,000. Platform and Technology revenue increased 50% from Q1, 2016.

Gross margin percentage was 74% compared to 77% absent the aforementioned onetime benefit, would have been 74% during the first quarter of 2016.

The company's GAAP earnings per diluted share was $0.11 compared to $0.17. EBITDA margin decreased to 19% compared to 30%. However, absent the aforementioned one-time benefit, would have been 23% for the first quarter of 2016.

Non-GAAP net income was $406,000 or $0.14 per diluted share, as compared to $525,000 or $0.18 per diluted share. Once again, we continued our trend of generating positive cash flow from operations and increasing our cash balance over the prior quarter, as we generated $647,000 of cash flow from operations.

On April 5, our Board of Directors declared a quarterly cash dividend of $0.05 per share, making it our seventh consecutive quarter for paying dividends.

As I noted earlier, total revenue was $2,856,000, a decrease compared to $3,277,000 reported in the first quarter of 2016. It is important to note that revenue for the 3 months ended March 31, 2016, included a one-time benefit of $316,000 due to the reversal of an accrual related to unused postage credits for ARS customers acquired as part of the acquisition for PrecisionIR. Excluding this one-time benefit, total revenue would have been $2,961,000 for the first quarter of 2016.

In order to more accurately reflect our business, we're focused on a platform-first engagement. We've condensed our reporting into 2 revenue streams: Platform and Technology, which consists of revenue from our platform id offering and the 9 products within it; and Services, which consists of services requiring resources to perform [work] for the delivery of our goods, including our traditional Edgar conversion, XBRL tagging and teleconference services, as well as print fulfillment, and the delivery of stock certificates, proxy materials or annual reports. We'll now discuss the revenue from these 2 streams in more detail.

Platform and Technology revenue increased $468,000 or 50% to $1,414,000 during the first quarter of 2017 from $941,000 during Q1 2016. Platform and Technology revenue increased to 49% of our total revenue for the quarter, compared to 29% during the first quarter of last year, as we continue to focus on developing and increasing this revenue stream.

Driving this increase was the ongoing success of our Accesswire platform, for which revenue increased 90% compared to the same quarter a year ago, as we continue to penetrate the newswire market through additional distribution and realize the benefits of sales staff added in previous periods.

In order to fuel further growth, we will continue to focus on enhancing this product by adding new features, expanding distribution and increasing sales staff throughout the year. We also experienced increased revenue from licensing of other products within the platform, most notably our transfer agent, whistleblower, Blueprint and webcasting platforms.

Services revenue decreased $890,000 or 38% to $1,443,000 in the first quarter of 2017 compared to $2,332,000 during the first quarter of 2016. The decrease is primarily the result of a decrease in revenue from our Annual Report Service, due in part to the one-time benefit included in Q1, 2016, which I noted earlier, as well as continued attrition as customers leave the service, decreased hard copy requirement, or transition to digital delivery.

Additionally, we experienced declines in our print and proxy distribution services and stock transfer services, as revenue is project based, intends to occur at the discretion of our customers for corporate directive. Revenue from XBRL services also declined, as we continue to face pricing pressure from the industry.

Platform and Technology gross margin was 83% for the 3 months ended March 31, 2017, as compared to 82% for the same period of the prior year. But the increase in revenue was partially offset by higher amortization of capitalized software. Gross margin from our services revenue stream was 65% for the first quarter of 2017, compared to 74% during the first quarter of 2016. Excluding the one-time benefit noted earlier, gross margin percentage would have been 70% for the first quarter of 2016. The decrease in gross margin is due to lower revenue associated with the fixed costs of delivering ARS, print and proxy and stock transfer services.

Operational expenses decreased $82,000 during the 3 months ended March 31, 2017, primarily as a result of a decrease in amortization costs due to certain intangible assets, which became fully amortized during 2016, as well as lower sales and marketing expenses as we transition our sales team to a platform-first approach. Partially offsetting these decreases was an increase in G&A and product development expenses due to an increase in professional fees and payroll costs within our product development group.

EBITDA decreased to 19% of revenue for the quarter compared to 30% for Q1 2016. Excluding the one-time benefit noted earlier, EBITDA would have been 23% for the first quarter of 2016. For GAAP purposes, we recorded net income of $325,000 or $0.11 per diluted share for the first quarter of 2017, as compared to net income of $493,000 or $0.17 per diluted share for the same period of 2016. Again, net income for the first quarter of 2016 includes the one-time benefit noted earlier.

We continue to focus on generating positive cash flow from operations, as we generated $647,000 during the first quarter of 2017, compared to $501,000 during the first quarter of 2016.

Overall, our focus on Platform and Technology products resulted in increased revenue and margin from that revenue stream. We continue to remain excited about these products and are committed to invest more and leverage off this business in order to generate overall revenue growth, expand margins and increase EBITDA.

I will now turn it over to Brian, who will discuss key metrics, product enhancements and operational strategies for 2017.

Thank you, Steve, and good afternoon, everyone, and thank you for joining us. Today's call is also being broadcast live via our company profile on Investor Network, a link of which can be found in today's earnings release, which was just filed a few minutes ago. You can also view the full text of our earnings release on our website in the Investor Relations section.

We're excited to speak with you today, not only to discuss our performance for the quarter, but also the presentation of our new business from a financial reporting perspective.

As you just heard from Steve and have seen in our earnings release, since [shortly in] our quarterly filings, we have aligned our reporting presentation to better reflect our business and where we have our focus.

Delineating between our subscription business and our service segment is consistent with other companies that offer cloud-based subscription platforms. We're hopeful that our current stakeholders in the markets will begin to value our business typical to a subscription company, as we continue the growth of this part of our business. As we have said in the past, less than 10% of our business was comprised of subscriptions 2 years ago. If you fast forward to today, and for the period ended March 31, 49% of our revenues came from this portion of our business. Even though Accesswire was the driver, helping this segment deliver 83% gross margins, we are still very confident in the rest of this business, which for the most part had small revenue gains.

The changes in reporting also mean that we have introduced new KPI measurements beginning this quarter. We care about subscribers to our platform, and in the coming quarters, we will look to share additional KPIs to the top line tracking metrics that we're focused on.

For the quarter ended March 31, 2017, we saw a 25% increase in our customer base, from 1,405 last year to 1,761 this quarter ended March. And on a sequential basis, we had a 3% decrease in customers. A small portion of the decrease is attributed to customers, attrition in our electronic Investor Network platforms. And we're also seeing private companies licensing part of our platforms for shorter periods of time opposed to annual. This is an area that we will focus on as we have historically been a public company-focused entity, understanding the private company markets, specifically in the news business, is teaching us that subscription-based sales is much better than pay-as-you-go model. And lastly, we'll continue to provide in our earnings releases the details behind each of these year-over-year and sequentially. Our service business, which is our core compliance [print and fulfilling of] materials saw an 18% decrease in customers from 630 last year to 517 this quarter ended March 31, and a 5% decrease sequentially from 546.

We've spoken for well over a year about the business transition, and how we believe the services component will end up for our business. Being heavily tied to print goods, fulfillment of commoditized compliance offerings, we will continue to believe that this part of our business will become less of our overall revenues.

We ended last year having reached over 2,000 combined customers. With the changes on what we discussed above, we feel this presentation better aligns our performance and is focused on our platform business. And when you combine the numbers, we do have some small groups of customers that have crossed over from platforms to services, something that we feel good about on a go-forward basis. There are portions of the platforms and our customers that will continue to need help performing some of the elements of their work. However, service-only portions of our business are less sticky and inherent to higher than normal attrition rates, due to factors such as pricing pressures and M&A activities. Our teams remain confident and excited about this fiscal year, with a focus on customer growth and one of the most important internal KPIs for us.

In summary, as both of us said a few minutes ago, Platform and Technology revenues for the quarter ended March made up 49% of our overall revenues, something that we had targeted and messaged to have been achieved by the end of this year. So even though that we're ahead of our estimates internally, we still understand clearly that we have a lot of work to accomplish in our Platform business.

One of those areas is to expand our distribution circuits in our newswire offering, Accesswire. We feel confident that we will be able to continue to add to this distribution, which will only ever make our offerings even stronger in the market against the 3 larger providers in North America. Another area that we feel very good about right now is the interest that we're seeing in our webcast API. If you recall, we began the fiscal year broadcasting earnings calls on our Investor Network platform. The goal was to scale into this business, and by the year's end, provide all exchanges to companies' earnings webcast to our platform for free. We're on pace with meeting this and, in fact, seeing early indicators of utilization of more than we anticipated.

As recently as this week, we're seeing mid-cap to large-cap companies have audiences 50% to 75% larger than they typically are getting with their current providers. So as a reminder, our initiative here is simple. Create more demand, drive more traffic and create better relationships by making our customers' information more readily available to the markets.

Out of these simple initiatives, we will get user data, demographics, habits and engagements to license and provide back to our customers in the future. This additional revenue opportunity is key to unlocking our entire platform id communications module.

When we look at the business long term, we see clear values in our technology. But if we don't stay ahead by driving better analytics, we run the risk of being commoditized in a competitive space. With this audience analytics and other developments we have underway, we feel very good about the long-term performance of our communication platform offered.

Lastly, inside of our communications offering is something that we are using to [derive from] analytics and peer analysis for our business. Classify intelligence of our buy side, sell side and media targeting solutions is fast becoming a great add-on to our Accesswire news business. Customers are choosing to utilize media and/or reach the groups that are targeting their messages based on each campaign or events. When we originally built Classify, we intended for this to be a stand-alone product subscription. What we've quickly learned is that our database is [valued] more so with a specific message or campaign based on that event rather than a [passive] annualized subscription. This is why we have added the product offering to include a peer review and analysis dashboard, that we feel will further help draw together our communications offering into one long-term subscription.

From the development perspective, we have continued to invest in our platform modules by advancing critical features that we believe will keep us ahead in the market, further cementing us as the platform of choice long-term in our communications and compliance businesses.

Our viewpoint has us confident that we're on track and should begin to move several of these platforms into full candidate release this year, which means our sales teams will be focused on building pipelines and executing our strategies of subscription-focused sales.

In closing, for the remaining part of 2017, our teams are going to be focused on the following key initiatives: expanding our customers under subscription in our platform and technology business; continuing to add our distribution reach through our new and existing partnerships; adding key sales and operational staff where and when available; and executing upon opportunities in the M&A market that we feel can help us further build critical mass to the elements of our platform; and lastly, continue our commitment of refining our platform focus.

With that, I'd like to turn the call back to the operator for questions.

(Operator Instructions) And our first question comes from [Miles Jennings].

I was curious about the agreement you had with the London Stock Exchange. And I think, probably, you've had that agreement long enough so you can give us a comment on how that's working? And if you're incorporating more corporations into your services? And also, are there other exchanges, English-speaking exchanges I assume, that could use your services?

Yes. No, the -- I'm happy to talk about our relationship with the London Stock Exchange, and maybe others. As the history of relationship that we entered into by way of acquisition with PrecisionIR back in 2013, we have continued to operate our partnership as a strategic outreach for the FTSE 1000 and other LSE listed companies that investors seek to request materials hard copy and electronic. So investors [that visit] London Stock Exchange's platforms today have our content data from our market data product and our Investor Network product to fulfill fact sheets, investor kits and interim reports for those listed companies. The second component of that, that expanded partnership that you're referencing, came by way of a strategic relationship with our regulatory product, Blueprint. There are several hundred duly listed companies on LSE and either NASDAQ or New York Stock Exchange here in the U.S. that require SEC filings, part of the listing requirements to submit financial data. London Stock Exchange and the [RNS] group is using that product to exclusively file those documents. We are working with them currently today to expand the relationship even further, as we're doing filing work for groups like BP and Barclays and Glaxo. There are some of the largest FTSE 1000 companies are using the product platforms with LSE today. And lastly, they are in the process of integrating portions of our news distribution network to further enhance their reach into the U.S. markets.

Lastly, I think the other part of your question, [Miles], was are we doing that with others? And as most folks and our investors know in the community, we've had a strategic partnership with the New York Stock Exchange for going on 3 years, to utilize our whistleblower platforms into and with current listed and newly listed IPO candidate clients, both on NYSE and NYSE MKTS listings. We continue to expand that relationship and other verticals as well as other U.S. exchanges, as we've got a pretty good focus on what we refer to as our exchange partner program or EPP for short. So both -- that's U.S. and we do have foreign interests as well, and we're looking at exchanges there that -- primarily in the EU that we can expand upon.

Excellent. Now let me just ask one further question. I'm hoping that you aren't offering too many free services to gain new customers in the newswire area. And I just wondered, what the trend in revenue per client is? I don't need the actual revenue, but as far as the trend in the revenue per client in the newswire alone business?

It's -- I don't have the specific numbers to your point, right, to not need the specific numbers. What we find is that news business comes by way of 3 different flavors. Obviously, there is public company consistent news, as we and the other public companies need to submit their earnings announcements, earnings releases, product releases, regulatory FD. There seems to be a steady stream of that very predictable revenues that we can assign good ARPU values to. Then the growing part of our business, as I mentioned in part of our conversation here today, was the private company news market, where the market is much larger for us compared to the public company space. But the consistency of those articles, and the number of releases that they run are far less. And so what we're finding is that there's better ways to approach that market by subscription-based sales, giving them newsrooms and custom applications, as well as news articles for a annualized fee rather than a pay-as-you-go fee. And then the third element of that business is the reseller marketplace, which we've always viewed as a necessary evil, something that we continue to do. But by vast majority, the average spend per newswire client is much greater in a public company client than there is in a private company client today.

And if you look at just the public companies, is the revenue per customer increasing or decreasing on a quarterly basis, as far as you can see?

Since we've taken over Accesswire, it has increased, right? I think that we've talked about that in previous calls that the price point of a news article at Accesswire, given the limited distribution it had 2.5 years ago, was indicative of what you were getting, right? And today...

Oh, I see. So by your reach, you're actually expanding revenue in the newswire area, I guess.

That's correct.

That was a timely acquisition of newswire, especially in light of converting to a platform, losing revenue on the service side and gaining it on the platform. But with newswire increasing sharply, it sort of makes this transition smoother from the investment standpoint.

Correct. Absolutely.

And our next question comes from Eric Weinstein from Chancellor Capital.

Congratulations on the Platform and Technology side of the business that's growing really nicely and it's, I guess, half the company's revenue base. A quarter earlier than anticipated. On the other hand, it is important because the legacy business is declining so rapidly. I think we're all looking forward to more sustained growth in revenue and profitability, and we're trying to figure how to get there. There are a lot of moving pieces and I am hoping you can help us peel back the onion a little bit. So just sort of breaking it down, the services revenue is declining, but to be fair, you're cannibalizing a bunch of it with the platform and technology side of the business. So if it's down, I think you said 38% year-over-year, but customers are only down 18% year-over-year for that side of the business. Is the 18% more from secular pressure and the rest is going into the platform technology side of the business? I guess, I'm trying to just get a sense of what the pressures are there in terms of being down 38% and then expecting that to continue to the extent that the first quarter has a big contribution from manual reports and proxies, and the rest of the year, probably shouldn't have that. Should we really expect 38% to continue? Or should that taper off a bit? And then I'll come back on the platform side.

Yes, sure. We'll talk about the service component. I think it's a lot of moving parts, as you mentioned, right? There is this whole legacy annual report service business that contributes to a good portion of those losses. There is the one-time benefit in Q1 2016 that Steve mentioned a couple of times in his portion of today's call that does have an impact to that. So if you give way for that, the percentages aren't as great in the comparative purpose. But candidly, absent of ARS, you're right, to a degree we are cannibalizing some of this business. We are proactively beginning to want to move clients quicker to this scalable Platform and Technology segment of our business that we've talked a lot about for the last year. But there is part of that business too that are project-based timing efforts, right? That's the AGM, or the Annual General Meeting that a company has, that typically happens within the first, say, 120 days of the fiscal year. Some of those projects tend to move from Q1 to Q2. So you do see some lumpiness there in that segment. And I believe you're going to continue to see some of that lumpiness as a result of some of those things. And by us realigning our revenue streams, really gives us a way from trying to talk a lot about each one of those proxy annual meeting, stock transfer services, all of the other service components that we've got. So there is a lot of moving parts there that contribute to some of that attrition and/or decrease in revenue. But I think when you back out the one-time ARS numbers, and you begin to look at it, you're really not as heavily concentrated as [high on] attrition that you should see going on a forward basis. However, with that said, we don't know what the XBRL markets will be as we phase into iXBRL. We may see an increase in service revenue there as a result of the difficulty of client tagging their own documents, buying softwares like Blueprint that may not have the ability to do some of this change in regulatory tagging. So we may see a benefit to that, much like we did back at the beginning if you remember what XBRL did for our disclosure reporting group then. You wanted to follow-up, I think, on Platform and Technology.

Yes, so on Platform and Technology, I guess, if we can -- if you can isolate or if you -- I don't know if you do it internally or not, what you're cannibalizing from services versus organic growth from that side? Can you talk about trends there? Is that part -- is that organic piece accelerating? And right now, it still seems like it's small in terms of absolute dollars. Does that have the -- you know, we're growing 100% year-over-year because that have -- it sounds like a lot, but if it's such a small base, does that actually have that potential to continue to accelerate?

I think it's led by Accesswire, right? And then some of the efforts that we're pouring gas all over in this webcast API product platform that we've got. So yes, I think it's going to continue to scale, right? That business is poised for that, where [Miles] brought it up on one of his questions that Accesswire was well timed in the market. Subsequent thereafter, we had some acquisitions in the space that caused folks to look at a different opportunity. So more specifically, there's not much cannibalization going on from our platform base, with the exception of 2 components. One is the regulatory piece, this disclosure part, right? The ability for clients to either: one, hire a service provider to do their disclosure work with the SEC or by a software platform, like Blueprint. So we have some of our clients that are making the migration, right? The natural shift themselves as well as suggested shift from us; the second component is, which has been something that the industry as a whole has been affected by is the amount of printed materials that one is doing today is much less. And that does -- overall impact doesn't really cannibalize, but it impacts our revenues from services as it relates to proxy key engagements, annual meeting management and the print-related services that happen as a result of that. Folks are tending to license our proxy more, use more of that [notice] and access model, which should help drive that even further in the future. So there's not as much internal cannibalization as it is -- much as it is organic push into market and expansion of getting market share from others.

Got it. And the non-Accesswire piece of Platform and Technology, so it sounds like it's really small now that the whole segment is really being driven by Accesswire. Where are we in the stage of development there? And what are you expectations for that piece going forward?

Yes, we've actually wound down most of the development efforts. There is a regulatory change happening, right? That's consistent with XBRL to this new [inline] tagging. So we do have some significant development efforts underway there, that we expect to be done here in the back half of the year that will be ready, [play it on the head] for what iXBRL mean for the market. But as it relates to our webcasting components, our Classify products, our Investor Network pieces, most all of those have been pushed into production, and our candidate products that are in release now that are generating revenue. So in our webcasting, we see gains in our shareholder outreach and analytics product. Classify, we see -- saw small marginal gains just like whistleblower and Blueprint, as Steve mentioned earlier. So although a smaller component of that revenue segment, it still is seeing some revenue gain there as we expected it to see, high single-digits, right? And we'll continue to ramp that up as we really get platform id underway more in a bundled offering this year.

Do you expect that, that piece within the next 2 or 3 years could be 20%, 30%, 40% of the whole Platform and Technology business?

Components other than Accesswire?

Yes.

Yes, absolutely. I think that's fair to say. Yes, absolutely. I think that one of things that you'll find is that, that's going to be the predominant part of our business with -- along with the Accesswire piece, and less and less folks are going to be utilizing us for those service components. Each one is tied to themselves, right? So if you think about an event, we've talked about this a lot before, and I speak a lot about this in our investor presentations to the markets, is that companies tend to have 5 main events, right? That's the 3 quarterly filings, the annual report and an annual meeting. And those 5 events are geared towards our plafform. Each one of the components that they can license affects that event, whether it's talking to their shareholders from an annual meeting, distributing content from an earnings release or webcast earnings call, like we're doing today and the regulatory component. We've aligned our platforms to meet that event-based management style of subscription. So folks tend to look at that, to centralize their reporting, centralize their communications into one cohesive offering. And that's what we feel that the driving force behind this bundle platform id will be for us.

And that appears to be all the questions at this time.

Thank you, Kat. And Steve and I would like to thank everyone, again, today for attending today's call. Should you have any questions after you review our quarterly filing this afternoon, please feel free to give us a call back. Thank you, and have a great day.