Except for the historical information contained herein, the matters discussed in
this Form 10-K include certain forward-looking statements that involve risks and
uncertainties, which are intended to be covered by safe harbors. Those
statements include, but are not limited to, all statements regarding our and
management’s intent, belief and expectations, such as statements concerning our
future and our operating and growth strategy. We generally use words such as
“believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and
similar expressions to identify forward-looking statements. You should not place
undue reliance on these forward-looking statements. Our actual results could
differ materially from those anticipated in the forward-looking statements for
many reasons including our ability to implement our business plan, our ability
to raise additional funds and manage consumer acceptance of our products, our
ability to broaden our customer base, our ability to maintain a satisfactory
relationship with our suppliers and other risks described in our reports filed
with the
Form 10-K. Although we believe the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and our future results, levels of activity, performance
or achievements may not meet these expectations. Investors are cautioned that
all forward-looking statements involve risks and uncertainties including,
without limitation, the factors set forth under the Risk Factors section of this
report. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved. All forward-looking statements made in
this Form 10-K are based on information presently available to our management.
We do not intend to update any of the forward-looking statements after the date
of this document to conform these statements to actual results or to changes in
our expectations, except as required by law.
Results of Operations
Comparison of results of operations for the years endedDecember 31, 2019 and 2018 (in 000's): 2019 2018 Revenue Streams Platform and Technology
Revenue$10,696 $8,593 Gross margin$7,860 $6,780 Gross margin % 73% 79% Services Revenue 5,599 5,639 Gross margin 3,355 3,349 Gross margin % 60% 59% Total Revenue$16,295 $14,232 Gross margin$11,215 $10,129 Gross margin % 69% 71% Revenues
Total revenue increased by
ended
from our acquisitions of VWP and FSCwire contributed
during the year ended
revenue is recognized in the Platform and Technology revenue stream and a
portion in the Services revenue stream.
Platform and Technology revenue increased
the year ended
majority of the increase is due to the acquisitions of VWP and FSCwire, which
accounted for a combined
revenue during the year ended
increased revenue from additional subscriptions of Platform id., as well as,
increased ACCESSWIRE revenue, despite being negatively impacted by the
industry-wide loss of the investment commentary business. The investment
commentary business accounted for approximately
year ended
We do not expect revenue from the investment commentary business in the future.
Other than the impact of the investment commentary business and acquisition of
FSCwire, ACCESSWIRE revenue increased 38% during the year ended
2019
by a decline in revenue from our shareholder outreach offering due to customer
attrition as revenue of this offering is typically tied-in with contracts of our
annual report distribution services. Platform and Technology revenue increased
to 66% of total revenue during the year ended
60% in the prior year.
23
Services revenue decreased
in revenue from our ARS services due to continued customer attrition as
customers elect to leave the service or transition to digital fulfillment. We
also experienced a decline in revenue from our transfer agent services due to a
decline in corporate transactions, directives and actions. The timing of these
corporate directives and actions are difficult to predict as they are controlled
by our customers and the conditions of the market, and therefore fluctuate from
year to year. These decreases were offset by increased revenue associated with
the acquisitions of VWP and FSCwire, which accounted for a combined
Services revenue during the year ended
2019 Revenue Backlog
At
which we expect to recognize over the next twelve months, compared to
at
for subscriptions of our cloud-based products and pre-paid packages of our news
distribution product, as well as, advance billings for annual contracts of
legacy ARS services. The increase is primarily due to an increase in
subscriptions of Platform id. During the year ended
entered into new contracts with 150 net, new or existing customers with
annualized contract value of
of subscriptions of Platform id. was 255, with a total annual contract value of
Cost of Revenues
Platform and Technology cost of revenues consists primarily of direct labor
costs, newswire distribution costs, third party licensing and amortization of
capitalized software costs related to platforms licensed to customers. Services
costs of revenue consists primarily of direct labor costs, warehousing,
logistics, print production materials, postage, and outside services directly
related to the delivery of services to our customers. Cost of revenues increased
by
same period of 2018. Overall gross margin increased
the year ended
margin percentage decreased to 69% during the year ended
compared to 71% during the prior year. The increase in cost of sales and
resulting decrease in gross margin percentage was primarily due to the addition
of VWP, which has a lower gross margin than our legacy businesses. Additionally,
newswire distribution costs increased as we expanded our distribution during the
year, while newswire revenue did not increase at the same rate due to the loss
of the investment commentary revenue, resulting in lower gross margins from our
newswire business.
Gross margin percentage from Platform and Technology was 73% for the year ended
percentage is primarily attributable to the addition of revenue and costs
associated with the acquisition of VWP as well as increased costs associated
with our newswire business.
Gross margin percentage from our Services revenue was 60% for the year ended
General and Administrative Expense
General and administrative expenses consist primarily of salaries, stock-based
compensation, insurance, fees for professional services, general corporate
expenses (including bad debt expense) and facility and equipment expenses.
General and administrative expenses were
31, 2019
increase is primarily due to additional costs associated with our acquisition of
VWP of approximately
majority of which related to additional reserve for accounts receivable balances
related to two significant investment commentary newswire customers. General and
administrative expenses also increased due to an increase in corporate headcount
as we position the Company for growth. These increases were offset by a decrease
in stock compensation.
As a percentage of revenue, General and Administrative expenses were 31% for the
year ended
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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
year ended
the prior year. This increase is directly related to our investment in our sales
and marketing initiatives with an increase in headcount and digital marketing.
As a percentage of revenue, sales and marketing expenses were 22% for the year
ended
Product Development
Product development expenses consist primarily of salaries, stock based
compensation and licenses to develop new products and technology to complement
and/or enhance Platform id. Product development costs decreased
to
decrease is the result of lower employee-related and consulting expenses.
As a percentage of revenue, Product Development expenses were 7% for the year
ended
Depreciation and Amortization
During the year ended
increased by
The increase is primarily due to amortization of intangible assets acquired in
both the VWP and FSCwire acquisitions.
Interest income, net
Interest income, net, represents interest income on deposit and money market
accounts, partially offset by the non-cash interest associated with the present
value of the remaining anniversary payments of the
Income Taxes
We recorded income tax expense of
2019
year ended
impacted by the research and development tax credit, foreign tax credits as well
as a benefit related to the exercise of stock based compensation.
The aforementioned reasons, as well as state taxes, foreign statutory tax rate
differentials are the reasons for the variance between the Company’s effective
tax rate and the statutory rate of 21%
Net Income
Net income for the year ended
these increases were offset by higher operating expenses due to an increase in
bad debt expense specifically related to two investment commentary customers and
investments made to position ourselves for growth by increasing headcount,
incurring costs related to acquisitions as well as continuing to invest in our
cloud-based products. Depreciation and amortization expense increased as well,
due to amortization associated with acquired intangible assets. The increase in
operating expense was partially offset by an increase in interest income on
deposit and money market accounts as well as a decrease in income tax expense
due to favorable impacts related to foreign tax credits and benefits related to
exercise of stock based compensation.
Liquidity and Capital Resources
As of
totaled
payroll liabilities, income taxes payable, remaining payments for
acquisition and other accrued expenses. At
exceeded our current liabilities by
25
Effective
increased the term to two years, with all other provisions remaining the same.
The amount of funds available for borrowing are
is LIBOR plus 1.75%. As of
the Company did not owe any amounts on the Line of Credit.
Disclosure about Off-Balance Sheet Arrangements
We do not have any transactions, agreements or other contractual arrangements
that constitute off-balance sheet arrangements.
Outlook
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.
Refer also to the Cautionary Statement Concerning Forward Looking Statements
included in this report.
Overall, the demand for our platforms continues to be stable in the majority of
the segments we serve. In a portion of our business, we expect demand will
continue to shift from traditional printed and service-based engagements to a
cloud-based subscription model, as well as digital distribution offerings. We
believe we are positioned well in this space to be both competitive and agile to
deliver these solutions to the market. As we have seen over the last several
quarters, the transition to digital platforms has had a negative effect on our
Service revenue and this is a trend we expect will continue over the next few
quarters.
One of our competitive strengths is that we have embraced cloud computing early
on in our strategy. The transition to a platform subscription model has been and
will continue to be key for our long-term sustainable growth.
We will continue to focus on the following key strategic initiatives during
2020:
?
Expand our Platform and Technology business development and sales team,
?
Continue to grow through acquisitions in areas of strategic focus,
?
Expand customer base,
?
Continue to migrate acquired businesses to our current platform,
?
Continue to expand our newswire distribution,
?
Invest in technology advancements and upgrades,
?
Continue development of our Insight and Analytics module,
?
Generate profitable sustainable growth,
?
Generate cash flows from operations.
We believe there is significant demand for our products among the middle, small
and micro-cap markets globally, as they seek to find better platforms and tools
to disseminate and communicate their respective messages. We believe we have the
product sets, platforms and capacity to meet their requirements.
We have invested and will continue to invest in our product sets, platforms and
intellectual property development via internal development and acquisitions.
These developments are key to our overall offerings in the market and necessary
to keep our competitive advantages and sustain the next round of growth that
management believes it can achieve. If we are successful in this development
effort, we believe we can achieve increases in revenues per user as we move
through 2020 and beyond.
26
Critical Accounting Policies and Estimates
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition
Substantially all of the Company’s revenue comes from contracts with customers
for subscriptions to its cloud-based products or contracts to perform compliance
or other services. Customers consist primarily of corporate issuers and
professional firms, such as investor relations and public relations firms. In
the case of our news distribution and webcasting offerings, our customers also
include private companies. The Company accounts for a contract with a customer
when there is an enforceable contract between the Company and the customer, the
rights of the parties are identified, the contract has economic substance, and
collectability of the contract consideration is probable. The Company’s revenues
are measured based on consideration specified in the contract with each
customer.
The Company’s contracts include either a subscription to our entire platform or
certain modules within our platform, or an agreement to perform services or any
combination thereof, and often contain multiple subscriptions and services. For
these bundled contracts, the Company accounts for individual subscriptions and
services as separate performance obligations if they are distinct, which is when
a product or service is separately identifiable from other items in the bundled
package, and a customer can benefit from it on its own or with other resources
that are readily available to the customer. The Company separates revenue from
its contracts into two revenue streams: i) Platform and Technology and ii)
Services. Performance obligations of Platform and Technology contracts include
providing subscriptions to certain modules or the entire Platform id.system,
distributing press releases on a per release basis or conducting webcasts on a
per event basis. Performance obligations of Service contracts include
obligations to deliver compliance services and annual report printing and
distribution on either a stand ready obligation or on a per project or event
basis. Set up fees for compliance services are considered a separate performance
obligation and are satisfied upfront. Set up fees for our transfer agent module
and investor relations content management module are immaterial. The Company’s
subscription and service contracts are generally for one year, with automatic
renewal clauses included in the contract until the contract is cancelled. The
contracts do not contain any rights of returns, guarantees or warranties. Since
contracts are generally for one year, all of the revenue is expected to be
recognized within one year from the contract start date. As such, the Company
has elected the optional exemption that allows the Company not to disclose the
transaction price allocated to performance obligations that are unsatisfied or
partially satisfied at the end of each reporting period.
The Company recognizes revenue for subscriptions evenly over the contract
period, upon distribution for per release contracts and upon event completion
for webcasting events. For service contracts that include stand ready
obligations, revenue is recognized evenly over the contract period. For all
other services delivered on a per project or event basis, the revenue is
recognized at the completion of the event. The Company believes recognizing
revenue for subscriptions and stand ready obligations using a time-based measure
of progress, best reflects the Company’s performance in satisfying the
obligations.
For bundled contracts, revenue is allocated to each performance obligation based
on its relative standalone selling price. Standalone selling prices are based on
observable prices at which the Company separately sells the subscription or
services. If a standalone selling price is not directly observable, the Company
uses the residual method to allocate any remaining costs to that subscription or
service. The Company regularly reviews standalone selling prices and updates
these estimates if necessary.
The Company invoices its customers based on the billing schedules designated in
its contracts, typically upfront on either a monthly, quarterly or annual basis
or per transaction at the completion of the performance obligation. Deferred
revenue for the periods presented was primarily related to subscription and
service contracts, which are billed upfront, quarterly or annually, however the
revenue has not yet been recognized. The associated deferred revenue is
generally recognized ratably over the billing period. Deferred revenue as of
expected to be recognized within one year. Revenue recognized for the year ended
the beginning of each reporting period, was approximately
was
Since substantially all of the contracts have terms of one year or less, the
Company has elected to use the practical expedient regarding the existence of a
significant financing.
27
Costs to obtain contracts with customers consist primarily of sales commissions.
As of
than one year. For contract costs expected to be amortized in less than one
year, the Company has elected to use the practical expedient allowing the
recognition of incremental costs of obtaining a contract as an expense when
incurred. The Company has considered historical renewal rates, expectations of
future renewals and economic factors in making these determinations.
Accounts Receivable and Allowance for Doubtful Accounts
The Company monitors outstanding receivables based on factors surrounding the
credit risk of specific customers, historical trends, and other information.
Credit is granted on an unsecured basis. The allowance for doubtful accounts is
estimated based on an assessment of the Company’s ability to collect on customer
accounts receivable. There is judgment involved with estimating the allowance
for doubtful accounts and if the financial condition of the Company’s customers
were to deteriorate, resulting in their inability to make the required payments,
the Company may be required to record additional allowances or charges against
revenues. The Company generally writes-off accounts receivable against the
allowance when it determines a balance is uncollectible and no longer actively
pursues its collection.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in future taxable or deductible amounts based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred income tax assets to the amounts expected to be realized. For any
uncertain tax positions, we recognize the impact of a tax position only if it is
more likely than not of being sustained upon examination, based on the technical
merits of the position. Our policy regarding the classification of interest and
penalties is to classify them as income tax expense in our financial statements,
if applicable.
Costs incurred to develop our cloud-based platform products and disclosure
management system components are capitalized when the preliminary project phase
is complete, management commits to fund the project and it is probable the
project will be completed and used for its intended purposes. Once the software
is substantially complete and ready for its intended use, the software is
amortized over its estimated useful life. Costs related to design or maintenance
of the software are expensed as incurred. The Company capitalized
Company recorded amortization expense of
ended
is included in Cost of revenues on the Consolidated Statements of Income. The
remaining amount of
and 2018, respectively, is included in Depreciation and amortization.
Impairment of Long-lived Assets
In accordance with the authoritative guidance for accounting for long-lived
assets, assets such as property and equipment, trademarks, and intangible assets
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset group may not be
recoverable. Recoverability of asset groups to be held and used is measured by a
comparison of the carrying amount of an asset group to estimated undiscounted
future cash flows expected to be generated by the asset group. If the carrying
amount of an asset group exceeds its estimated future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of an asset
group exceeds fair value of the asset group.
Lease Accounting
We determine if an arrangement is a lease at inception. Our operating lease
agreements are primarily for office space and are included within Other
long-term assets and Other long-term liabilities on the consolidated balance
sheets.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for
the lease term and lease liabilities represent our obligation to make lease
payments arising from the lease. ROU assets and lease liabilities are recognized
at the commencement date based on the present value of lease payments over the
lease term. Our variable lease payments consist of non-lease services related to
the lease. Variable lease payments are excluded from the ROU assets and lease
liabilities and are recognized in the period in which the obligation for those
payments is incurred. As most of our leases do not provide an implicit rate, we
use our incremental borrowing rate based on the information available at
commencement date in determining the present value of lease payments. ROU assets
also include any lease payments made and exclude lease incentives. Rental
expense for lease payments related to operating leases is recognized on a
straight-line basis over the lease term.
28
Fair Value Measurements
ASC Topic 820 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. Assets and liabilities recorded at fair value
in the financial statements are categorized based upon the hierarchy of levels
of judgment associated with the inputs used to measure their fair value.
Hierarchical levels directly related to the amount of subjectivity associated
with the inputs to fair valuation of these assets and liabilities, are as
follows:
?
Level 1- Quoted prices are available in active markets for identical assets or
liabilities at the reporting date. Generally, this includes debt and equity
securities that are traded in an active market. Our cash and cash equivalents
are quoted at Level 1.
?
Level 2 – Observable inputs other than Level 1prices such as quote prices for
similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. Generally,
this includes debt and equity securities that are not traded in an active
market.
?
Level 3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3
assets and liabilities include financial instruments whose value is determined
using pricing models, discounted cash flow methodologies, or other valuation
techniques, as well as instruments for which the determination of fair value
requires significant management judgment or estimation.
As of
financial instruments other than cash and cash equivalents, such as, accounts
receivable, our line of credit, notes payable, and accounts payable approximate
their carrying amounts.
Translation of Foreign Financial Statements
The financial statements of the foreign subsidiaries of the Company have been
translated into
current rates of exchange in effect at the end of the period. Income and expense
items have been translated at the average exchange rates for the year or the
applicable interim period. The gains or losses that result from this process are
recorded as a separate component of other accumulated comprehensive income
(loss) until the entity is sold or substantially liquidated.
Business Combinations,
We account for business combinations under FASB ASC No. 805 – Business
Combinations and the related acquired intangible assets and goodwill under FASB
ASC No. 350 – Intangibles –
business combinations specifies the criteria for recognizing and reporting
intangible assets apart from goodwill. We record the assets acquired and
liabilities assumed in business combinations at their respective fair values at
the date of acquisition, with any excess purchase price recorded as goodwill.
other assets acquired in a business combination that are not individually
identified and separately recognized. Intangible assets consist of client
relationships, customer lists, distribution partner relationships, software,
technology and trademarks that are initially measured at fair value. At the time
of the business combination, trademarks are considered an indefinite-lived asset
and, as such, are not amortized as there is no foreseeable limit to cash flows
generated from them. The goodwill and intangible assets are assessed annually
for impairment, or whenever conditions indicate the asset may be impaired, and
any such impairment will be recognized in the period identified. The client
relationships (7-10 years), customer lists (3 years), distribution partner
relationships (10 years), non-compete agreements (5 years) and software and
technology (3-6 years) are amortized over their estimated useful lives.
Recently adopted accounting pronouncements
In
Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases
on-balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-01, Land Easement Practical
Expedient for Transition to Topic 842; ASU No. 2018-10, Codification
Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The new standard establishes a ROU model that requires a lessee to recognize a
ROU asset and lease liability on the balance sheet for all leases with a term
longer than 12 months. Leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense recognition
in the income statement.
29
The new standard was effective for the Company on
the day we elected to adopt the new standard. A modified retrospective
transition approach is required, applying the new standard to all leases
existing at the date of initial application. We chose the effective date as our
date of initial application. Consequently, financial information will not be
updated and the disclosures required under the new standard will not be provided
for dates and periods before
practical expedients permitted under the transition guidance within the new
standard, which among other things, allowed us to carry forward the historical
lease classification of those leases in place as of
table below for the impact of adoption of the lease standard on our balance
sheet accounts as of the day of adoption,
As Previously Reported New Lease Standard Adjustment As Adjusted
ROU asset $- $102 $102
Lease liability - 135 135
Deferred rent 33 (33) -
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