What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 145 added, 187 removed, 195 unchanged (63% of the section changed)

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

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.

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.

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

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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 PR Optimizer (”PRO”) offering, formally Media Advantage Platform, 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 media database platform, pitching and monitoring capabilities, as well as its PRO offering.

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

Through the PRO offering, we provide content and media communications services that provide customers the opportunity to optimize their content and increase their media visibility, therefore building their brand awareness and engaging a larger audience.

With the flexibility of these offerings, customers have the ability to choose between support with content optimization, increased media visibility, or both for optimal results.

We believe the Total PRO product offering provides the most effective and efficient integrated media and content communication program available in the market today.

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

Like other newswires globally, ours are dependent upon several key partners for its news distribution.

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

Our leading 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 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 and Newswire are dependent upon several key partners for its news distribution.

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

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

The Newswire brand was acquired on November 1, 2022, as part of the iNewswire, LLC transaction.

Today we continue to operate this brand independently as a stand-alone front-end marketing and news distribution brand option for private companies.

Its distribution was fully integrated into the company’s main newswire brand ACCESSWIRE in early 2023.

Newswire began in 2016 as an ecommerce news distribution platform, that has evolved over the years to serve thousands of customers globally.

Additionally, the brand added new products to complement its news distribution services, such as media database, media rooms and PR Optimizer (”PRO”).

Our PRO offering, formally Media Advantage Platform, automates media and marketing communications for businesses seeking to deliver the right message to the right audience at the right time for the right purpose.

With the flexibility of these offerings, customers have the ability to choose between support with content optimization, increased media visibility, or both for optimal results.

We believe the PRO product offering provides the most effective and efficient integrated media and content communication program available in the market today.

We believe for the near term, we will operate the newswire brand (newswire.com) platform separate from ACCESSWIRE as there are clear customer segmentation differentiation and offerings surrounding both the Investor Relations and Public Relations Community.

However, as the market changes, we could move the brands together and alter the offerings to remain competitive in the market.

As part of the iNewswire acquisition, we acquired certain assets that with further development resulted in our ability to release a subscription add-on to our Newswire and ACCESSWIRE brands, which we call Media Suite.

Media Suite includes three new products:

Media Database, Media Pitching, and Media Monitoring, all of which are further described below.

The Media Suite offering provides communication professionals with the opportunity to build their story, incorporate artificial intelligence (AI) if desired, effectively pitch the media, and monitor their internal brand as well as their competitors.

This is all accomplished with a blend of human curation and an advanced AI engine that ultimately serves as the foundation of an easy-to-use workflow we branded as our Media Suite.

Media Suite is a recurring subscription product, with three subscription options available:

Media Suite Starter, Media Suite Plus, and Media Suite Enterprise, each providing different combinations of our solutions to help our customers reach their goals.

Media Database – Our media database is based on the idea that pitching the media should be a targeted endeavor.

Our dataset includes only the journalists that are actively writing and publishing articles.

We built this component in reverse, looking at the tens of millions of articles published annually and sorted articles by industry, publication and journalist, then curated the most accurate data of each contact and made it available within our media database.

Additionally, within the interface we made it easy to see each article published by every journalist a user may want to connect with, making Media Suite a compelling combination of the right features and intelligence between database, pitching, and monitoring.

Media Pitching – Pitching is a critical part of the Media Suite because it allows the user to contact and connect with the most active journalists in their industry.

Media Suite not only gives the user the professionals to pitch, it also offers AIMee, our AI writing and recommendation engine, to enhance the user’s message, write a new message and highlight engageable content to help bring their pitch to the forefront.

Media Monitoring – a brand Monitoring solution is extremely important, and every company should consider monitoring not only their brands, but their products, executives and competitors mentioned in all mediums – print, broadcast media and television, web, radio, video, blogs and social media.

Our monitoring solution offers many of these mediums and we will continue to undergo expansion in each of these mediums with a goal of being a comprehensive media monitoring solution within the next year.

Our media monitoring solution ties together our journalist contacts and mention analytics into and with a customer’s dashboard of daily activity.

A natural addition to our ACCESSWIRE and investor relations website business is our corporate Media Room.

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.

Our Newsroom suite addresses the needs of our customers looking to build connections with media, journalists, customers and if applicable the investment community.

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

Our Media Room suite addresses the needs of our customers looking to build connections with media, journalists, customers and if applicable the investment community.

According to a survey from TekGroup, a majority of journalists and media professionals indicated the importance of newsrooms that include digital media, press kits and video.

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 web to their newsroom.

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

Brand Asset Manager – a customizable library of images, video and press kits, which can be shared both privately and publicly, as well as integrated into the ACCESSWIRE editor for easy access of customers’ high- resolution images.

All assets are tagged to give our customers analytics for both views and downloads.

Subsequent versions of this feature will allow for greater analytics as engagement occurs with our customers’ assets.

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

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

We believe our Media Room suite accomplishes this by making it a part of our new Media Suite, giving us a further competitive advantage in the market.

This also allows our customers to have one media platform to manage all their assets, brands and outreach.

Webcasting & Events

Our webcasting and events business is comprised of our earnings call webcasting solutions and our virtual meeting and events software (such as annual meetings, deal/non-deal road shows, analyst days and shareholder days).

The demand for these products with a virtual component was at an all-time high for us in 2020, largely due to the COVID-19 pandemic.

Since the end of the pandemic, the industry overall has seen 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 2020 and 2021.

Our Webcasting Platform is a cloud-based webcast, webinar and virtual meeting platform that delivers live and on-demand streaming of events to audiences of all sizes.

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

The platform architecture 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.

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.

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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.

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 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.

As we expand our platform, it is vital for us to have solutions that service both our core public companies but also a growing segment of private customers.

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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.

During 2023 we released significant upgrades to our investor relations website, that included ADA Compliance (Americans with Disabilities Act) which ensures that people with disabilities have the same access to all areas of a business's premises.

Specifically, this module addresses electronic information and technology, such as our customers’ websites.

This add-on requires a recurring annual subscription and is delivered fully integrated into and with our investor relations website offering.

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.

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Since 2014, we have been a named NYSE subsidy provider of this Whistleblower solution.

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.

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

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.

A valued subscription module 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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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.

Although we believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage, there can be no assurances this product has longevity in the market.

We believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage.

Shareholder Distribution

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.

In the past, 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 our Compliance offerings.

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Results of Operations

Comparison of results of operations for the three and nine-months ended September 30, 2023 and 2022 (in 000’s):

Three Months Ended September 30,

Percentage of Revenue (1)

Communications revenue

Compliance revenue

Total revenue

Cost of revenue:

Communications cost of revenue

Compliance cost of revenue

Total cost of revenue

Gross Margin:

Communications gross margin

Compliance gross margin

Total gross margin

Operating Expenses:

General and administrative

Sales and marketing

Product development

Depreciation and amortization

Total expenses

Operating income

Interest (expense) income, net

Income before income taxes

Income tax provision

Nine Months Ended September 30,

Comparison of results of operations for the three months ended March 31, 2024 and 2023 (in 000’s):

Three Months Ended

Percentage of Revenue (1)

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Total expenses

Operating income

Interest (expense) income, net

Other expense, net

Income before income taxes

Income tax provision

Operating (loss) income

Interest expense, net

Other income (expense)

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

(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 $2,289,000, or 43%, to $7,569,000 during the three months ended September 30, 2023, as compared to $5,280,000 for the same period of 2022.

Total revenue increased by $9,464,000 or 58%, to $25,839,000 during the nine months ended September 30, 2023, as compared to $16,375,000 during the same period of 2022.

The increases in both periods are primarily attributable to the acquisition of Newswire on November 1, 2022.

An increase in revenue from our Compliance revenue stream also contributed to the increase in revenue for the nine months ended September 30, 2023.

Communications revenue increased $2,591,000, or 74% and $8,019,000, or 76%, to $6,078,000 and $18,580,000 for the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

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

For the three and nine months ended September 30, 2023, we also generated increased revenue from our ACCESSWIRE business, which increased 9% and 10%, respectively, compared to the same periods of the prior year.

These increases were partially offset by a decrease in revenue from our events and webcasting business, primarily due to less virtual events and annual meetings during the three and nine months ended September 30, 2023, as compared to the prior year.

Communications revenue represented 80% and 72% of total revenue during the three and nine months ended September 30, 2023, respectively, as compared to 66% and 65% for the same periods of 2022.

Compliance revenue decreased $302,000, or 17%, and increased $1,445,000, or 25%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

The decrease during the three months ended September 30, 2023, is primarily attributed to a decrease in revenue from our transfer agent and print and proxy fulfillment services due to a decrease in corporate activity and projects during the quarter.

The increase for the nine months ended September 30, 2023, was primarily related to an increase in revenue from our print and proxy fulfillment services due to a few significant transactions which occurred during the first half of the year, as well as, an increase in revenue from our transfer agent services due to an increase in corporate actions and directives during the first half of 2023.

Total revenue decreased $1,657,000, or 19%, to $6,962,000 during the three months ended March 31, 2024, as compared to $8,619,000 for the same period in 2023.

The decrease is attributable to declines in revenue in both our Communications and Compliance revenue streams.

Communications revenue decreased $1,107,000, or 17%, to $5,459,000 for the three months ended March 31, 2024, as compared to $6,566,000 for the same period of 2023.

The decrease in revenue is due to both a decrease in volume in our Newswire business as well as decrease in pricing mix from our ACCESSWIRE business.

Additionally, revenue from our events and webcasting business was lower due to a large conference that occurred during the three months ended March 31, 2023, but not during the current year.

Communications revenue represented 78% of total revenue during the three months ended March 31, 2024, as compared to 76% for the same period of 2023.

Compliance revenue decreased $550,000, or 27%, to $1,503,000 during the three months ended March 31, 2024, as compared to $2,053,000 during the same period of 2023.

The decrease was primarily related to a decrease in revenue from print and proxy fulfillment services due to fewer and smaller transactions than in the prior year.

Additionally, we had a decrease in revenue from our transfer agent services due to a decrease in corporate actions and directives during the period.

Revenue from these two services tends to fluctuate from quarter to quarter because they are project-based and dependent on market activity.

Revenue Backlog

As of September 30, 2023, our deferred revenue balance was $5,164,000, which we expect to recognize over the next twelve months, compared to $5,405,000 as of December 31, 2022.

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

As of March 31, 2024, our deferred revenue balance was $5,584,000, which we expect to recognize over the next twelve months, compared to $5,412,000 at December 31, 2023, an increase of 3%.

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

Cost of Revenues

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

Compliance cost of revenues consist primarily of direct labor costs, warehousing, logistics, print production materials and postage.

Cost of revenues increased $585,000, or 48%, and $2,154,000, or 57%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

Overall gross margin increased $1,704,000, or 42% and $7,310,000, or 58%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

As a result, overall gross margin percentage decreased to 76% for the three months ended September 30, 2023, as compared to 77% during the same period of 2022, however, overall gross margin remained flat during the nine months ended September 30, 2023, as compared to the same period of 2022.

Cost of revenues associated with our Communications revenue increased $690,000, or 86% and $2,000,000, also 86%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

These increases are 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 75% and 77% for the three and nine-months ended September 30, 2023, respectively, as compared to 77% and 78% during the same periods of 2022.

Cost of revenues associated with our Compliance revenue decreased $105,000, or 26% and increased $154,000, or 10%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

The change in cost of revenues is primarily the result of timing of print and proxy fulfillment projects during the respective periods.

Gross margin percentage associated with our Compliance revenue increased to 80% and 77% for the three and nine-months ended September 30, 2023, respectively, as compared to 77% and 74% for the same periods of 2022.

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

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

Cost of revenues decreased by $108,000, or 6%, during the three months ended March 31, 2024, as compared to the same period of 2023.

Overall gross margin decreased $1,549,000, or 23%, during the three months ended March 31, 2024, compared to the same period of 2023.

As a result, overall gross margin percentage decreased to 75% during the three months ended March 31, 2024, as compared to 79% during the same period of 2023.

Cost of revenues associated with our Communications revenue decreased $42,000, or 3%, during the three months ended March 31, 2024 as compared to the same period of 2023.

This decrease is primarily due to lower volume noted earlier.

Gross margin percentage associated with our Communications revenue was 75% for the three months ended March 31, 2024 compared to 79% for the same period of 2023.

The decrease in gross margin percentage is due to lower Communications revenue.

Cost of revenues associated with our Compliance revenue decreased $66,000, or 15%, during the three months ended March 31, 2024 as compared to the same period of 2023.

The decrease is primarily the result of lower print and postage costs associated with lower revenue from our print and proxy fulfillment services.

As a result, gross margin percentage associated with our Compliance revenue decreased to 75% for the three months ended March 31, 2024, compared to 78% for the same period of 2023.

General and Administrative Expenses

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

General and administrative expenses were $2,033,000 during the three months ended September 30, 2023, an increase of $376,000, or 23%, as compared to the same period of 2022.

General and administrative expenses were $6,639,000 for the nine months ended September 30, 2023, an increase of $1,736,000, or 35%, as compared to the same periods of 2022.

The increase is primarily driven by additional expenses associated with costs to operate Newswire, employee-related costs and stock compensation expense.

For the nine months ended September 30, 2023, the increase is also related to one-time transactions costs, partially offset by a reduction in executive recruiting fees.

As a percentage of revenue, general and administrative expenses were 27% and 26% for the three and nine-months ended September 30, 2023, respectively, as compared to 31% and 30% for the same periods of 2022.

General and administrative expenses were $1,819,000 for the three months ended March 31, 2024, a decrease of $513,000 or 22%, as compared to the same period of 2023.

The decrease is primarily driven by a benefit to stock compensation expense as a result of the resignation of an executive officer as well as lower one-time transaction and integration costs, partially offset by an increase in bad debt expense.

As a percentage of revenue, general and administrative expenses were 26% for the three months ended March 31, 2024, as compared to 27% for the same period of 2023.

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 $1,838,000 for the three months ended September 30, 2023, an increase of $607,000, or 49%, as compared to the same period of 2022.

Sales and marketing expenses were $6,258,000 for the nine months ended September 30, 2023, an increase of $2,392,000, or 62%, as compared to the same period of 2022.

These increases are primarily due to the addition of the Newswire sales team.

As a percentage of revenue, sales and marketing expenses were 24% for the three and nine months ended September 30, 2023, as compared to 23% and 24% for the same periods of 2022.

Sales and marketing expenses were $2,096,000 for the three months ended March 31, 2024, a decrease of $285,000, or 12%, as compared to the same period of 2023.

This decrease is primarily due to lower employee-related expenses, including commissions.

As a percentage of revenue, sales and marketing expenses were 30% for the three months ended March 31, 2024, as compared to 28% for the same period of 2023.

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 our platform.

Product development expenses increased $336,000, or 137% and $1,153,000, or 157% to $581,000 and $1,887,000 during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

These increases are directly attributed to additional costs associated with Newswire as well as hiring our new Chief Technology Officer.

During the three and nine months ended September 30, 2023, we capitalized $152,000 and $319,000, respectively, of costs related to develop our new artificial intelligence and media database products.

As a percentage of revenue, product development expenses were 8% and 7% for the three and nine months ended September 30, 2023, respectively, as compared to 5% and 4% for the same periods of 2022.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $581,000, or 398%, and $1,733,000, or 395%, during the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

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

Interest (expense) income, net

We recognized interest expense of $368,000 and $1,080,000 for the three and nine months ended September 30, 2023.

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

There was no interest expense during the three and nine months ended September 30, 2022.

Interest expense is partially offset by interest income of $70,000 and $263,000 for the three and nine months ended September 30, 2023, respectively, from deposit and money market accounts and interest income from our interest rate swap agreement.

During the three and nine months ended September 30, 2022, interest income amounted to $77,000 and $99,000, respectively.

Other income, net

During the three months ended September 30, 2023, other income represents the change in fair value of our interest rate swap agreement.

During the nine months ended September 30, 2023, other income, net represents the change in fair value of our interest rate swap agreement, partially offset by $370,000 paid to extinguish the Seller Note associated with the Newswire transaction.

There was no other income, net during the three and nine months ended September 30, 2022.

We recognized income tax expense of $187,000 and $621,000 for the three and nine months ended September 30, 2023, compared to $180,000 and $681,000 during the same periods of 2022, respectively.

For the three and nine-month periods ended September 30, 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 and additional expense related to Global Intangible Low-Taxed Income inclusion.

Product development expenses decreased $120,000, or 16%, to $654,000 during the three months ended March 31, 2024, as compared to 2023.

The decrease is primarily due to the capitalization of $245,000 for our Media Suite product as well as enhancements to our ACCESSWIRE system.

No costs were capitalized during the three months ended March 31, 2023.

As a percentage of revenue, product development expenses were 9% for both the three months ended March 31, 2024 and 2023.

Interest Income (Expense), Net

We recognized interest expense of $308,000 for the three-month period ended March 31, 2024, compared to $337,000 during the same period of 2023.

For the three months ended March 31, 2024, interest expense is related to our long-term credit agreement.

For the three months ended March 31, 2023, interest expense primarily represents interest attributed to the $22,000,000 Seller Note, as well as $47,000 of accrued interest related to our long-term credit agreement.

These amounts are offset by interest income on deposit and money market accounts of $32,000 and $99,000 for the three months ended March 31, 2024 and 2023, respectively.

Other income (expense)

Other income (expense) represents the change in fair value of our interest rate swap.

For the three months ended March 31, 2023, Other income (expense) also includes expense related to $370,000 paid to extinguish the Seller Note.

We recognized an income tax expense of $16,000 for the three-month period ended March 31, 2024, compared to income tax benefit of $48,000 during the same period of 2023.

For the three-month periods ended March 31, 2024 and 2023, 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, 2024, the effective tax rate was also impacted by additional expense associated with vesting of stock-based compensation awards.

Liquidity and Capital Resources

As of September 30, 2023, we had $5,050,000 in cash and cash equivalents and $4,271,000 in net accounts receivable.

Current liabilities as of September 30, 2023, totaled $11,658,000 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 September 30, 2023, our current liabilities exceeded our current assets by $866,000.

As of March 31, 2024, we had $5,399,000 in cash and cash equivalents and $4,201,000 in net accounts receivable.

Current liabilities as of March 31, 2024, totaled $13,215,000 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, 2024, our current liabilities exceeded our current assets by $2,116,000.

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 letter 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).

(i) term loan facility in an aggregate principal amount of $20 million (the “Term Loan”), and (ii) 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 began making monthly interest-only payments on the Term Loan on April 1, 2023.

Beginning on January 1, 2024, the Company will make monthly principal payments of $333,333 plus interest payments on the Term Loan until the maturity date of December 28, 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 “Newswire 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 the 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 income, net on the Consolidated statements of operations.

As a result, there is no longer any obligation to the Seller as of September 30, 2023.

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

On January 1, 2024, the Company began 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 “Seller Note”) issued to Lead Capital, LLC (“the Seller”) in connection with the Company’s November 1, 2022 acquisition of iNewswire.com LLC (“Newswire”) for a lump sum payment of $22,880,000.

In order to settle the Seller 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.

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

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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 $3,000,000 unsecured line of credit with Fifth Third Bank immediately prior to the Closing Date.

As of September 30, 2023, there was no outstanding balance under the Revolving LOC and the interest rate was 7.37%.

The Credit Agreement contains the following financial covenants, which commence with fiscal quarter ended 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 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.

All covenants were successfully achieved during the three month-period ended September 30, 2023.

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, 2024, there was no outstanding balance under the Revolving LOC and the interest rate was 7.37%

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:

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

For the three and nine months ended September 30, 2023 and 2022, free cash flow and adjusted free cash flow were as follows:

Three Months Ended September 30,

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/or integration related items (1)

Adjusted free cash flow (Non-GAAP)

Nine Months Ended September 30,

For the three months ended March 31, 2024 and 2023, free cash flow and adjusted free cash flow were as follows:

Three Months Ended

Net cash provided by operating activities (US GAAP)

1 unchanged sentence

Free cash flow (Non-GAAP)

Cash paid for acquisition and/or integration related items (1)

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/or integration related expenses, paid during the periods.

For the nine months ended September 30, 2023, this adjustment gives effect to a one-time payment of approximately $370,000 related to the early termination of the note payable associated with the Newswire acquisition.

For the nine months ended September 30, 2022, this adjustment gives effect to payment of a one-time executive recruiting fee payment of $60,000.

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, 2024, this relates to payments for one-time accounting fees during the period.

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.

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 and nine months ended September 30, 2023 and 2022, is presented in the following table (in 000’s):

Three Months Ended September 30,

Depreciation and amortization

Interest expense (income), net

Income tax expense

Acquisition and/or integration costs (1)

Other non-recurring expenses (2)

Stock-based compensation expense (3)

Adjusted EBITDA:

Nine Months Ended September 30,

A reconciliation of net income to adjusted EBITDA for the three months ended March 31, 2024 and 2023 is presented in the following table (in 000’s):

Three Months Ended

Depreciation and amortization

Interest expense (income), net

Income tax expense

Interest expense, net

Income tax expense (benefit)

Acquisition and/or integration costs (1)

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Adjusted EBITDA:

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

For the three months ended September 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $165,000.

For the nine months ended September 30, 2023, this adjustment gives effect to a $370,000 payment related to early extinguishment of our Seller Note and one-time non-recurring expenses of $45,000, partially offset by a gain recorded on the change in fair value of our interest rate swap of $379,000.

For the nine months ended September 30, 2022, this adjustment gives effect to a one-time executive recruiting fee of $90,000.

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, 2024, this adjustment gives effect to the change in fair value of our interest rate swap of $205,000, partially offset by one-time accounting costs of $35,000.

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.

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 and nine months ended September 30, 2023 and 2022 is presented in the following table (in 000’s):

Three Months Ended September 30,

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

Nine Months Ended September 30,

For the three months ended March 31, 2024, this amount includes a benefit as a result of the resignation of an executive officer.

A reconciliation of net income to adjusted net income for the three months ended March 31, 2024 and 2023 is presented in the following table (in 000’s):

Three Months Ended March 31,

Amortization of intangible assets (1)

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Other unusual items (3)

Discrete items impacting income tax expense (4)

Tax impact of adjustments (5)

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For the three months ended September 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $165,000, partially offset by one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $59,000.

For the nine months ended September 30, 2023, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $430,000 and a $370,000 payment related to early extinguishment of our Seller Note and $45,000 of one-time, non-recurring expenses, partially offset by a gain recorded on the change in fair value of our interest rate swap of $379,000.

For the nine months ended September 30, 2022, this adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses incurred during the period of $90,000 and a one-time executive recruiting fee of $90,000.

For the three months ended March 31, 2024, this amount includes a benefit as a result of the resignation of an executive officer.

For the three months ended March 31, 2024, this adjustment gives effect to the change in fair value of our interest rate swap of $205,000, partially offset by one-time corporate projects, including acquisition and integration expenses, incurred during the period of $100,000.

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.

This adjustment gives effect to discrete items that impact income tax expense.

For the three months ended March 31, 2024, this relates to additional expense associated with vesting of stock-based compensation awards.

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.

These statements are forward looking and are subject to factors that could cause actual results to differ materially from those suggested here, including, without limitation, demand for and acceptance of our services, new developments, competition and general economic or market conditions, particularly in the domestic and international capital markets.

The following statements are forward looking and are subject to factors that could cause actual results to differ materially from those suggested here, including, without limitation, demand for and acceptance of our services, new developments, competition and general economic or market conditions, particularly in the domestic and international capital markets.

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

Market factors like the current military conflicts in Ukraine and Israel, instability in global energy markets, global inflation and the increase of interest rates have contributed to significant global economic uncertainty, disrupted global trade and supply chains, adversely impacted many industries, and contributed to significant 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.

The success of our Communications offering has been led by our ACCESSWIRE branded newswire, which is now complemented by the Newswire business, and we believe we will continue to see stable to increased demand for our combined newswire business throughout 2023 and beyond.

We believe 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 the year into 2024:

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

The historical success of our Communications offering has been led by our ACCESSWIRE branded newswire, which is now complemented by the Newswire business.

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

However, under current accounting standards, in the event our stock price continues to decline, or we do not see stable to increased demand for our combined newswire business through 2024 and beyond, it may be possible we will be required to write down goodwill and/or intangible assets, specifically related to the Newswire acquisition, if we determine the assets have been impaired.

If a write-down of goodwill and/or intangible assets were to occur, it would likely have a material negative effect on our consolidated financial statements.

We believe the continued 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 2024:

Expanding our Communications products and adapting to this changing industry,

Evaluating and completing acquisitions in areas of strategic focus,

Evaluating acquisitions in areas of strategic focus,

Expanding our Communications sales and marketing teams and digital marketing strategy,

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Generating cash flows from operations.

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