Issuer Direct Corp
NYSE-MKT:ISDR
Earnings Call Analysis
Q4-2023 Analysis
Issuer Direct Corp
Issuer Direct Corporation ended its fiscal year on a high note, with fourth-quarter revenues climbing 6% year-over-year to reach $7.5 million. This growth was attributed to the company's robust news distribution businesses, which remain the focus of strategic discussions. Additionally, there was a notable increase in the company's adjusted EBITDA, which rose by 5% to $1.1 million compared to the previous year's $1 million.
In a consistent performance showcase, the company's subscription business expanded by 5% for the quarter. Meanwhile, the pricing dynamics for the core news business remained steady, indicating solid control over the service's market value.
Issuer Direct's Communications platform, which includes ACCESSWIRE and Newswire, continues to capture more market share and garner increasing brand recognition. Notably, the entire Communications segment surged, with press release revenue alone up by 12% for the quarter and an impressive 75% for the full year.
The company's Compliance business saw a significant 20% uptick in revenue during the fourth quarter, propelled by large-scale print and proxy fulfillment projects and an active transfer agent business. Contributing to the financial strength were the gross margins in the Compliance business that improved by 4%, maintaining overall gross margin percentages relatively steady at 74% for the fourth quarter and 76% for the full year.
Despite facing a marginal operating loss of $105,000 for the fourth quarter, the company's yearly performance remained solid with full-year operating income increasing slightly to $2.8 million from the prior year's $2.7 million. Such a loss can be viewed within the broader context of acquisition-related expenditures and increased operating expenses.
The cost structure reflected some shifts, with general and administrative expenses rising by 11% for the quarter, mostly due to bad debt expenses. While sales and marketing costs saw a moderate decrease of 3% for the quarter, product development costs surged by 16% for the quarter and 95% for the year, underscoring the company's commitment to innovation and enhanced operability post-acquisition of Newswire.
On a Generally Accepted Accounting Principles (GAAP) basis, Issuer Direct reported a net loss of $726,000, or $0.19 per diluted share, situating the loss within a strategic investment framework aimed at future growth and market advancement.
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Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation Fourth Quarter and Year Ended 2023 Earnings Conference Call. My name is [ James Michael ], and I am an 18-year veteran of the business [indiscernible] #2 here at Issuer Direct. And today, I'm charged with managing the Compliance business that accounts for approximately 27% of our overall revenues last year. Like my fellow employees doing this in previous quarters, this is our way of ensuring our shareholders get to know all of us here at Issuer Direct. I am the ridiculously handsome bald bearded guy. It is my pleasure to introduce my mentor, the company's founder and Chief Executive Officer, Brian Balbirnie; and our Vice President of Finance and Controller; Steve Knerr.
Before I turn the call over to Mr. Balbirnie, I'd like to read you 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 that 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, the one, the only, Mr. Balbirnie.
Well, thanks, James. For those of you who don't know, James, he is the practical joker of the office, if you can't tell, always has story to tell. And conversely, he's one of the most knowledgeable people in the industry and understands the world of compliance and public companies more than anybody I know.
With that said, greetings, everyone, and thank you, James, for today's introduction. So happy you're able to do this for us today, 18 years has gone by so very quickly. The business would not be the same without you sir. As we have said before, we will introduce a new employee each quarter, the first quarter earnings call, on May 9, we will hear from another amazing ISDR employee.
Now let's talk about the quarter end here. We appreciate everyone joining us today to discuss our results for the period. Our press release, which is accessible on our newsroom, has just been released and provides key takeaways on our performance for the quarter and year-end 2023. We are pleased with the fourth quarter results. Total revenue was up 6% year over year to $7.5 million, driven by our news distribution businesses, which both Steve and I will discuss throughout the call today. We also delivered on earnings for the quarter.
Adjusted EBITDA was up 5% to $1.1 million from $1 million last year, and our subscription business also grew 5% for the quarter, and our average price per release in our core news business has held steady. I will talk more about why this is important a bit later. We have and continue to be bullish on our Communications platform led by our news distribution brands, ACCESSWIRE and Newswire, where we are gaining market share each month, customers and further brand recognition.
As we move forward strategically, we know we had to spend a good bit of time in the back half of 2023 fine-tuning the product set as we now know, called Media Suite, a true SaaS reoccurring subscription business, something I will spend some time talking about here today on the call. But before I talk about these accolades and what we expect for 2024, I want to highlight some nice wins and accomplishments in 2023.
This year, we did work for brands like Delta, Bosch Health, Celsius, AutoZone, who trust us with their Investor Relations earnings calls and news distribution. When we consider our entire customer base, it's absolutely on to work with the 11,000-plus customers around the world. When we look back at our history and the growth of our business over the period, I can't help but be satisfied of our accomplishments, proud of our teams and thankful to our shareholders. And because of ACCESSWIRE and our acquisition of Newswire, see prior year revenues up 42%, but that's behind us now. And we are focused this year and for several years on transforming our business, continuing to grow customers and revenues and outpacing the industry in some important metrics like year-over-year volumes in news distribution and outpacing industry annual growth rates, something we feel confident that we will and can do for years to come.
As always, there's a lot more to talk about. So I will turn the call over to Steve to cover the fourth quarter and year-end results. Steve?
Thank you, Brian, and good afternoon, everyone. As Brian mentioned, quarterly and year-end results were primarily driven by our acquisition of Newswire and growth in our ACCESSWIRE news brand, which resulted in our press release revenue increasing 12% for the quarter and 75% for the full year. I will now highlight some of the financial results we achieved during the fourth quarter and full year ended 2023. During the fourth quarter of 2023, we achieved revenues of $7.5 million, a 6% increase from $7.1 million in Q4 2022. -- for the full year, total revenue was $33.4 million, a 42% increase from $23.5 million in 2022. The increase in the quarter and year-to-date revenue was driven by both our Communications and Compliance revenue streams. On the Communications side, the increase is primarily related to the acquisition of Newswire in November of 2022. We also achieved increased revenue in ACCESSWIRE, which increased 1% during the fourth quarter and 10% for the year compared to the same periods of the prior year.
Partially offsetting these increases was a decrease in revenues from webcasting and events due to less demand of our virtual products as well as a large conference, which occurred last year and did not occur in the current year. During Q4 2023 and the full year of 2023, Communications revenue accounted for 75% and 73% of total revenue, respectively. In the prior year, Communication revenue was 78% and 69% of total revenue during both Q4 and full year of 2022. Revenue in our Compliance business increased 20% for the fourth quarter and 24% during the full year compared to the same period of 2022. The increase was primarily related to revenue from our print and proxy fulfillment services due to an increase in both the number of projects and the average size of the projects, specifically a couple of large projects which occurred in the second quarter of 2023. We also experienced an increase in revenue from our transfer agent business due to an increase in market activity and corporate actions.
Changing gears to gross margin. Our overall gross margin percentage remained consistent at 74% and 76% for the fourth quarter and full year of 2023 compared to the same periods of the prior year. Gross margins from our communications business were also consistent for the fourth quarter of 2023 compared to the same period of the prior year. However, on a year-to-date basis, decreased 1%, primarily due to an increase in distribution costs as we continue to expand our reach and global footprint. Gross margins from our Compliance business increased 4% for the fourth quarter and 3% for the full year of 2023 compared to the same periods of the prior year. This increase in gross margin percentage is primarily due to higher margins achieved on some of the larger print and proxy jobs as well as the increase in transfer agent revenue.
Moving down to operating income and loss. We posted an operating loss of $105,000 for the fourth quarter of 2023 compared to operating income of $44,000 during the fourth quarter of 2022. The full year operating income increased to $2.8 million from $2.7 million in 2022. For both periods presented, operating income was impacted by an increase in operating expenses primarily due to an increase in amortization expense attributed to intangible assets related to the Newswire acquisition. Additionally, we experienced increases in general and administrative expenses and product development expenses during both Q4 and the full year of 2023 as well as an increase in sales and marketing expenses for the full year of 2023.
General and administrative expenses increased 11% for the quarter and 28% year-to-date. The increase during the quarter is primarily related to an increase in bad debt expense and for the year-to-date period is primarily due to additional cost to operate Newswire along with increased stock compensation expense, employee-related costs and bad debt expense.
Sales and marketing costs decreased 3% for the quarter and increased 39% for the full year compared to the same periods of 2022. These increases are due to incremental costs associated with operating the Newswire business as well as our continued investment in advertising, digital marketing spend and automation enhancements.
Product development costs increased 16% and 95% for the quarter and full year compared to the same period of 2022, which is directly attributed to the additional costs associated with operating Newswire and the addition of our new CTO.
On a GAAP basis, we had a loss of $726,000 or $0.19 per diluted share compared to a net loss of $109,000 or $0.03 per diluted share during Q4 of 2022. Net income for the full year of 2023 was $766,000 or $0.20 per diluted share compared to $1.9 million or $0.52 per diluted share in 2022.
Looking at some non-GAAP metrics. EBITDA for the fourth quarter of 2023 was $234,000 or 3% of revenue compared to $589,000 or 8% of revenue during Q4 of 2022. For the full year of 2023, EBITDA was $5.4 million or 16% of revenue compared to $3.7 million or also 16% of revenue during 2022. Adjusted EBITDA for Q4 2023 was $1.1 million or 14% of revenue compared to $1 million or 14% of revenue during Q4 of 2022. For the full year of 2023, adjusted EBITDA was $7.7 million or 23% of revenue compared to $4.9 million or 21% of revenue for 2022. Non-GAAP net income was $575,000 or $0.15 per diluted share for Q4 of 2023 compared to $665,000 or $0.18 per diluted share during Q4 of 2022. For the full year of 2023, non-GAAP net income was $4.9 million or $1.28 per diluted share compared to $3.5 million or $0.95 per diluted share in 2022.
Switching over to cash flow metrics. We just completed our 33rd consecutive quarter of positive cash flows from operations for the company. Cash flow from operations for Q4 of 2023 was $770,000 compared to just under $1 million for Q4 of 2022. The full year of 2022 cash flow from operations were $3.1 million compared to $4 million from the prior year. However, adjusted free cash flow was $687,000 for Q4 of 2023 compared to $2 million for Q4 of 2022 and $3.3 million for the full year of 2023 compared to $5.1 million in 2022.
I will now turn the call back to Brian, who will provide some updates on the business, new products and everything else we have planned for 2024. Brian?
Thank you, Steve. As we said before, customer growth is an important KPI for us. Total customers grew to 11,924, up from 8,218 last year. The total includes customers from the Newswire platform acquired in late 2022. This is a 45% year-over-year customer increase. With some of the new things that we've planned this coming year, we feel confident that we can continue to see customers increase double digits year-over-year.
Moving along to subscriptions. We ended the quarter with 1,053 customers subscribing to our products, with an average spend of $9,489, up from 1,002 subscribers last year or 8,641. This is a 10% revenue expansion and 5% subscriber growth on a year-over-year basis. We continue to see mid-90% retention in our subscriber customers and believe as we commercialize our new Media Suite, we will see further improvement here as well as expansion of our subscription business.
Something that we do not talk about in our calls is about our customers. Of the almost 12,000 companies using our products and solutions, there are thousands that are under 1-year contracts or longer to use our news platform with a set quantity of press releases for a defined term. We expect to continue to increase as customers are looking to obtain fixed cost agreements, and conversely, as we look to sell more solutions and products to our customer base, 1 year or longer contracts help us forecast and build our backlog business each year. We continue to see advancements in the U.S., both in taking price as well as customer activity. Conversely, in Canada, we have seen signs of new customer activity slowing slightly, not just in our results, but an industry as a whole. So conversely, we are taking a onetime write-down of $300,000 in our Canadian installed base, something we are working hard to ensure is not going to be a repeatable result this year. Improving our credit terms, prepays and overall credit monitoring will prevent this from being the case moving forward.
For the fourth quarter, our collective news brands contributed to an increased market share of 14%, up from 11% in the prior quarter ended September. We have been heavily tracking volumes in North America, learning from the trends and analysis, which we believe will help us accomplish several things. First, customer insight and usage to accurately predict the market size; second, flesh out opportunities we see for tech enablement with large volume customers that could result in better-than-average gross margins; and third, leverage our brands and move -- continue to move up market to a larger installed base, typically owned by our larger incumbents. Also having a comprehensive solution also allows us to support customer needs across the entire communications and public relations ecosystem.
As we talked about in the last couple of calls, the last 60 days has been a busy time for us, whereby we released our new Media Suite into both ACCESSWIRE and Newswire-branded platforms. For those of you that don't know much about our Media Suite, please go to our website to learn more, watch a video, request a demo, if you wish. We'd really love to show it to you. Our teams have been able to put together what we think is a great public relations communications platform that includes media database, pitching, monitoring as well as the existing media rooms, reporting platforms and our news distribution offerings.
We are excited to officially launch these products in a fully annual recurring revenue model, beginning at $6,750 a year, at entry point less than we mentioned on our last call. However, plans do go up in tiers from $6,750 to just over $10,000, then a customer enterprise, which ranges from $18,000 and up. We will continue to learn the market needs and are building a backlog of features not available in the market. This will help us produce stickier subscribing customers that give us staying power and retention as well as brand loyalty in the market.
It is early in the sales cycle for the Media Suite. We have been building a pipeline since January, demoing daily, and early indications has yielded a limited number of subscribers, about a dozen, with hundreds in the pipeline. The progress to move to ARR business is deliberate. As we spoke about earlier, we have 1,053 subscribers to our products. I want to see the number increase significantly by the end of 2024 and be able to report to you ARR retention, churn and dollar buy retention on renewals and lifetime value as we mature our full subscription business.
Our peer optimizer, formerly MAP product suite, performed well in the fourth quarter, driving another $200,000 in new ARR. This moved us to over 50 customers at the year-end totaling $1.3 million in contract value.
Our IR business, which includes our quarterly earnings call business and Investor Relations websites, ended the year with over 600 customers. Brands like Sherwin-Williams, AlmaBank, Life Storage, O'Reilly Automotive, The Trade Desk, AutoZone, Bosch + Lamb, Kimberly Clark, and the National Guardian Life trust our teams and technologies to power their message to the investor community. These solutions experienced growth in 2023, and we can't wait to share some new brands coming this year already under contract. We continue to believe our IR business will experience high single-digit to low double-digit growth in 2024. This is why we invested significant upgrades in our infrastructure, platform tech and customer workloads in real-time editing and publishing components.
Our Compliance business, which includes our AGM, stock transfer and regulatory filing business as well as our NYSE supported Whistleblower platform, ended the year with over 800 customers. Brands like Loan Depot, Manchester United, Fiber, DoorDash, Arlo, Ethan Allen, Celsius and Royal Business Bank, as well as Smith & Wesson, use our compliance products to help keep them compliant with the SEC and the exchanges their trade.
Our news business under both brands, ACCESSWIRE and Newswire, is where we have and we'll see our biggest customer growth. And collectively, the majority of our overall revenues. Last year, thousands of customers told their stories with our news distribution network things like Moderna, Amdocs, MicroVision, Bosch Health, right local businesses in your community. Also worth mentioning via partnership is the world's largest brands telling us about their ESG news. We are confident in our news business, both from a growth perspective, but also brands and global reach over the next several years.
With that said, we should consider what growth looks like for us, for the industry and what is realistic and where we see opportunity to outpace the industry. According to Burton Taylor and Gartner, the PR business has grown 5% to 6% CAGR over the last few years. We have far outpaced those numbers in our results. And like Steve said, we grew 12% year-over-year in the fourth quarter. We are optimistic going into 2024 that our year-over-year basis will see continued double-digit growth. Products like the Media Suite and PR Optimizer will help drive utilization volumes, but we also believe we will see further lift in price over the years as we still have pricing leverage in the market.
Steve did a good job laying out the numbers for the quarter and year. So I'm happy to pause at this point and open the call up for questions. But before we do, I'd like to reaffirm, we remain confident in our business, our products and the market we serve. Our brands continue to serve us well, and we look forward to sharing more updates with you next quarter. Operator, please go ahead.
[Operator Instructions] Your first question is coming from Mike Grande from Northland Capital.
This is Luke on for Mike. Just wanted to touch a little deeper on the marketing strategy for the new Media Suite. Just as far as that relates to acquiring new customers and then also getting existing customers to use the new product suite and how that kind of goes with, I think last quarter, you guys mentioned some sales hires to help these efforts.
Yes. Luke, it's Brian. The Media Suite product began early marketing at the first week of the year, I think, January 4, right, the first day back from the holiday, began direct campaigns to prospects in our database that are not customers of ACCESSWIRE or Newswire. Strategically, we began targeting certain profiles of customers within our current installed base with another series of marketing campaigns and videos, teasing out something sweet was coming, right? That was the tagline of the marketing platform campaign that they built. Obviously, the sweet and the Media Suite to run the customers through a series of cadence of questions and what they're looking for ultimately to get to demo to take the marketing qualified leads and build pipeline to a sales qualified lead.
And they've been doing that successfully under both brands, both sales teams. To your latter point, sales teams did grow. We retracted certain profiles of sales individuals in the organization and built a new enterprise-style sales team, each one having approximately 10 years plus experience in the industry, have sold products like Media Suite before. So we're doing it both from an experienced sales direct sales channel and then a marketing channel and to drive new inbound opportunities of both public and private customers looking for components of the Media Suite ultimately settling in on the full platform.
We think the lead quantities are coming in at a relatively good clip. The demos and the pipeline is building as we expected it. So we're not seeing anything out of the norm today. So if you can start a product sale and generate hundreds of leads and qualify these folks and build pipelines that quickly, it should shape up to be a good product launch for us this year.
That sounds like there's some good progress being made on that front. And then I guess just how do you see this impacting gross margins going forward with the new suite and then the shift to recurring revenue model? Are these going to be kind of in line with historical margins? Or will we be seeing a shift over the year or years to come?
I think you got to look at the certain long term. I think short term as we start to begin to bring Media Suite customers into our installed base and look at ARR. We likely won't see a significant impact to gross margins relative to the size it will contribute to overall revenue. Once it gets to that point near the year-end and into next year, we'll start to see gross margins climb in the Communications segment of our business for obvious reasons that the product is an 80-plus percent gross margin product to deliver. So I think you just -- you have to think about it in volume. Once it contributes enough to the revenue number, it will then have an impact to gross margin.
Got it. And then I guess how should we be thinking about cadence of new product launches going forward? Is there anything you can quantify for us as far as maybe through 2024? Or any sort of flavor for what these -- what to expect from new product launches?
Yes. We're -- look, we've got a product team now that kind of sits right alongside of our development team that's matured significantly. Obviously, with this kind of product launch and the level of effort, we've done a tremendous job there. So building our product team alongside of it that's connected directly to sales feedback loop with marketing to really try to keep our ears to the ground and listed, right? We're not going to black box build anything that we just think a customer wants. We're innovating features now that customer feedback is coming from, right? We want to do exactly what the customer wants give them something that the competitive landscape does not have. And so we're confident with integrated into all of these products and some of the ideas that we came away with over the last couple of days and workshops that we've done here on site are going to -- we're going to iterate feature sets more than we're going to release new products.
So we're really focused on taking a new entrant product, you know the Media Suite product, and innovating that against the competitive landscape with our customers back to get to a real premium product by the end of the year and into next year. And so that's going to be our focus. That's not to say that we may not surprise everybody with a new product later in the year. But for today, that's what our development teams are focused on is to continue to iterate what we have right now.
Got it. That makes sense. And appreciate you guys taking the questions today and looking forward to see how can these initiatives play out in 2024.
Great. Thank you.
[Operator Instructions] Your next question is coming from [indiscernible] from Blair Mill Capital Management.
Brian here. I just wanted to ask about currently what you see in terms of the cash position right now. So you guys are at $5.7 million about. I just wanted to get your take on the potential for given the current share price, share buybacks this year?
Yes. We've been bullish on share buybacks in the past, right? We've done several million dollars of buybacks in our history and from a return of capital. We've also done dividends to shareholders in the past as well. And personally been active along with others in the management team and the directorship buying shares back. Look, I would tell you for today, we're likely going to continue to accumulate cash and invest in the business for growth. We'll keep our eye on our share price as we stood in the event that we do need to act to do something.
But we want to keep covenants with bank obligations and capital needs of the business and investments all parallel together along with opportunistically looking at share buybacks. So we don't have anything planned today. It's not to suggest that we may not have something planned later in the year. But right now, we are focused on business execution and growth and investing in the business.
Thank you. That concludes our Q&A session. I will now hand the conference back to Issuer Direct CEO and Founder, Brian Balbirnie, for closing remarks.
Matthew, thank you. As always, sir. We appreciate everybody taking the brief time today to discuss our Q4 and year-end numbers for 2023. It's only going to be a few weeks from now that we'll be talking on our Q1 numbers. We look forward to doing that with you, and we wish you all a good evening. Thank you.
Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.