Earnings Transcript for ISDR - Q3 Fiscal Year 2024

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Issuer Direct Corporation's Third Quarter 2024 Earnings Conference Call. My name is John and I am your host of today's earnings call. I'd like to remind you that statements made in the 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 and 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, it's my pleasure to introduce the company's Founder and Chief Executive Officer, Brian Balbirnie and our Chief Financial Officer, Steve Knerr. Brian?

Brian Balbirnie: Good afternoon, everyone and thank you for joining us today to discuss the company's third quarter 2024 results. Our press release, which is accessible in our newsroom, was just released premarket this morning and provides key takeaways to our performance for the quarter and nine months ended September 30th. Despite a decrease in overall revenues for the quarter, we made significant strides in our transition towards a reoccurring revenue model focused on our new media suite products in the third quarter. This shift contributed to a rise in total subscriptions reaching 1,121 by the end of the quarter, a 9% increase from the previous quarter and 7% year-over-year. As a result, our annual reoccurring revenue grew by nearly $1 million, compared to the prior quarter and over $1.4 million, compared to last year. Customers' average revenues per subscriber also grew 7% year-over-year to $10,114 per customer from $9,477. As we have mentioned in previous calls, we believe we can continue to increase our ARR for the foreseeable future. Later in the call, we will discuss the additional KPIs we are tracking for the business this quarter and going forward. As we round out our go-to-market offerings for 2025, we are going to continue to focus the remainder of the year, as well as selling our subscription platforms to our current installed base. Beginning next year, we will fully market both our refined brand and our subscription business to both Public Relations, as well as Investor Relations professionals under one platform. There's a lot more to talk about today. So, I will turn the call over to Steve to cover the quarterly highlights. Steve?

Steve Knerr: Thank you, Brian and good afternoon, everyone. As Brian mentioned, we are excited about our new press release subscriptions and are encouraged by the number of customers, who have moved to this subscription plan, leading to an increase in overall subscriptions by 9% since last quarter. I'll now highlight some of our financial results we achieved during the third quarter and first nine months of 2024. Total revenue was $7 million from $7.6 million [ph] for the third quarter and first nine months of 2024, respectively, which was a decrease of $616,000 or 8% to $4.2 million or 16%, compared to the same periods of 2023. The decreases are attributable to both our compliance and communications revenue streams. Communications revenue decreased $597,000 or 10% to $1.7 million, or 9% for the quarter and nine months ended September 30th, 2024 as compared to the same periods of the prior year. The decrease for the quarter is due to declines in revenue from both our ACCESSWIRE and Newswire news distribution brands. Although volumes of our core releases were up for the quarter for ACCESSWIRE. the decrease is due to lower average revenue per release due to the mix of releases as a higher percentage of releases were from lower distribution tiers. Revenue from our Newswire brand continues to decrease due to lower volumes and lower average revenue per release. Additionally, we had a decrease in our webcasting and events business due to a large conference that occurred in the first quarter of last year did not reoccur this year, as well as lower revenue from our resellers. Communications revenue represented 79% and 78% of total revenue during the three and nine months ended September 30th, 2024 respectively, as compared to 80% and 72% for the same periods of 2023. Compliance revenue decreased $19,000 or 1% and $2.5 million, or 35% during the third quarter and first nine months of 2024, compared to the same periods of 2023. The decrease in compliance revenue for the year-to-date period is primarily related to a decrease in revenue from print and proxy fulfillment services due to a few one-time significant transactions, which occurred during the nine months ended September 30th, 2023, however, did not occur in the current year. Switching over to gross margins. Our overall gross margin was $5.2 million and $16.1 million for Q3 and the first nine months of 2024 respectively. This is a decrease of $600,000 or 10% and $3.7 million, or 19% for the third quarter and first nine months of 2024, compared to the same periods of the prior year. As a result, overall gross margin percentages decreased to 74% and 75% for the three and nine months ended September 30th, 2024, compared to 76% and 77% for the same periods of 2023. Gross margin from our communication business also decreased to 75% and 76% for the three and nine months ended September 30th, 2024, compared to 76% and 78% for the same periods of the prior year. These decreases are primarily related to the decrease in revenue noted earlier. Gross margin percentage from our compliance business decreased to 74% and 72% for the three and nine months ended September 30th, 2024, compared to 76%, 75% for the same periods of 2023. This decrease is primarily due to lower margins on smaller print and proxy fulfillment projects. Moving to operating income. We posted operating income of $156,000 and $438,000 for the three and nine months ended September 30th, 2024 respectively, compared to operating income of $593,000 and $2.9 million for the same periods of 2023. The decrease in operating income is primarily due to the decline in revenue specifically for the year-to-date period from the significant print and proxy projects in the prior year. Total operating expenses decreased $163,000, or 3% and $1.3 million, or 7% for the three and nine months ended September 30th, 2024 respectively, compared to the same periods of 2023. This was led by decreases in our G&A, and sales and marketing expenses. G&A expenses were relatively flat for the quarter and decreased $827,000 or 12% for the nine months ended September 30th, 2024, as compared to the same period of 2023. This decrease was primarily the result of the benefit related to the reversal of previously recognized stock compensation expense associated with the resignation of an executive officer, as well as lower non-recurring transaction and integration expenses. Sales and marketing expenses decreased $220,000 or 12% and $574,000 or 9% for the quarter nine months ended September 30th, 2024, as compared to the prior year due to lower headcount and reduction in sales commissions. Product development expenses increased $90,000 or 15% and $157,000 or 8% for the three and nine months ended September 30th, 2024, due to increased headcount within our development group as we continue to invest in our platform and products. Additionally, our capitalized software spend decreased $15,000 for the quarter, however, has increased for the year-to-date period by $218,000. On a GAAP basis, we reported a net loss of $466,000 or $0.12 per diluted share during Q3 of 2024, compared to net income of $273,000 or $0.07 per diluted share during Q3 of 2023. For the first nine months of 2024, we reported a net loss of $598,000 or $0.16 per diluted share compared to net income of $1.5 million, or $0.39 per diluted share during the prior year. Looking into some non-GAAP metrics. non-GAAP net income was $641,000 or $0.17 per diluted share and $1.8 million, or $0.47 per diluted share for Q3 and the first nine months of 2024, compared to $1 million, or $0.27 per diluted share and $4.3 million, or $1.13 per diluted share for the same periods of 2023. We generated EBITDA of $590,000 or 8% of revenue and $2.6 million, or 12% of revenue for Q3 and first nine months of 2024 respectively, compared to EBITDA of $1.5 million, or 20% of revenue and $5.1 million, also 20% of revenue during the same period of 2023. Adjusted EBITDA was $1.4 million, or 20% of revenue and $3.6 million, or 17% of revenue for Q3 and the first nine months of 2024, compared to $1.8 million, or 23% of revenue and $6.7 million, or 26% of revenue for the same periods of 2023. Switching over to the balance sheet and cash flow statement. Our deferred revenue balance, which is revenue we expect to recognize primarily over the next 12 months, is $5.3 million, as of September 30th, 2024, a 2% decrease from year end. On the cash flow statement, we had a solid quarter of generating cash as cash flow from operations were $1.5 million and $2.3 million for the quarter nine months ended September 30th, 2024 as compared to $287,000 and $2.3 million for the same periods of 2023. I will now turn it back over to Brian, who will provide some more details on our business, things we are excited about, those other updates on the customers' volumes and everything else we have planned for the remainder of the year and into 2025. Brian?

Brian Balbirnie: Thank you, Steve. Something we typically do not do in great detail in our quarterly calls is talk about our product roadmap, strategy and where we're headed, and I'd like to do that with you today. In the opening remarks, I mentioned the subscription growth for the third quarter. I would like to further break down what made up these results. Of the approximately 200 new PR platform subscriptions sold in the third quarter, it contributed $1.4 million in ARR or a 14% year-over-year increase. New subscriptions in the quarter resulted in a 92% retention going into Q4. 70% of those platform subscriptions resulted in a subscription net dollar retention of 125% or $640,000 in increased annual spend. 30% of those platform subscriptions came from new customers yielding approximately $0.5 million in ARR. This new PR platform subscription assisted in our growth, as we said earlier, to 1,121 subscribing customers that grew 7% year-over-year and 9% for the prior quarter, which in total resulted at a 94% retention. We believe that the market will continue to show interest in our new platform subscriptions that will continue to undergo significant upgrades in both features and functionality, which will result in further stickiness and uplifts in our ARR. These planned upgrades, as well as feature additions will help us get to what we guided last quarter, whereas we still continue to believe subscription values can grow to $14,000 by Q3 of 2025. What we have not stated in the past is what we're going to upgrade and/or include to get us there, and that's what we're hopeful to share with you today. Our product roadmap has a full slate of features coming throughout 2025 that will include the following

Q - :

Operator: Thank you. [Operator Instructions] Okay. There are currently no questions in queue.

Brian Balbirnie: John, thank you as always for assisting us today. Nice job. Thank you for the folks that joined the call today both on the webcast and teleconference. We look forward to doing follow-up calls with you in the coming days. Look forward to sharing more about our strategy, our new brand coming, as well as our new product timelines and add-ons. Again, a pleasure. Thank you so much. Have a good night.

Operator: Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.