ACCESS Newswire Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The discussion of the financial condition and results of operations of the Company set forth below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form10-Q. This Form10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Form10-Q that are not purely historical are forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act. When used in this Form10-Q, or in the documents incorporated by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, the statements regarding the Company’s strategy, future sales, future expenses, future liquidity, and capital resources. 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. Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item 1. Business — “Risk Factors” and elsewhere in the Company’s Annual Report on Form10-K for the year ended December 31, 2023, which are incorporated by reference into this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements. Overview Issuer Direct Corporation and its subsidiaries are hereinafter collectively referred to as “Issuer Direct”, the “Company”, “We” or “Our” unless otherwise noted. 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, 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. It is possible that information we post on some of these channels could be deemed to be material information. 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 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: 18 Table of Contents Long term, 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. Within most of our target markets, customers require several individual services and/or software providers to meet their communications and investor relations needs. 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. Our customers and their service providers utilize our platform and related solutions from document creation all the way to dissemination to regulatory bodies, news outlets, financial platforms, and our customers’ shareholders. Private companies primarily use our news distribution, newsroom and webcasting products and services to disseminate their message globally. We also work with several select stock exchanges by making available certain parts of our platform under agreements to integrate our offerings within their products. We believe such partnerships will continue to yield increased exposure to a targeted customer base that could impact our revenue and overall brand in the market. Communications 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. Our ACCESSWIRE and Newswire news distribution platforms have been integrated into one dissemination platform that will give our customers all the distribution benefits of our global distribution footprint. 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. Like other newswires, 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. ACCESSWIRE 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. We believe ACCESSWIRE is becoming a competitive alternative in the newswire industry because we have been able to use our technological advancements to allow customers to self-edit releases or use our editorial staff as desired to edit releases. We continue to expand our distribution points, improve our targeting and enhance our analytics reporting. 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 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. 19 Table of Contents Newswire 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 ACCESSWIRE’s distribution network 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. 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 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. Media Suite 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. 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 Suite includes three products: Media Database, Media Pitching, and Media Monitoring, all of which are further described below. 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. 20 Table of Contents 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. Media Room 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 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 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). 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. 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. 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. 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. Professional Conference and Events Software 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 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. 21 Table of Contents Investor Relations Websites 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 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. 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, customers’ websites. This add-on requires a recurring annual subscription and is delivered fully integrated into and with our investor relations website offering. Compliance 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 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 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 our platform. This system delivers secure notifications and basic incident workflow management processes that align with a company’s corporate governance whistleblower policy. As a supported and subsidized bundle product of the New York Stock Exchange (“NYSE”) offerings, we are introduced to new IPO customers and other larger cap customers listed on the NYSE. Since 2014, we have been a named NYSE subsidy provider of this Whistleblower solution. 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 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. This is an industry which has experienced declining overall revenues as it was affected by the replacement of paper certificates with digital certificates. However, we have been focused on selling subscriptions of the stock transfer component of our platform, allowing customers to gain access to our cloud-based system in order to move shares or query shareholders, which we believe has resulted in a more efficient process for both our customers and us. 22 Table of Contents Annual Meeting / Proxy Voting Platform Our proxy module is marketed as a fully integrated, real-time voting platform for our customers and their shareholders of record. 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. 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. We believe a virtual component to an annual meeting is both a benefit to all shareholders and a corporate governance advantage. Shareholder Distribution 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. 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. We continue to see customer attrition for customers who subscribe to both the electronic and physical distribution of reports as a stand-alone product. Results of Operations Comparison of results of operations for the three and six-months ended June 30, 2024 and 2023 (in 000’s): Three Months Ended June 30, Percentage of Revenue (1) 2024 2023 2024 2023 Revenue: Communications revenue $ 5,944 $ 5,936 77 % 62 % Compliance revenue 1,743 3,715 23 % 38 % Total revenue 7,687 9,651 100 % 100 % Cost of revenue: Communications cost of revenue 1,326 1,433 22 % 24 % Compliance cost of revenue 459 903 26 % 24 % Total cost of revenue 1,785 2,336 23 % 24 % Gross Margin: Communications gross margin 4,618 4,503 78 % 76 % Compliance gross margin 1,284 2,812 74 % 76 % Total gross margin 5,902 7,315 77 % 76 % Operating Expenses: General and administrative 2,164 2,274 28 % 24 % Sales and marketing 1,970 2,039 26 % 21 % Product development 719 532 9 % 6 % Depreciation and amortization 715 723 9 % 7 % Total expenses 5,568 5,568 72 % 58 % Operating income 334 1,747 4 % 18 % Interest expense, net (294 ) (281 ) (4 )% (3 )% Other income 14 379 0 % 4 % Income before income taxes 54 1,845 1 % 19 % Income tax expense 47 482 1 % 5 % Net income $ 7 $ 1,363 0 % 14 % 23 Table of Contents Six Months Ended June 30, Percentage of Revenue (1) 2024 2023 2024 2023 Revenue: Communications revenue $ 11,403 $ 12,502 78 % 68 % Compliance revenue 3,246 5,768 22 % 32 % Total revenue 14,649 18,270 100 % 100 % Cost of revenue: Communications cost of revenue 2,668 2,817 23 % 23 % Compliance cost of revenue 838 1,348 26 % 23 % Total cost of revenue 3,506 4,165 24 % 23 % Gross Margin: Communications gross margin 8,735 9,685 77 % 77 % Compliance gross margin 2,408 4,420 74 % 77 % Total gross margin 11,143 14,105 76 % 77 % Operating Expenses: General and administrative 3,983 4,606 27 % 25 % Sales and marketing 4,066 4,420 28 % 24 % Product development 1,373 1,306 9 % 7 % Depreciation and amortization 1,439 1,445 10 % 8 % Total expenses 10,861 11,777 74 % 64 % Operating income 282 2,328 2 % 13 % Interest expense, net (570 ) (519 ) (4 )% (3 )% Other income (expense), net 219 (156 ) 1 % (1 )% (Loss) income before income taxes (69 ) 1,653 0 % 9 % Income tax expense 63 434 0 % 2 % Net (loss) income $ (132 ) $ 1,219 (1 )% 7 % (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. Revenues Total revenue decreased $1,964,000, or 20%, to $7,687,000 during the three months ended June 30, 2024, as compared to $9,651,000 for the same period of 2023. Total revenue decreased by $3,621,000, also 20%, to $14,649,000 during the six months ended June 30, 2024, as compared to $18,270,000 during the same period of 2023. For the three months ended June 30, 2024, the decrease is attributable to a decrease in revenue from our Compliance revenue stream, however for the six months ended June 30, 2024, the decrease in revenue is attributable to a decrease in both our Compliance and Communications revenue streams. Communications revenue increased $8,000 to $5,944,000 for the three months ended June 30, 2024, compared to $5,936,000 for the same period of 2023. For the six months ended June 30, 2024, Communications revenue decreased $1,099,000, or 9% to $11,403,000 from $12,502,000 for the same period of 2023. The decrease in revenue for the six months ended June 30, 2024, is primarily attributable to lower volumes from our Newswire brand. Communications revenue represented 77% and 78% of total revenue during the three and six months ended June 30, 2024, respectively, as compared to 62% and 68%, respectively, for the same periods of 2023. 24 Table of Contents Compliance revenue decreased $1,972,000, or 53% and $2,522,000, or 44%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023. The decrease is primarily related to a decrease in revenue from our print and proxy fulfillment services due to a few one-time, significant transactions which occurred during the three and six months ended June 30, 2023, however, did not occur in the current year. Additionally, we experienced a decrease in revenue from our transfer agent services due to a decrease in corporate actions and directives during the period. Revenue Backlog As of June 30, 2024, our deferred revenue balance was $5,476,000, which we expect to recognize over the next twelve months, compared to $5,412,000 as of December 31, 2023, an increase of 1%. 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 decreased $551,000, or 24% and $659,000, or 16%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023. Overall gross margin decreased $1,413,000, or 19% and $2,962,000, or 21%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023. Overall gross margin percentage increased to 77% for the three months ended June 30, 2024, as compared to 76% during the same period of 2023, however, decreased 1% during the six months ended June 30, 2024, as compared to the same period of 2023. Cost of revenues associated with our Communications revenue decreased $107,000, or 7% and $149,000, or 5%, during the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023. The decreases are primarily due optimization of our editorial staff and lower distribution costs. Gross margin percentage associated with our Communications revenue was 78% and 77% for the three and six-months ended June 30, 2024, respectively, as compared to 76% and 77% during the same periods of 2023. Cost of revenues associated with our Compliance revenue decreased $444,000, or 49% and $510,000, or 38%, during the three and six months ended June 30, 2024, respectively, as compared to the same period of 2023. The decrease is due to lower print and postage costs associated with the decreased revenue from print and proxy fulfillment services during the periods. As a result, gross margin percentage associated with our Compliance revenue decreased to 74% for the three and six-months ended June 30, 2024, as compared to 76% and 77%, respectively, for the same periods 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 (including provision for credit losses) and facility and equipment expenses. General and administrative expenses were $2,164,000 during the three months ended June 30, 2024, a decrease of $110,000, or 5%, as compared to the same period of 2023. General and administrative expenses were $3,983,000 for the six months ended June 30, 2024, a decrease of $623,000, or 14%, as compared to the same period of 2023. The decreases are primarily driven by a benefit to stock compensation expense as a result of the resignation of an executive officer, a decrease in corporate headcount, as well as, lower one-time transaction and integrations costs, partially offset by an increase in the provision for credit losses. As a percentage of revenue, general and administrative expenses were 28% and 27% for the three and six-months ended June 30, 2024, respectively, as compared to 24% and 25% for the same periods of 2023. 25 Table of Contents 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 $1,970,000 for the three months ended June 30, 2024, a decrease of $69,000, or 3%, as compared to the same period of 2023. Sales and marketing expenses were $4,066,000 for the six months ended June 30, 2024, a decrease of $354,000, or 8% as compared to the same period of 2023. These decreases are primarily due to lower employee-related expenses, including commissions. As a percentage of revenue, sales and marketing expenses were 26% and 28% for the three and six months ended June 30, 2024, respectively, as compared to 21% and 24% for the same periods 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 $187,000, or 35% and $67,000, or 5% to $719,000 and $1,373,000 during the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023. These increases are primarily due to an increase in headcount as we continue to invest in our products and technology. During the three and six months ended June 30, 2024, we capitalized $155,000 and $400,000, respectively, compared to $167,000 during both the three and six months ended June 30, 2023. As a percentage of revenue, product development expenses were 9% for both the three and six months ended June 30, 2024, respectively, as compared to 6% and 7% for the same periods of 2023. Interest expense, net We recognized interest expense of $315,000 and $623,000 for the three and six months ended June 30, 2024, respectively, compared to $375,000 and 712,000 during the same periods of 2023. Interest expense for these periods is related to our long-term credit agreement. For the six months ended June 30, 2023, interest expense is also attributed to the $22,000,000 Seller Note. These amounts are partially offset by interest income of $21,000 and $53,000 for the three and six months ended June 30, 2024, respectively, and $94,000 and $193,000 for the three and six months ended June 30, 2023, from deposit and money market accounts. Other income (expense), net Other income (expense), net represents the change in fair value of our interest rate swap. For the six months ended June 30, 2023, Other income (expense), net also includes expense related to $370,000 paid to extinguish the Seller Note. Income Taxes The Company recognized an income tax expense of $47,000 and $63,000 for the three and six-month period ended June 30, 2024, compared to income tax expense of $482,000 and $434,000 during the same periods of 2023. At the end of each interim period, the Company estimates the effective tax rate expected to be applicable for the full fiscal year and this rate is applied to the results for the year-to-date period, and then adjusted for any discrete period items. For the three and six-month periods ended June 30, 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 and expenses not deductible for tax purposes. For the three and six-month periods ended June 30, 2024, the effective tax rate was also impacted by additional expense associated with vesting of stock-based compensation. Liquidity and Capital Resources As of June 30, 2024, we had $4,020,000 in cash and cash equivalents and $4,686,000 in net accounts receivable. Current liabilities as of June 30, 2024, totaled $12,559,000 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 June 30, 2024, our current liabilities exceeded our current assets by $2,320,000. 26 Table of Contents See Note 7 to our financial statements regarding information on our Credit Agreement. 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 and six months ended June 30, 2024 and 2023, free cash flow and adjusted free cash flow were as follows: Three Months Ended June 30, 2024 2023 Net cash (used in) provided by operating activities (US GAAP) $ (190 ) $ 1,731 Payments for purchase of fixed assets and capitalized software (155 ) (163 ) Free cash flow (Non-GAAP) (345 ) 1,568 Cash paid for acquisition and/or integration related items (1) — 204 Cash paid for other unusual items (2) 53 — Adjusted free cash flow (Non-GAAP) $ (292 ) $ 1,772 27 Table of Contents Six Months Ended June 30, 2024 2023 Net cash provided by operating activities (US GAAP) $ 796 $ 2,003 Payments for purchase of fixed assets and capitalized software (416 ) (168 ) Free cash flow (Non-GAAP) 380 1,835 Cash paid for acquisition and/or integration related items (1) 23 281 Cash paid for other unusual items (2) 88 395 Adjusted free cash flow (Non-GAAP) $ 491 $ 2,511 (1) This adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses, paid during the periods. (2) For the three and six months ended June 30, 2024, this adjustment gives effect to payments for one-time accounting fees, termination benefits and other non-recurring or unusual expenses. During the six months ended June 30, 2023, this adjustment is primarily related to a one-time payment of $370,000 related to the early termination of the note payable associated with the Newswire acquisition. 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 six months ended June 30, 2024 and 2023, is presented in the following table (in 000’s): Three Months Ended June 30, 2024 2023 Amount Amount Net income: $ 7 $ 1,363 Adjustments: Depreciation and amortization 770 736 Interest expense, net 294 281 Income tax expense 47 482 EBITDA 1,118 2,862 Acquisition and/or integration costs (1) 42 137 Other non-recurring expenses (2) 38 (334 ) Stock-based compensation expense (3) 267 354 Adjusted EBITDA: $ 1,465 $ 3,019 28 Table of Contents Six Months Ended June 30, 2024 2023 Amount Amount Net (loss) income: $ (132 ) $ 1,219 Adjustments: Depreciation and amortization 1,540 1,472 Interest expense, net 570 519 Income tax expense 63 434 EBITDA 2,041 3,644 Acquisition and/or integration costs (1) 107 371 Other non-recurring expenses (2) (132 ) 201 Stock-based compensation expense (3) 200 691 Adjusted EBITDA: $ 2,216 $ 4,907 (1) This adjustment gives effect to one-time corporate projects, including acquisition and/or integration related expenses, incurred during the periods. (2) For the three and six months ended June 30, 2024, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $14,000 and $219,000, respectively, partially offset by one-time accounting fees, termination benefits and other non-recurring or unusual expenses of $52,000 and $87,000, respectively. For the three months ended June 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $379,000, partially offset by one-time, non-recurring expenses of $45,000. For the six months ended June 30, 2023, this adjustment gives effect to $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 $214,000. (3) 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 six months ended June 30, 2024 and 2023 is presented in the following table (in 000’s): Three Months Ended June 30, 2024 2023 Amount Per diluted share Amount Per diluted share Net income: $ 7 $ 0.00 $ 1,363 $ 0.36 Adjustments: Amortization of intangible assets (1) 678 0.18 685 0.18 Stock-based compensation expense (2) 267 0.07 354 0.09 Other unusual items (3) 80 0.02 (197 ) (0.05 ) Discrete items impacting income tax expense 30 0.01 — — Tax impact of adjustments (4) (215 ) (0.06 ) (177 ) (0.05 ) Non-GAAP net income: $ 847 $ 0.22 $ 2,028 $ 0.53 Weighted average number of common shares outstanding – diluted 3,823 3,808 29 Table of Contents Six Months Ended June 30, 2024 2023 Amount Per diluted share Amount Per diluted share Net (loss) income: $ (132 ) $ (0.03 ) $ 1,219 $ 0.32 Adjustments: Amortization of intangible assets (1) 1,363 0.36 1,370 0.36 Stock-based compensation expense (2) 200 0.05 691 0.18 Other unusual items (3) (25 ) (0.01 ) 572 0.15 Discrete items impacting income tax expense 85 0.02 — — Tax impact of adjustments (4) (323 ) (0.08 ) (553 ) (0.14 ) Non-GAAP net income: $ 1,168 $ 0.31 $ 3,299 $ 0.87 Weighted average number of common shares outstanding – diluted 3,821 3,809 (1) The adjustments represent the amortization of intangible assets related to acquired assets and companies. (2) 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. (3) For the three and six months ended June 30, 2024, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $14,000 and $219,000, respectively, partially offset by one-time accounting fees, termination benefits and other non-recurring or unusual expenses, including acquisition and integration expenses of $94,000 and $194,000, respectively. For the three months ended June 30, 2023, this adjustment gives effect to a gain recorded on the change in fair value of our interest rate swap of $379,000, partially offset by one-time, non-recurring expenses, including acquisition and/or integration expenses of $182,000. For the six months ended June 30, 2023, this adjustment gives effect to one-time, non-recurring expenses, including acquisition and/or integration expenses of $371,000, $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 $214,000. (4) This adjustment gives effect to the tax impact of all non-GAAP adjustments at the current Federal tax rate of 21%. Outlook 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 and political 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 and political 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. 30 Table of Contents 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 short-term 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 acquisitions in areas of strategic focus, · Aligning our sales and marketing teams to be entirely focused on our Communications offerings, · Expanding customer base, · Expanding our newswire distribution, · Investing in technology advancements and upgrades, · Generating profitable sustainable growth · 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. Acquisitions remain a core part of our strategy and we believe acquisitions are key to enhancing our overall offerings in the market and are necessary to keep our competitive advantages and facilitate the next round of growth that management believes it can achieve. If we are successful in this effort, we believe we can further increase our market share as we move forward. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.