ACCESS Newswire Inc (ACCS) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation First Quarter 2020 Earnings Conference Call. Today's call will be conducted by the company's Founder and Chief Executive Officer, Brian Balbirnie; and its Chief Financial Officer, Steve Knerr.

Before I turn the call over to Mr. Brian Balbirnie, I'd like to read the company's abbreviated safe harbor statement. I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, product releases, partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.

Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only.

With that said, Mr. Balbirnie?

Thank you, operator. Welcome, everyone, and thank you for joining us this afternoon. At the market close, we issued a press release announcing our results for the first quarter. A copy of the press release is now available in our Investor Relations section of our website and it is also in our ACCESSWIRE newsroom for your reference during today's call.

We ended the quarter making it a priority to protect our employees, their families and our communities. Our work-from-home process began at the beginning of March in our New York office and by mid-March in Florida and our corporate offices here in Raleigh. This work-from-home policy still remains in effect and likely will continue throughout Q2. Our team is doing an outstanding job ensuring our customers continue to receive their excellent care, and we're also gaining new customers during this time, which is extremely important in our growth strategy. We will talk more about where we're seeing the growth and the impacts we believe it will have in our business a bit later.

We are pleased with our first quarter in several ways. First, Q1 2020 is the final quarter that we're reporting year-over-year revenue comparisons against prior year revenues that included a full quarter of the discontinued commentary segment of our press release business. Removing the $335,000 of discontinued commentary business revenue in Q1 2019, our total revenue in the first quarter of 2020 grew by 4% and year-over-year, ACCESSWIRE would have grown 36%. We are pleased that our Q1 2020 EBITDA increased 11% and net income grew by 10% year-over-year. We upgraded and released at the end of the quarter 2 new virtual product offerings to address the conference and annual meeting businesses that we have, something that we'll talk about here shortly.

There will be portions of today's call where Steve and/or I will point to uncertain, unknown or undetermined times. That being said, we are not panicking. We're not changing our business or putting our heads in the sand. We have advocated to our customers now more than ever, if you can, tell your story, demonstrate to your shareholders, stakeholders the value of your business regardless whether it's a product advancement, earnings or even a human element by providing an update on what your business is doing in these unprecedented times. Thankfully, we have a great story to tell. Over the last 60 days, we have increased our marketing efforts to talk about how we can help the market we serve both in products, advice and guidance. These visible and targeted marketing pieces have helped our business in the last several weeks and is putting us in a great position for the back half of the year.

I'll now turn the call over to Steve for a review of our first quarter. And after that, his details, I'll come back and talk about customer accounts for the period as well as ARPUs and some key metrics that we're tracking for the first quarter and into the rest of the year. Steve?

Thank you, Brian, and good afternoon, everyone. First of all, I hope everyone on this call is staying safe and healthy and continues to do so. These are certainly exceptional times, and the business environment continues to change on a daily basis. This is no different for Issuer Direct. As Brian mentioned, we essentially closed our offices and moved all employees to work remotely in mid-March. However, as a company, we didn't skip a beat and continue to upgrade and develop our products, gain new customers and deliver exceptional service. I'm very proud of our employees in how they've handled the situation.

Jumping into the results of the quarter. Total revenue for the first quarter of 2020 was $4,016,000, a decrease of $163,000 or 4% compared to $4,179,000 for the same period of 2019. Platform and Technology revenue increased $20,000 or 1% during the first quarter of 2020 as compared to the first quarter of 2019. The increase is primarily due to an increase in subscriptions of Platform id. signed over the past year. Although new contracts for Platform id. slowed during the last 3 weeks of the quarter due to COVID-19, we signed 30 new Platform id. subscriptions to new or existing customers with total annual contract value of $181,000 during the quarter. This brings our total Platform id. subscriptions as of March 31, 2020, to 273 with annual contract value of just under $2.1 million as compared to 255 subscriptions as of December 31, 2019, with annual contract value of $2,033,000.

Revenue from our ACCESSWIRE business increased 1% compared to the same period of the prior year. As Brian mentioned, other than the impact of the investment commentary business, ACCESSWIRE revenue increased 36% compared to the first quarter of 2019, which is primarily due to an increase in private customers. These increases were partially offset by declines in revenue from our webcasting and conference management software due to the cancellation and delay of in-person events as a result of the COVID-19 outbreak. Additionally, we continue to experience a decline in revenue from our shareholder outreach offering, which is typically tied in with contracts of ARS.

As a percentage of overall revenue, Platform and Technology revenue increased to 67% of total revenue for the 3 months ended March 31, 2020, compared to 64% for the same period of 2019.

Services revenue decreased $183,000 or 12% during the first quarter of 2020 as compared to the same period of 2019. Decrease is partially due to a decrease in revenue from our transfer agent services due to a decline in corporate transactions, directives and actions as well as temporary delays in bank and broker processing due to COVID-19. Expect there's to be a temporary delay and revenues to return to normal as banks and brokers adapt to processing electronically. Revenue from print and proxy fulfillment services also declined due to a large onetime project in the first quarter of 2019 that was not repeated this year. Revenue from ARS services also continues to decline. These decreases were partially offset by an increase in webcasting services revenue due to an increase in teleconference event as customers began to hold more virtual meetings as a result of the COVID-19 outbreak.

Switching gears to gross margin. Our total gross margin for the first quarter of 2020 was $2,763,000 or 69% of revenue compared to $2,877,000, also 69% of revenue during the first quarter of 2019. Platform and Technology gross margin percentage was 74% during the first quarter of 2020 as compared to 75% for the same period of the prior year. The decrease in gross margin percentage is primarily related to additional distribution and editorial costs related to expanding the capabilities of our newswire business coupled with the loss of the investment commentary business. Services gross margin percentage was 57% during the first quarter of 2020 compared to 58% during the first quarter of 2019.

Moving to operating income. Our first quarter 2020 operating income was $248,000 as compared to $147,000 during the same period of the prior year. The increase in operating income despite the decrease in gross margin is a result of lower operating expenses. General and administrative expenses decreased $145,000 or 11% due to a decrease in bad debt expense as well as a decrease in acquisition-related expenses of acquiring VWP, which were incurred during the first quarter of 2019. Product development expenses decreased $143,000 or 42% due to a decrease in head count. Partially offsetting these decreases was an increase in sales and marketing cost, which increased $76,000 or 9% during the 3 months ended March 31, 2020, compared to the same period of the prior year due to an increased investment in our sales team.

On a GAAP basis, we generated net income of $226,000 or $0.06 per diluted share during the first quarter of 2020 compared to $205,000 or $0.05 per diluted share during the same period of 2019.

Looking at some non-GAAP metrics. First quarter 2020 EBITDA increased 11% to $622,000 or 15% of revenue compared to $558,000 or 13% of revenue during the first quarter of 2019. Non-GAAP net income for the first quarter of 2020 was $397,000 or $0.10 per diluted share compared to $518,000 or $0.13 per diluted share during the first quarter of 2019.

Moving to the balance sheet and cash flow statement. We continue to generate positive cash flows from operations. We generated an additional $602,000 during the first quarter of 2020, a 12% increase over $536,000 generated in the first quarter of 2019, while the balance sheet or deferred revenue balance increased from $1,812,000 to $1,879,000 as of March 31, 2020.

Overall, despite the challenges we are currently facing, I believe Issuer Direct is in a relatively good position. We're continuing to evolve our products in order to adapt to the changing needs of our customers and have a strong balance sheet to get us through these difficult times.

Brian will now talk further about some of the updates we have made to our products and what lies ahead for Issuer direct. Brian?

Thank you, Steve. As you highlighted, we had a decent quarter given the circumstances and are laser-focused on what we need to do this quarter and the remaining part of the year. Last quarter, we spoke about organic growth in 2020, and it has not changed. Perhaps what has changed is what customers are in need of today, something we'll talk more about in a few minutes.

As I mentioned at the opening of the call, our 80-plus employees essentially have been remote since March, assisting our customers and delivering every step of the way, in fact and as Steve mentioned doing a great job and also not to mention learning new products as we've pivoted some of our businesses towards a virtual event. On a year-over-year basis, our customer count continued to show strong signs of growth in combination, more so in our private company business, where customers were up 69% from 764 to 1,289 year-over-year. Our public company customers during the quarter were essentially flat at 1,473 for the quarter compared to 1,482 last year.

Last quarter, we talked about our digital strategy and the investment and focus here. This customer growth is being driven by this effort both on a direct and agency model. This may very well be the largest single customer count jump that we've had in our history to 69% year-over-year. Keep in mind the majority of these private customers are all buying newswire services today. Our goal in the coming year and into next year is to build, buy or partner with adjacencies to expand customer spend, improve stickiness and reduce possible future churn. We see the business, long term, continuing to grow. Revenues expand both in total but also as a per customer as we find and successfully integrate these adjacencies. Having a clean capital structure and fantastic balance sheet puts us in a good position here today.

Our public company business is where we saw some lumpiness as we approach this quarter and into next. As one would expect, the capital markets could tighten up here in the coming months, making it difficult for very small public companies to raise capital or find favorable debt instruments to execute their business models. At least for Q1, having virtually flat customer count year-over-year is not concerning to us as we have had several projects and delays due to decisions out of our control, many of those which were annual meetings and projects that are occurring in Q2 for us. However, this is not an indicator of anything other than what it is. We have had quarters like this before where revenues and customers moved from quarter to quarter. My point is here: Things are consistent for us today. The caveat is the capital markets, and we all see how that will unfold over the next several months. This is why the private and growing newswire business is so vitally important to us as a company.

With that, let's talk what we did coming out of Q1, essentially building and taking to market 2 new products that's a good amount of demand today. One is our virtual annual meeting solution, a combination of our annual meeting proxy business as well as our webcasting platform merged together to create a virtual annual experience for both our customers and their shareholders. Obviously, there is no physical annual meetings happening anytime soon. This is a well-timed occurrence for us. We have discipline in both core components that are required to host a virtual meeting. Thankfully, we did this and it's safe to assume that all physical annual meetings from March at least to the end of the year will be canceled.

Given the fact that this is new for us, we have to be realistic, training internal staff, ramping up sales teams, onboarding and delivering. We have high expectations for success. We just don't have a handle on what success is yet. One thing is certain: The virtual annual meeting product is a "right time, right place" product for us. It will absolutely lead to customer growth, revenue expansion and profitability and something we truly believe at this point will be a product for us in the coming years. In terms of economic and depending on the suite of solutions selected, customers are subscribing in the range of $3,000 to $9,000, which is generally earned during the period of the meeting, which means we should expect to see all revenues from virtual annual meetings that happened before June 30 show up in revenues for us in Q2.

Second was our conference software business and finding a way to move it virtually. Just like physical annual meetings, all investor conferences for several months beginning in March have been canceled. We have events under contract as far out as October. All are going virtual and over-delayed permanently. This meant in order to be competitive in the business, we had to adapt and do it quickly. The first thing we did was integrate our audio, video and screen sharing technologies into our conference platform so we could mimic the same physical attributes of a physical meeting, see, hear and share. You all know what I'm referring to. The day of the conference, you have an agenda, tells you what room to go to, what table and what time you need to meet your individual. We had to take that concept and make it virtual without losing the engagement factor like many conferences did with traditional phone lines early in Q1. It has to be effortless and had to be perfect after all. No one else has the tech in the conference business, and there's never been a virtual conference where there has been so many companies presenting with one-on-ones all at the same time from one platform.

Fast forward to today, we have now done these 2 events just like this. We have hosted hundreds of meetings and presentations with thousands of investors perfectly. Now we have our eyes set improving to the market that we have the tech, the team and the capabilities to do this even more than we already have. So yes, this means reselling the same banks and conference organizers of our platform from many of the same events that we had physically that were since canceled or delayed, simply rebuilding the pipeline, all things considered a great position to be in. Coming in the next couple of weeks, we will be releasing some of the new wins along with our event schedules. We cannot be more excited about having this advancement in our arsenal. We see this platform coming to life for both deal and non-deal road shows as well as Analyst Days and many other events that investors and issuers interact together.

A hot topic for our shareholders and moving on is to talk about ACCESSWIRE. I would like to spend a few minutes discussing the points here. During the quarter ended March 30, we did not see a slowdown in the lack of customer activity. As Steve just mentioned, absent of our last quarter comparison to commentary, ACCESSWIRE revenues were up 36%, customers and equally impressive as we discussed a couple of minutes ago. Our digital strategy is working, and we're not even fully deployed in this effort. We feel confident that ACCESSWIRE has a compelling story to the communication space both in IR and PR and like many of you have come to expect we're making headways in distribution every single quarter. We're happy to announce that Schwab's StreetSmart Edge platform went live during Q1, the first step in full Schwab distribution. Like other broker platforms we have obtained in the past, we expect this to take some time to be fully integrated with the entire Schwab system.

Again, our newswire is a "right time, right place" product. During uncertain economic times, companies naturally look for better deals, equal services and consolidations. Our model has been about that for years. We feel like we have a viable news offering to compete with anyone. We have better tech, and we now have a great editorial and compliance team with strength that we feel like we could displace the incumbent.

In closing, I want to thank everyone for listening to today's call. We clearly see that there could be some challenges ahead of us for the public markets. And as such, like everyone else, we stand to lose a meaningful amount of our small micro and nano cap customers to either economic impacts, M&A or some other anomaly where they will go dark for a period of time. This is a risk known by all of us, investors and employees. However, what I will tell you is I, Steve and the rest of the team feel good about our platform, our ability to pivot and to stay agile. I love the grip that we have to battle our -- battle for customers and win a good percentage of the time and if we're going to lose, make the competitor feel our presence by pricing them down. We have a leading newswire that gains customers virtually every day. We have a webcast platform and conference product that has plentiful demand and opportunities ahead. These are the here and the now and not forgotten as our entire ecosystem for when issuers can once again focus on strategic decisions, our entire platform-ready product offerings will be there for them when they're ready.

We enjoyed spending time with you reporting on our operating results, the business and what we've been up to the last several weeks. We look forward to your questions and visiting with you again soon. Operator, could we please begin the Q&A portion of the call?

(Operator Instructions) Our first question comes from Mike Grondahl with Northland Securities.

Congrats on the quarter. This is Luke Horton on the call for Mike. I just had a question on any update on sales force as far as hires or productivity.

Yes. We have held our sales team consistent. I will tell you that we've slightly slowed down a little bit of the key hires that we intended to continue to make through our sales organization. We've got a team that's delivering today. We're going to work through the next quarter or 2 before we resume some more strategic hires in the field, but today, I think we're at the capacity of which we ended. Our sales and marketing teams sit today with a total of 24, 15 in sales and 9 in marketing now. So I think we're good at present.

Okay. Awesome. And then how does the private or public company funnel for new business look? It looks like you guys had a lot of added private companies there in the quarter.

Yes. We had good success and we talked about this the last couple of quarters. We're moving our private company practice business to -- rather than an outbound call to more of a digital marketing campaign, and we're about probably 50%, 60% of the way into that campaign now. So pipelines look strong, as I indicated a few minutes ago. New client activations are happening daily now. The average price per release begins to increase and continues to do so. So we feel confident about that. Our competitive landscape hasn't changed. We still have the same viable competitors that we go up against. We're not seeing any changes in that market. So we're going to continue to increase the spend and increase the activities in our digital presence to be able to drive inbound leads. And then to our point, as we continue to build that critical mass is to find additional product adjacencies that we could begin cross-selling those customers to really make them more sticky into our platform.

Okay. Awesome. And then just one last one here. I don't know if you guys touched on this, but is there any new distribution partners for ACCESSWIRE?

Yes. There's a handful, some of which are not as material as some of the coveted Schwabs and Merrill Lynches that people like to talk about. Our thoughts are twofold. We are not going to stop in our pursuit of gaining every bit of distribution that we can. Adding the StreetSmart Edge platform from Schwab is evidence of that, much like we did several quarters ago with the TD Ameritrade platform or thinkorswim first and then we dovetailed into the rest of the platform, but we're going to continue to do that. I will tell you, however, from a private company's sense of growth, some of those distribution points aren't as critical for them for obvious reasons.

And then secondarily, as mid-cap companies tend and large cap companies tend to look for different options, right, for budgetary reasons or just for contract expiration, they're now coming to us seeking our distribution platform. And less and less are the Schwabs and the Merrills Steven talked about. So we feel, again, right time, right place, although that doesn't mean that we're going to stop or slow down. We're going to continue that pursuit and feel confident that both Schwab and Merrill will be fully done by the end of the year.

(Operator Instructions) There are no further questions at this time. At this point, I'd like to turn the call back over to Brian Balbirnie for closing comments.

Rob, thank you. It's always, sir, a tough day in the earnings business, Amazon, Apple and a bunch of others on this reporting day. Thank you to everyone who took the time to visit with us and listened to today's call with Steve and I. We look forward to speaking with you again. And in the meantime, stay safe and take care.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.