What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-03 · 244 added, 135 removed, 107 unchanged (78% of the section changed)

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All forward-looking statements in this Form10-Q are based upon information available to the Company on the date of this Form10-Q, and the Company assumes no obligation to update any such forward-looking statements.

The Company’s actual results could differ materially from those discussed in this Form10-Q for many reasons, including the impact of the COVID-19 pandemic.

The Company’s actual results could differ materially from those discussed in this Form10-Q for many reasons.

Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item 1.

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Our corporate headquarters are located at One Glenwood Ave., Suite 1001, Raleigh, North Carolina, 27603.

We announce material financial information to our investors using our investor relations website (www.issuerdirect.com), SEC filings, investor events, news and earnings releases, public conference calls, webcasts and social media.

We announce material financial information to our investors using our investor relations website, SEC filings, investor events, news and earnings releases, public conference calls, webcasts, and social media.

We use these channels to communicate with our investors and the public about our company, our products and services and other related matters.

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Therefore, we encourage investors, the media and others interested in Issuer Direct to review the information we post to all our channels, including our social media accounts.

We are a premier provider of communications and compliance technology solutions that are designed to help organizations tell their stories globally.

Our principal platform, Platform id.

™, empowers users by thoughtfully integrating the most relevant tools, technologies and products, thus eliminating the complexity associated with producing and distributing their business communications and financial information.

efficiently and effectively helps our customers manage their events when seeking to distribute their messaging to key constituents, investors, markets and regulatory systems around the globe.

consists of several related but distinct Communications and Compliance modules that our customers utilize every quarter.

We disclose our revenues in the following two main categories:

We are a leading communications and compliance company, providing solutions for both public relations and investor relations professionals.

Our comprehensive solutions are used by thousands of customers from emerging startups to multi-billion-dollar global brands, ensuring their most important moments are reaching the right audiences, via our industry leading newswire, IR website solutions, events technology and compliance solutions.

Our platform efficiently and effectively helps our customers manage their events when seeking to distribute their messaging to key constituents, investors, markets and regulatory systems around the globe.

Our platform consists of several related but distinct Communications and Compliance modules that companies and customers utilize every quarter.

As such, we disclose our revenue in the following two main categories:

(i) Communications and (ii) Compliance.

Set forth below is an infographic depicting the products included in each of these two main categories we provide today:

Over the next several years, we expect the Communications portion of our business to increase, both in terms of overall revenue and as compared to the Compliance portion of our business.

In the future, we expect the Communications portion of our business to continue to increase, both in terms of overall revenue and as compared to the Compliance portion of our business as it has done in the past.

Therefore, we plan to continue to invest in offerings we intend to incorporate into our Communications product lineup.

Within most of our target markets, customers require several individual services and/or software providers to meet their investor relations and communications needs.

We believe Platform id.

can address all these needs in a single, secure, cloud-based platform - one that offers a customer control, increases efficiencies, demonstrates clear value and, most importantly, delivers consistent and compliant messaging from one centralized platform.

We believe our platform can address all these needs in a single, secure, cloud-based platform - one that offers a customer control, increases efficiencies, demonstrates clear value and, most importantly, delivers consistent and compliant messaging from one centralized platform.

We work with a diverse customer base, which includes not only corporate issuers and private companies, but also investment banks, professional firms, such as investor relations and public relations firms, as well as the accounting and legal communities.

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Communications

Our Communications platform consists of our ACCESSWIRE branded newswire, our webcasting and events business, professional conference and events software, as well as our investor relations website technology.

These products are sold as the leading part of our Platform id.

subscription, as well as individually to customers around the globe and are further described below.

Our press release offering, which is marketed under the brand ACCESSWIRE , is a news dissemination and media outreach service.

Our Communications platform consists of our press release distribution businesses branded as ACCESSWIRE and Newswire, our webcasting and events business, professional conference and events software, as well as our investor relations website technology.

We are currently in the process of integrating the ACCESSWIRE and Newswire news distribution platforms into one system that will give our customers all the benefits of both systems combined into one.

These products are sold as the leading part of our Communications subscription, as well as individually to customers around the globe and are further described below.

Acquisition of iNewswire.com LLC

On November 1, 2022, we acquired iNewswire.com LLC (“Newswire”).

Newswire is a media technology company that provides customers press release distribution, media databases, media monitoring, and newsrooms for greater brand awareness through earned media, increased online visibility through greater search engine optimization recognition, and more sales inquiries through targeted digital marketing campaigns.

Through its Media Advantage Platform (“MAP”), Newswire automates media and marketing communications for large and small businesses seeking to deliver the right message to the right audience at the right time for the right purpose.

We believe this transaction strengthens our entire communications portfolio and combined with our ACCESSWIRE business, grows our press release distribution business to now be one of North America's largest press release distribution platforms.

The acquisition almost doubles our press release customer base and combines what we believe are qualified people and strong distribution, technology and brands.

Newswire customers will benefit from the global footprint ACCESSWIRE has built over the last eight years, whereas Issuer Direct's customers will have access to Newswire's brand-new media database platform, analytics, as well as its MAP.

Lastly, we believe the acquisition will also result in meaningful operational synergies in the combined company.

Through the MAP product, Newswire provides a media and marketing communications utility that converts customers’ owned media into earned media opportunities to accelerate business growth.

The MAP Market Builder provides integrated media and marketing communications programs aimed to increase site traffic, qualified leads and lowering cost of acquisition for new accounts.

Our existing press release offering, which is marketed under the brand ACCESSWIRE , is a news dissemination and media outreach service.

The ACCESSWIRE product offering focuses on press release distribution for both private and public companies globally.

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We also offer an e-commerce element to our ACCESSWIRE product, whereby customers can self-select their distribution, register, and then upload their press release for editorial review in minutes.

We believe these enhancements have helped lead to an increase in ACCESSWIRE revenues and customers each year compared to the prior year, a trend we expect to continue over the next several years.

We have also been able to maintain high gross margins while providing our customers flexible pricing, with options to pay per release or enter longer-term agreements for a designated package of releases.

We believe these enhancements have helped increase ACCESSWIRE revenues each year compared to the prior year, a trend we expect to continue over the next several years.

We have also been able to maintain high gross margins while providing our customer flexible pricing, with options to pay per release or enter longer-term agreements for a designated package of releases.

Like other newswires globally, ACCESSWIRE is dependent upon several key partners for its news distribution.

Disruption in any of our partnerships could have a materially adverse impact on ACCESSWIRE and our overall business.

A natural expansion to our ACCESSWIRE and investor relations website business is our corporate Newsroom, which we brought to market during the middle of the third quarter of 2021.

This product offering can be an add-on to any customer’s ACCESSWIRE or Platform id.

A natural expansion to our ACCESSWIRE and investor relations website business is our corporate Newsroom.

This product offering can be an add-on to any customer’s ACCESSWIRE or Communications subscription account.

The Newsroom suite includes a custom newsroom page builder, a brand asset manager and contact manager.

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We believe our Newsroom suite accomplishes this by including the following three components:

Newsroom page - a custom URL, self-publishing system for customers that automatically adds ACCESSWIRE news to their newsroom and allows them the ability to add any other mention, article or post from the internet to their newsroom.

Newsroom page – a custom URL, self-publishing system for customers that automatically adds ACCESSWIRE news to their newsroom and allows them the ability to add any other mention, article or post from the web to their newsroom.

Customers can self-manage this platform to customize colors, font, logo, images, social integration, and contact and customer URLs.

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Contact Manager – a technology that allows our customers to provide their audiences the ability to quickly subscribe to alerts or notifications of a particular brand.

Customers will have the ability to deliver their stories automatically or time based.

Engagement and delivery reports will also be available to customers directly from their dashboard.

Customers have the ability to deliver their stories automatically or time based.

Engagement and delivery reports are also available to customers directly from their dashboard.

Webcasting & Events

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The industry overall has begun to see a reduction in the number of virtual events, specifically annual meetings and deal/non-deal roadshows, as customers are relying on internal enterprise solutions or are returning to pre-pandemic travel and in-person meetings, reducing the need for a virtual component.

This has contributed to a decline in demand for our virtual components since the prior year.

This has contributed to a decline in demand for our virtual components since prior years.

Traditional earnings calls and webcasts are a highly competitive market with the majority of the business being driven from practitioners in investor relations and communications firms.

We estimate there are approximately 5,000 companies in North America conducting earnings events each quarter that include a teleconference, webcast or both as part of their events.

also incorporates other elements of the earnings event, including earnings date/call announcement, earnings press release and SEC Form 8-K filings.

Our platform incorporates other elements of the earnings event, including earnings date/call announcement, earnings press release and SEC Form 8-K filings.

There are a handful of our competitors that can offer this integrated full-service solution today, however, we believe our real-time event setup and integrated approach offers a more effective way to manage the process.

Additionally, as a commitment to broadening the reach of our webcast platform, we broadcast live additional companies’ earnings events, whether they are conducted on our platform or not, within our shareholder outreach module, which helps drive new audiences and give companies the ability to view their analytics and engagement of each event.

During the first half of 2021, we released the first version of this real-time engagement and analytics dashboard to our customers subscribing to Platform id.

Our VisualWebcaster Platform (“VWP”) is a cloud-based webcast, webinar and virtual meeting platform that delivers live and on-demand streaming of events to audiences of all sizes.

VWP allows customers to create, produce and deliver events, which we feel has significantly strengthened our webcasting product and Platform id.

VWP allows customers to create, produce and deliver events, which we feel has significantly strengthened our webcasting product and Communications offering.

The VWP technology gives us the ability to host thousands of webcasts each year, expanding and diversifying our webcast business from our historical earnings-based events to include any type of virtual event.

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Professional Conference and Events Software

Our professional conference and events software is a subscription offering we currently license to investor conference organizers, which in the aggregate we believe held an estimated 1,000 plus events a year prior to 2020.

This number significantly decreased in 2020 and is expected to remain at decreased levels in the near future and possibly long-term as a result of COVID-19.

Our professional conference and events software is a subscription offering we currently license to investor conference organizers.

This software, which is also available as a native mobile app, offers organizers, issuers and investors the ability to register, request and approve one-on-one meetings, manage schedules, perform event promotion and sponsorship, print attendee badges and manage lodging.

This cloud-based product can be used in a virtual or in person conference setting and is integrated within Platform id.

to enhance our Communications module subscription offerings of newswire, newsrooms, webcasting and shareholder targeting.

This cloud-based product can be used in a virtual or in person conference setting and is integrated within our Communications subscription offerings of newswire, newsrooms, webcasting and shareholder targeting.

We believe this integration gives us a unique offering for professional conference organizers that is not available elsewhere in the market.

We believe this software helps make Platform id.

a platform of choice for investment banks, issuers and investors.

However, similar to our virtual events business, the transition of conferences back to in-person events has had an impact on our conference events software subscription business, as in-person events have either been smaller or delayed due to pandemic concerns.

We believe this software helps make our platform a platform of choice for investment banks, issuers and investors.

Investor Relations Websites

Our investor relations content network is another component of Platform id.

, which is used to create the investor relations tab of a company’s website.

Our investor relations content network is another component of our Communications offering, which is used to create the investor relations’ tab of a company’s website.

This investor relations content network is a robust series of data feeds including news feeds, stock feeds, fundamentals, regulatory filings, corporate governance and many other components which are aggregated from most of the major exchanges and news distribution outlets around the world.

Customers can subscribe to one or more of these data feeds or as a component of a fully designed and hosted website for pre-IPO companies, SEC reporting companies and partners seeking to display our content on their corporate sites.

The clear benefit to our investor relations content network is its integration into Platform id.

The clear benefit to our investor relations content network is its integration with our other Communications offerings.

As such, companies can produce content for public distribution and it is automatically linked to their corporate website, distributed to targeted groups and placed into our data feed partners.

Our Compliance offerings consist of our disclosure software for financial reporting, stock transfer services, and related annual meeting, print and shareholder distribution services.

Some of these products are sold as part of a Platform id.

subscription as well as individually to customers around the globe.

Our Compliance offerings consist of our disclosure software for financial reporting, stock transfer services, whistleblower hotline and related annual meeting, print and shareholder distribution services.

Some of these products are sold as part of a Compliance subscription as well as individually to customers around the globe.

Disclosure Software and Services

’s disclosure reporting module is a document conversion, editing and filing offering which is designed for reporting companies and professionals seeking to insource the document drafting, editing and filing processes to the SEC’s EDGAR system.

Our disclosure reporting module is a document conversion, editing and filing offering which is designed for reporting companies and professionals seeking to insource the document drafting, editing and filing processes to the SEC’s EDGAR system.

Our disclosure business also offers companies the ability to use our in-house staff to assist in the conversion, tagging and filing of their documents.

We generate revenues in disclosure from both software and services and, in most cases, customers have both components within their annual agreements, while others pay for services as they are completed.

Our Inline XBRL (Inline Extensible Business Reporting Language or “iXBRL”) product now includes upgrades that meet mandated SEC disclosure requirements which became effective last year.

These requirements began impacting most of our customers on June 15, 2021, however, we had a number of customers previously file using our iXBRL product.

We generate revenues in disclosure both from software and services and, in most cases, customers have both components within their annual agreements, while others pay for services as they are completed.

Whistleblower Hotline

Our Whistleblower hotline is an add-on product within Platform id.

Our whistleblower hotline is an add-on product within our platform.

This system delivers secure notifications and basic incident workflow management processes that align with a company’s corporate governance whistleblower policy.

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In 2020, NYSE renewed and extended the initial subsidy term to four years from two years, whereby the first two years are provided under subsidy and the added two years are at our standard subscription rates.

Recently, we have been working on upgrading the incident response and management component of the workflow, which is expected to be completed this year.

Stock Transfer Module

A valued subscription add-on in our Platform id.

offering is the ability for our customers to gain access to real-time information about their shareholders, stock ledgers and reports and to issue new shares from our cloud-based stock transfer module.

A valued subscription add-on in our Compliance offering is the ability for our customers to gain access to real-time information about their shareholders, stock ledgers and reports and to issue new shares from our cloud-based stock transfer module.

Managing the capitalization table of a public company or pre-IPO company is a cornerstone of corporate governance and transparency, and as such companies and community banks have chosen us to assist with their stock transfer needs, including bond offerings and dividend management.

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This module is utilized for every annual meeting or special meeting we manage for our customers and offers both full-set mailing and notice of internet availability options.

This module has been incorporated within our webcasting offering to enable our customers the ability to conduct their annual meetings in-person or fully virtual, which has often been required since the COVID-19 pandemic.

This module has been incorporated within our webcasting offering to enable our customers the ability to conduct their annual meetings in-person or fully virtual.

Our solution incorporates shareholder and guest registration, voting integration, real-time statistics on attendance, audio video and presentation features as well as fully managed meeting managers and inspector of elections.

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Over the past few years, we have worked on refining the model of digital distribution of our customers’ message to the investment community and beyond.

This was accomplished by integrating our shareholder outreach module, Investor Network, into and with Platform id.

Most of the customers subscribing to this module today are historical PrecisionIR - Annual Report Service (“ARS”) users, as well as new customers purchasing the entire Platform id.

subscription.

This was accomplished by integrating our shareholder outreach module, Investor Network, into and with our Compliance offerings.

Most of the customers subscribing to this module today are historical PrecisionIR (“PIR”) – Annual Report Service (“ARS”) users, as well as new customers purchasing the entire platform subscription.

We migrated some of the customers from the traditional ARS business into this new digital subscription business, however, we continue to operate a portion of this legacy physical hard copy delivery of annual reports and prospectuses for customers who opt to take advantage of it.

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Results of Operations

Comparison of results of operations for the three and nine months ended September 30, 2022 and 2021:

Three months ended

Nine months ended

September 30,

Revenue Streams

Communications

Gross margin %

Comparison of results of operations for the three months ended March 31, 2023 and 2022 (in 000’s):

Three Months Ended March 31,

Percentage of Revenue (1)

Communications revenue

$ 6,566 $ 3,383 76 % 64 %

Compliance revenue

2,053 1,905 24 % 36 %

Total revenue

8,619 5,288 100 % 100 %

Cost of revenue:

Communications cost of revenue

1,384 761 21 % 22 %

Compliance cost of revenue

445 471 22 % 25 %

Total cost of revenue

1,829 1,232 21 % 23 %

Gross Margin:

Total revenue decreased by $185,000, or 3%, to $5,280,000 during the three-month period ended September 30, 2022, as compared to $5,465,000 during the same period of 2021.

Total revenue increased by $210,000, or 1%, to $16,375,000 during the nine-month period ended September 30, 2022, compared to $16,165,000 during the same period of 2021.

Communications revenue decreased $199,000, or 5%, and increased $178,000, or 2%, during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of 2021.

The decrease in revenue for the three-month period ended September 30, 2022, is attributed to a decrease in revenue from our webcasting and events revenue stream, partially due to less demand for our virtual products as conferences and meetings began to move back to in-person events, as well as timing of some events being pushed into the fourth quarter of 2022.

This decrease was partially offset by an increase in revenue from our ACCESSWIRE news brand.

ACCESSWIRE revenue for the three-month period ended September 30, 2022, increased approximately 6%, compared to the same period of the prior year.

We also generated increased revenue from our investor relations websites and news feed product lines.

The increase in revenue for the nine months ended September 30, 2022 is due to a 13% increase in revenue from ACCESSWIRE as well as increased revenue from investor relations websites and news feed product lines.

These increases were partially offset by a decrease in revenue from our events and webcasting business due to the aforementioned reasons.

Communications revenue was 66% and 65% of total revenue during the three and nine months ended September 30, 2022, respectively, as compared to 67% and 64% during the same periods of the prior year.

Compliance revenue increased $14,000, or 1% and $32,000 or also 1% during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of 2021.

The increase in revenue is due primarily to an increase in revenue from print and proxy fulfillment services due to larger transactions during the periods.

Revenue from our transfer agent services also increased for the three month-period ended September 30, 2022 due to an increase in subscription fees, however, continues to remain lower on a year-to-date basis.

The increase in revenue from proxy fulfillment services was also partially offset by declines in disclosure services and software revenue and our legacy ARS services due to customer attrition.

No customers accounted for more than 10% of the revenues during the three and nine-month periods ended September 30, 2022, or 2021.

Deferred Revenue

At September 30, 2022, our deferred revenue balance was $3,429,000, which we expect to recognize over the next twelve months, compared to $3,086,000 at December 31, 2021, an increase of 11%.

Communications gross margin

5,182 2,622 79 % 78 %

Compliance gross margin

1,608 1,434 78 % 75 %

Total gross margin

6,790 4,056 79 % 77 %

Operating Expenses:

General and administrative

2,332 1,683 27 % 32 %

Sales and marketing

2,381 1,264 28 % 24 %

Product development

774 275 9 % 5 %

Depreciation and amortization

722 146 8 % 3 %

Total expenses

6,209 3,368 72 % 64 %

Operating income

581 688 7 % 13 %

Interest (expense) income, net

(238 ) 2 (3 )% 0 %

Other expense

(535 ) — (6 )% —

(Loss) income before income taxes

(192 ) 690 (2 )% 13 %

Income tax (benefit) expense

(48 ) 174 (1 )% 3 %

Net (loss) income

$ (144 ) $ 516 (2 )% 10 %

(1) Percentage of revenue is calculated as the relevant revenue, expense, income amount divided by total revenue, except for communications and compliance cost of revenue and communications and compliance gross margin, which are divided by the related component of revenue.

Total revenue increased $3,331,000, or 63%, to $8,619,000 during the three months ended March 31, 2023, as compared to $5,288,000 for the same period in 2022.

The increase is primarily attributable to the acquisition of Newswire on November 1, 2022.

Communications revenue increased $3,183,000, or 94%, to $6,566,000 for the three months ended March 31, 2023, as compared to $3,383,000 for the same period of 2022.

The increase in revenue is primarily related to the acquisition of Newswire, which is all included in Communications revenue.

We also generated increased revenue from our ACCESSWIRE business, which increased 21% compared to the same period of the prior year, primarily due to an increase in average revenue per release.

Communications revenue represented 76% of total revenue during the three months ended March 31, 2023, as compared to 64% for the same period of 2022.

Compliance revenue increased $148,000, or 8%, to $2,053,000 during the three months ended March 31, 2023, as compared to $1,905,000 during the same period of 2022.

The increase was primarily related to an increase in revenue from our transfer agent services due to an increase in corporate actions and directives during the period as well as an increase in print and proxy fulfillment services due to larger transactions and an increase in number of projects.

Revenue Backlog

As of March 31, 2023, our deferred revenue balance was $5,166,000, which we expect to recognize over the next twelve months, compared to $5,405,000 at December 31, 2022, a decrease of 4%.

Deferred revenue primarily consists of advance billings for subscriptions of our cloud-based products and pre-paid packages of our news distribution product as well as advance billings for annual service contracts.

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Communications cost of revenues consists primarily of direct labor costs, newswire distribution costs, teleconferencing costs, and third-party licensing costs.

Compliance cost of revenue consists primarily of direct labor costs, warehousing, logistics, print production materials, postage, and amortization of capitalized software costs related to our disclosure software.

Overall cost of revenues decreased by $143,000, or 11%, and $421,000, or 10%, during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of 2021.

Overall gross margin decreased $42,000, or 1%, and increased $631,000, or 5%, during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of the prior year.

Overall gross margin percentages increased to 77% during both the three and nine months ended September 30, 2022, respectively, compared to 75% and 74% during the same periods of 2021.

Cost of revenues associated with Communications revenue remained flat during the three-month period ended September 30, 2022, and decreased $229,000, or 9% during the nine months ended September 30, 2022, as compared to the same periods of 2021.

The decrease for the nine-month period ended September 30, 2022, is primarily due to lower teleconferencing costs and other costs associated with our events and webcasting business.

Gross margin percentages from Communications revenue was 77% and 78% during the three and nine-month periods ended September 30, 2022, respectively, as compared to 78% and 75% during the same periods of 2021.

The decrease in gross margin percentage for the three-month period ended September 30, 2022 is due to the decrease in revenue from our webcasting and events business, partially offset by an increase in ACCESSWIRE revenue as a percentage of total Communications revenue.

The increase in gross margin percentage during the nine-month period ended September 30, 2022 is associated with the decrease in costs noted above along with an increase in ACCESSWIRE revenue as a percentage of total Communications revenue.

Cost of revenues associated with our Compliance revenue decreased $146,000, or 26% and $192,000, or 11% during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of 2021.

The decrease in Compliance cost of revenues is due to lower amortization expense associated with our disclosure software offset by an increase in print and postage costs associated with the increase in revenue from print and proxy and fulfillment services.

Gross margins percentages from our Compliance revenue were 77% and 74% during the three and nine-month periods ended September 30, 2022, respectively, as compared to 69% and 71% for the same periods of 2021.

The increase in gross margin percentage during both periods is primarily due to lower amortization expenses associated with our disclosure software, partially offset by an increase in postage and print and proxy fulfillment costs.

Operating Expenses

General and Administrative Expense

Compliance and other costs of revenue consists primarily of direct labor costs, warehousing, logistics, print production materials and postage.

Cost of revenues increased by $597,000, or 48%, during the three months ended March 31, 2023, as compared to the same period of 2022.

Overall gross margin increased $2,734,000, or 67%, during the three months ended March 31, 2023, compared to the same period of 2022.

As a result, overall gross margin percentage increased to 79% during the three months ended March 31, 2023, as compared to 77% during the same period of 2022.

Cost of revenues associated with our Communications revenue increased $623,000, or 82%, during the three months ended March 31, 2023 as compared to the same period of 2022.

This increase is primarily due to an increase in costs associated with operations of Newswire as well as an increase in distribution costs associated with ACCESSWIRE as we continue to expand our distribution.

Gross margin percentage associated with our Communications revenue was 79% for the three months ended March 31, 2023 compared to 78% for the same period of 2022.

Cost of revenues associated with our Compliance revenue decreased $26,000, or 6%, during the three months ended March 31, 2023 as compared to the same period of 2022.

The decrease is due to lower headcount and outsourcing costs associated with compliance services.

As a result, gross margin percentage associated with our Compliance revenue increased to 78% for the three months ended March 31, 2023, compared to 75% for the same period of 2022.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, bonuses, stock-based compensation, insurance, fees for professional services, general corporate expenses (including bad debt expense) and facility and equipment expenses.

General and administrative expenses were $1,657,000 and $4,903,000 during the three and nine months ended September 30, 2022, respectively, an increase of $399,000, or 32%, and $980,000, or 25%, respectively, compared to the same periods of 2021.

The increase is primarily driven by stock compensation expense, employee-related costs, recruiting fees and insurance expense associated with investments for future growth.

As a percentage of revenue, general and administrative expenses were 31% and 30% for the three and nine-month periods ended September 30, 2022, respectively, compared to 23% and 24% for the same periods of 2021.

General and administrative expenses were $2,332,000 for the three months ended March 31, 2023, an increase of $649,000 or 39%, as compared to the same period of 2022.

The increase is primarily driven by additional expenses associated with costs to operate Newswire, one-time transaction and integration costs, stock compensation expense and employee-related costs associated with investments for future growth, as well as an increase in bad debt expense.

These increases were offset by a reduction in executive recruiting fees compared to the same period of 2022.

As a percentage of revenue, general and administrative expenses were 27% for the three months ended March 31, 2023, as compared to 32% for the same period of 2022.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, stock-based compensation, sales commissions, advertising expenses, tradeshow expenses and other marketing expenses.

Sales and marketing expenses were $1,231,000 and $3,866,000 for the three and nine-month periods ended September 30, 2022, respectively, a decrease of $118,000, or 9%, and an increase of $233,000, or 6%, compared to the same periods of the prior year.

The decrease during the three-month period ended September 30, 2022 is due to a decrease in commission expense, partially offset by an increase in advertising and digital marketing spend.

The increase during the nine-month period is directly related to our investment in our sales and marketing initiatives with an increase in headcount, advertising, digital marketing spend and system enhancements, partially offset by a decrease in commission expense.

As a percentage of revenue, sales and marketing expenses were 23% and 24% during the three and nine-month periods ended September 30, 2022, respectively, compared to 25% and 22% for the same periods of 2021.

Sales and marketing expenses were $2,381,000 for the three months ended March 31, 2023, an increase of $1,117,000, or 88%, as compared to the same period of 2022.

This increase is primarily due to the addition of the Newswire sales team.

As a percentage of revenue, sales and marketing expenses were 28% for the three months ended March 31, 2023, as compared to 24% for the same period of 2022.

Product Development Expenses

Product development expenses consist primarily of salaries, stock-based compensation, bonuses and licenses to develop new products and technology to complement and/or enhance Platform id .

Product development expenses decreased $128,000, or 34%, and $144,000 or 16%, during the three and nine-month periods ended September 30, 2022, respectively, compared to the same periods in 2021.

The decrease is primarily due to fewer consultants used on development projects during the three and nine-month periods ended September 30, 2022.

During the three and nine-month periods ended September 30, 2021, we capitalized $54,000 and $161,000 of costs related to the development of our newsroom product, respectively, which launched in July 2021.

No costs were capitalized during the three and nine months ended September 30, 2022.

As a percentage of revenue, product development expenses were 5% and 4% for the three and nine-month periods ended September 30, 2022, respectively, compared to 7% and 5% during the same periods of 2021.

Depreciation and Amortization

Depreciation and amortization expenses decreased $7,000, or 5%, and $18,000, or 4%, during the three and nine-month periods ended September 30, 2022, respectively, as compared to the same periods of 2021.

Interest income

Interest income, net, represents interest income on deposit and money market accounts.

The increase in interest income during the three and nine months ended September 30, 2022, as compared to the same periods of the prior year, is due to a decrease in interest rates associated with the deposit and money market accounts.

Other income for the three and nine months ended September 30, 2021, primarily represents a benefit of $366,000 related to the employee retention credit enacted under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

Income tax expense

We recognized income tax expense of $180,000 and $681,000 for the three and nine-month periods ended September 30, 2022, respectively, compared to $319,000 and $738,000 during the same periods of 2021.

The decrease in income tax expense compared to the prior year is primarily related to a decrease in pre-tax income.

For the three and nine-month periods ended September 30, 2022, the variance between the Company’s effective tax rate and the U.S.

statutory rate of 21% is primarily attributable to state income taxes and expense related to Global Intangible Low-Taxed Income inclusion, partially offset by foreign tax credits.

Product development expenses consist primarily of salaries, stock-based compensation, bonuses, and licenses to develop new products and technology to complement and/or enhance our platform .

Product development expenses increased $499,000, or 181%, to $774,000 during the three months ended March 31, 2023, as compared to 2022.

This increase is directly attributed to additional costs associated with Newswire as well as hiring our new Chief Technology Officer.

As a percentage of revenue, product development expenses were 9% for the three months ended March 31, 2023, as compared to 5% for the same period of 2022.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $576,000, or 395%, compared to the same period of 2022.

The increase is attributed to increased amortization associated with intangible assets acquired in the Newswire acquisition.

Interest Income (Expense), Net

We recognized interest expense of $337,000 for the three-month period ended March 31, 2023.

Interest expense primarily represents interest attributed to the $22,000,000 note payable associated with the acquisition of Newswire, as well as $47,000 of accrued interest related to our new, long-term credit agreement.

These amounts are offset by interest income on deposit and money market accounts of $99,000 and 2,000 for the three months ended March 31, 2023 and 2022, respectively.

Other expense

Other expense primarily represents $370,000 paid to extinguish the Seller Note associated with the Newswire transaction.

Additionally, included in other expense is the loss on the change in fair value of our interest rate swap agreement.

We recognized an income tax benefit of $48,000 for the three-month period ended March 31, 2023, compared to income tax expense of $174,000 during the same period of 2022.

For the three-month periods ended March 31, 2023 and 2022, the variance between our effective tax rate and the U.S.

statutory rate of 21% is primarily attributable to state income tax.

For the three months ended March 31, 2022, the effective tax rate was also partially impacted by a benefit related to the Foreign Derived Intangible Income (“FDII”) deduction as well as foreign rate differentials.

Liquidity and Capital Resources

As of September 30, 2022, we had $21,812,000 in cash and cash equivalents and $3,062,000 in net accounts receivable.

Current liabilities at September 30, 2022, totaled $5,956,000 including our accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of lease liabilities and other accrued expenses.

At September 30, 2022, our current assets exceeded our current liabilities by $20,010,000.

Effective October 3, 2021, the Company renewed its unsecured Line of Credit, which changed the interest rate from LIBOR plus 1.75% to SOFR (Secured Overnight Financing Rate) plus 1.75%.

The amount of funds available for borrowing remained $3,000,000 and the term remained two years.

As of September 30, 2022, the interest rate was 4.22% and the Company did not owe any amounts on the Line of Credit.

As of March 31, 2023, we had $3,349,000 in cash and cash equivalents and $3,546,000 in net accounts receivable.

Current liabilities as of March 31, 2023, totaled $10,240,000 including our accounts payable, deferred revenue, accrued payroll liabilities, income taxes payable, current portion of long-term debt, current portion of lease liabilities and other accrued expenses.

On March 31, 2023, our current liabilities exceeded our current assets by $1,790,000.

On March 20, 2023 (the “Closing Date”), the Company entered into a $25 million credit agreement (the “Credit Agreement”) with Pinnacle Bank (“Pinnacle”).

The Credit Agreement provides for the following:

term loan facility in an aggregate principal amount of $20 million (the “Term Loan”), and revolving line of credit in an up to aggregate principal amount of $5 million (the “Revolving LOC”), subject to an 85% limit based on the current eligible accounts receivable (as defined in the Credit Agreement).

Pursuant to the terms of the Credit Agreement, the per annum interest rate of the Term Loan is variable based on the one-month secured overnight financing rate (“SOFR”) plus 2.35%, subject to a minimum SOFR of 2.00%.

However, the Term Loan issued on the Closing Date has a per annum interest rate of 6.217%, which was fixed with respect to the entire principal amount as a result of an interest rate swap agreement entered into between the Company and Pinnacle on the Closing Date in accordance with the terms of the Credit Agreement.

The Company will begin making monthly interest only payments on the Term Loan beginning on April 1, 2023.

Beginning on January 1, 2024, the Company will begin making monthly principal payments of $333,333 plus interest payments on the Term Loan until the maturity date of December 20, 2028.

The proceeds of the Term Loan along with certain cash on hand of the Company were used to repay in its entirety the one-year Secured Promissory Note (the “Secured Note”) issued to Lead Capital, LLC in connection with the Company’s November 1, 2022 acquisition of iNewswire.com LLC for a lump sum payment of $22,880,000.

In order to settle the Secured Note on March 20, 2023, the Company paid $370,000 to Seller, with the Seller agreeing to forgive $440,000 of interest which would have otherwise been due.

The $370,000 payment is recorded in Other expense on the Consolidated statements of operations.

As a result, there is no longer any obligation to the Seller as of March 31, 2023

The Company currently has no plans to utilize the Revolving LOC but may do so in the future.

If the Company does utilize any funds under the Revolving LOC, the funds will bear interest at a per annum rate equal to the then current SOFR plus 2.05%.

Pinnacle’s commitment to fund under the Revolving LOC terminates on September 1, 2024, unless terminated earlier pursuant to the terms of the Credit Agreement.

The Company terminated its existing $3,000,000 unsecured line of credit with Fifth Third Bank immediately prior to the Closing Date.

As of March 31, 2023, there was no outstanding balance under the Revolving LOC and the interest rate was 6.68%.

The Credit Agreement contains the following financial covenants, which commence with fiscal quarter ending June 30, 2023:

a fixed charge coverage ratio of no less than 1.20:1.00 and a leverage ratio requiring that, for each fiscal quarter of the Company ending on or after June 30, 2023 through September 30, 2023, the leverage ratio shall not exceed 2.75:1.00 and for each fiscal quarter of the Company ending after December 31, 2023, the leverage ratio shall not exceed 2.50:1.00.

The Credit Agreement also contains customary affirmative covenants for a transaction of this nature, including among other things, covenants relating to:

maintenance of adequate financial and accounting books and records, delivery of financial statements and other information, preservation of existence of the Company and subsidiaries, payment of taxes and claims, compliance with laws, maintenance of insurance, foreign qualification, use of proceeds, cash management system, maintenance of properties, and conduct of business.

The Credit Agreement also contains customary negative covenants for a transaction of this nature, including, among other things, covenants relating to debt, liens, investments, negative pledges, dividends and other debt payments, restriction on fundamental changes, sale of assets, transactions with affiliates, restrictive agreements, and changes in fiscal year.

The Credit Agreement also contains various Events of Default (subject to certain grace periods, to the extent applicable), including among other things, Events of Default for the nonpayment of principal, interest or fees;

breach of certain covenants;

inaccuracy of the representations or warranties in any material respect;

bankruptcy or insolvency;

dissolution or change of control;

certain unsatisfied judgments;

defaults under material agreements;

certain unfunded liabilities under employee benefit plans;

certain unsatisfied judgments;

certain ERISA violations;

and the invalidity or unenforceability of the Credit Agreement.

If an Event of Default occurs, the Company may be required to repay all amounts outstanding under the Credit Agreement.

The Term Loan and any advances under the Revolving LOC are secured by a first priority lien and security interest to the benefit of Pinnacle in the Event of Default on all of the Company’s current or future assets and each of the Guarantor’s current or future assets.

Disclosure about Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Non-GAAP Measures

Management believes that certain non-GAAP measures, such as non-GAAP free cash flow, non-GAAP adjusted free cash flow, non-GAAP adjusted EBITDA (“adjusted EBITDA”), and non-GAAP adjusted net income (“adjusted net income”) provide useful information about our operating results and enhance the overall ability to assess our financial performance.

We use these measures, together with other measures of performance prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), to compare the relative performance of operations in planning, budgeting, and reviewing the performance of our business.

Adjusted EBITDA and adjusted net income allow investors to make a more meaningful comparison between our core business operating results over different periods of time.

We believe that adjusted EBITDA and adjusted net income, when viewed with our results under US GAAP and the accompanying reconciliations, provide useful information about our business without regard to potential distortions.

By eliminating potential differences in results of operations between periods caused by factors such as acquisition-related expenses and other items as described below, we believe adjusted EBITDA and adjusted net income can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

Management uses free cash flow, which is defined as net cash flows provided by operating activities less payments for purchases of fixed assets and capitalized software, in reviewing the financial performance and cash generation by our various business groups and evaluating cash levels.

We believe free cash flow is a useful measure for investors because it portrays our ability to grow organically and generate cash from our businesses for purposes such as paying interest on our indebtedness, repaying debt, funding business acquisitions, investing in product development, re-purchasing our common stock, and paying dividends, if it is determined we do so in the future.

In addition, securities analysts, investors, and others frequently use free cash flow in their evaluation of companies.

Adjusted free cash flow represents a further non-GAAP adjustment to free cash flow to exclude the effect of cash paid for acquisition and integration related activities and unusual or non-recurring transactions.

Management believes that by excluding these infrequent or unusual items from free cash flow, it better portrays our ability to generate cash, as such items are not indicative of the Company’s operating performance for the period.

The uses of these non-GAAP financial measures are not intended to be considered in isolation of, or as substitute for, the financial information prepared and presented in accordance with US GAAP.

Free cash flow and adjusted free cash flow do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs.

Our calculation of free cash flow and adjusted free cash flow may differ from similarly titled measures used by other companies, limiting their usefulness as a comparative measure.

Free cash flow and adjusted free cash flow are non-GAAP financial measures.

For the three months ended March 31, 2023 and 2022, free cash flow and adjusted free cash flow were as follows:

Three Months Ended March 31,

Net cash provided by operating activities (US GAAP)

Payments for purchase of fixed assets and capitalized software

Free cash flow (Non-GAAP)

Cash paid for acquisition and integration related items (1)

Cash paid for other unusual items (2)

Adjusted free cash flow (Non-GAAP)

This adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, paid during the periods.

For the three-months ended March 31, 2023, this adjustment is primarily related to a one-time payment of $370,000 related to the early extinguishment of the Seller Note.

For the three-months ended March 31, 2022, this adjustment gives effect to payment of a one-time executive recruiting fee payment of $60,000.

Adjusted EBITDA and adjusted net income are non-GAAP financial measures and should not be considered as a substitute for analysis of our results as reported under US GAAP.

These measures are defined differently by different companies, and accordingly, such measures may not be comparable to similarly titled measures of other companies and have important limitations as an analytical tool.

A reconciliation of net income to adjusted EBITDA for the three months ended March 31, 2023 and 2022 is presented in the following table (in 000’s):

Three Months Ended March 31,

Net (loss) income:

Depreciation and amortization

Interest expense (income), net

Income tax (benefit) expense

Acquisition and/or integration costs (1)

Other non-recurring expenses (2)

Stock-based compensation expense (3)

Adjusted EBITDA:

This adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, incurred during the periods.

For the three months ended March 31, 2023, this adjustment gives effect to $370,000 payment related to early extinguishment of Seller Note and $165,000 loss due to the change in fair value of our interest rate swap.

For the three months ended March 31, 2022, this adjustment gives effect to a one-time executive recruiting fee of $90,000.

The adjustments represent stock-based compensation expense related to awards of stock options, restricted stock units, or common stock in exchange for services.

Although we expect to continue to award stock in exchange for services, the amount of stock-based compensation is excluded as it is subject to change as a result of one-time or non-recurring projects.

A reconciliation of net income to adjusted net income for the three months ended March 31, 2023 and 2022 is presented in the following table (in 000’s):

Three Months Ended March 31,

Net (loss) income:

Amortization of intangible assets (1)

Stock-based compensation expense (2)

Other unusual items (3)

Tax impact of adjustments (4)

Non-GAAP net income:

Weighted average number of common shares outstanding – diluted

The adjustments represent the amortization of intangible assets related to acquired assets and companies.

The adjustments represent stock-based compensation expense related to awards of stock options, restricted stock units, or common stock in exchange for services.

For the three months ended March 31, 2023, this adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, incurred during the period of $234,000, $370,000 related to the early extinguishment of the Seller Note associated with the Newswire acquisition and $165,000 loss related to the change in fair value of our interest rate swap.

For the three months ended March 31, 2022, this adjustment gives effect to one-time corporate projects, including acquisition and integration related expenses, incurred during the period of $16,000 and one-time executive recruiting fee of $90,000.

This adjustment gives effect to the tax impact of all non-GAAP adjustments at the current Federal tax rate of 21%.

The following statements and certain statements made elsewhere in this document are based upon current expectations.

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Refer also to the Cautionary Statement Concerning Forward Looking Statements included in this report.

While it is unknown how long current conditions resulting from the COVID-19 pandemic will last, including whether a worldwide resurgence will occur, variants of the virus will become more impactful or vaccines will be completely effective, we could experience a material disruption of our employees and operations, a decline in revenue, a decline in value of our assets, deterioration of our customer base and the inability of our customers to pay for subscriptions or services provided.

To date, we have seen both positive and negative impacts to our business.

Physical, in-person conferences have been delayed and in the past, there have been delays in transactions processed by the Depository Trust Company and banks and brokers in our transfer agent business.

However, our ability to pivot and enhance our product offering with our virtual products generated increased revenue over the past two years.

Despite our ability to pivot and enhance our product offering, the concentrations of our customer base within middle, small and micro-cap customers make it reasonably possible that we are vulnerable to the risk of a near-term negative impact related to the COVID-19 pandemic if a substantial portion of these customers are forced to scale back or cease operations.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and are unable at this time to predict the continued impact that COVID-19 will have on our business, financial position, and operating results in future periods due to numerous uncertainties.

COVID-19’s continuing impacts, the current military conflict in Ukraine, instability in global energy markets, global inflation and rapidly increasing interest rates have contributed to significant global economic uncertainty, disrupted global trade and supply chains, adversely impacted many industries and contributed to significant declines and volatility in financial markets.

Overall, despite many uncertainties in the market regarding the economic outlook and the future of the COVID-19 pandemic, the demand for our platforms and services continues to be stable in a majority of the markets we serve.

The success of our Communications offering has been led by our ACCESSWIRE branded newswire, for which we believe we will continue to see stable to increased demand throughout 2022 and beyond.

Although we experienced a decline in demand for our webcasting and events business since 2020, we believe we are well-positioned in this market with our ability to hold both in-person and virtual events using both our conference software and webcasting products.

We believe this allows us to not only deliver attractive solutions to the market but may also lead us into new opportunities during this changing and challenging environment.

The COVID-19 pandemic and global economic downturn has caused shifts in demands for these products, and we are uncertain at this time if these shifts will continue and cannot make any assurances at this time that our products will be accepted by customers in the long-term.

Market factors like the current military conflict in Ukraine, instability in global energy markets, global inflation and rapidly increasing interest rates have contributed to significant global economic uncertainty, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant declines and volatility in financial markets.

Overall, despite many uncertainties in the market regarding the economic outlook, the demand for our platforms and services continues to be stable in a majority of the markets we serve.

In the past, the success of our Communications offering has been led by our ACCESSWIRE branded newswire, for which we believe we will continue to see stable to increased demand throughout 2023 and beyond.

We believe the Newswire business will also contribute to providing stable to increased demand in our Communications offering.

The transition to a platform subscription model has been and will continue to be key for our long-term sustainable growth.

We will also continue to focus on the following key strategic initiatives during the remainder of 2022 and into 2023:

The successful integration of the Newswire business with our ACCESSWIRE business is also a key initiative for 2023.

We will also continue to focus on the following key strategic initiatives during the year:

Expanding our Communications products and adapting to this changing industry,

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Generating cash flows from operations.

We believe there is demand for our products around the world, led by our ACCESSWIRE newswire brand, as companies seek to find better platforms and tools to disseminate and communicate their messages in a more efficient and collaborative way.

We believe there is demand for our products around the world, led by our ACCESSWIRE/Newswire brands, as companies seek to find better platforms and tools to disseminate and communicate their messages in a more efficient and collaborative way.

We have invested and will continue to invest in our product sets, platforms and intellectual property development via internal development and acquisitions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis