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Operator
Ladies and gentlemen, thank you for standing by and welcome to the Issuer Direct Corporation second quarter 2021 earnings conference call. Today's call will be conducted by the company's founder and chief executive officer, Brian Balberny, and its chief financial officer, Steve Nur. Before I turn the call over to Mr. Brian Balberny, I'd like to read you the company's abbreviated safe harbor statement. I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, product releases, partnerships, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements. which may involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. With that said, Mr. Valberni?
Brian Balberny
Thank you, operator. Good afternoon, everyone. And thank you for joining us today to discuss the company's second quarter results. At the market close, we issued a press release announcing our results for the quarter. And during today's call, we will be referencing these results as well as discussing the second half of the year. For your convenience and reference, a copy of the press release is now available in our new newsroom at newsroom.issuredirect.com. A new product offering we will discuss further in a few minutes. We are thrilled with the quarterly results. We have carried the momentum of the last several quarters of consecutive growth into and through the second quarter that we will be talking about today. Q2 revenues were up 17% over the prior year, and first half 2021 revenues now have grown 20% over the first half of last year. Total revenues for Q2 2021 were $5,720,000 compared to just $4,883,000 in Q2 of last year. Total revenues now for the first half of this year have totaled $10,700,000, and Steve will talk more about this in detail in a few minutes. Changing gears to customers, on a year-over-year basis, our total customer count grew 31% for the quarter from 2,867 to 3,754. Our private customers grew 52% again this quarter, totaling 2,115 versus just 1,390 in the prior year. We are also impressed with our public company growth of over just 10% to 1,639 from 1,477 in the prior year. In our prior call, we talked briefly about the trend we thought was interesting in our pipeline for the number of public companies subscribing to and using our platform and solutions. Q2 illustrated this perfectly, something we will monitor in the back half of the year, as the public company markets appear to be very attractive still, both in financings, IPOs, and M&A transactions. With that said, the growth in our small and private midsize businesses is amazing. Fueled by our newswire offerings, a trend we feel strongly will continue for years to come. Our total customers are well on their way to our 2022 customer goal of 5,000. We have a lot to discuss today, not only record revenues, customer counts, and earnings, but also some new products that we have launched in the last couple of days and where we think we will end up with the back half of the year. I'll turn it over to Steve.
Steve
Thank you, Brian, and good afternoon, everyone. As Brian mentioned, we are extremely pleased with the results of the second quarter and to be able to announce our second consecutive record quarter in terms of overall revenue. Both our communication and compliance businesses are performing well. However, we continue to focus on the growth of the communications business, mostly related to the continued success of our Newswire business and additional subscriptions of Platform ID. Additionally, with the continued investments we are making in our product development and sales and marketing teams, we are aiming for more record quarters to come. I will now highlight some of the financial results we achieved during the second quarter and first six months of 2021. Total revenue for the second quarter of 2021 was $5,720,000, an increase of $836,000, or 17%, compared to just over $4,884,000 in the second quarter of 2020. For the six months ended June 30, 2021, total revenue was $10,700,000, an increase of $1.8 million, or 20% from the first half of 2020. The increase was due to double-digit increases in both our communications and compliance revenue streams. I'll first start with the communications business, which increased $496,000, or 16%, and $1,275,000, or 24%, during the three and six months ended June 30th, 2021, compared to the same periods of the prior year. During the second quarter of 2021, communications revenue accounted for 61% of our total revenue, and 63% for the first six months of 2021. In the prior year, communications revenue was 62% and 61% of total revenue, respectively. The increase in revenue is driven by our AccessWire branded Newswire, which not only drove standalone press release revenue, but also new subscriptions of Platform ID. AccessWire revenue increased 30% and 34% for the second quarter and first half of 2021, compared to the same periods of 2020. due to an increase in volume, customer count, and revenue per release as we continue to benefit from our e-commerce platform. We also continue to generate increased revenue from licenses of Platform ID. During the second quarter, we signed 36 new contracts with annual contract value, or ACV, of $340,000, bringing our overall contracts to 403 with an ACV of just over $3.3 million. This compares to 341 contracts with an ACV of approximately $2.7 million at the beginning of 2021, It reflects an increase in average revenue per contract, which is $8,280 as of June 30, 2021, compared to $7,850 as of December 31, 2020. On the compliance side, both the capital markets and corporate transactions sparked an increase in revenue from both print and proxy fulfillment services, as well as transfer agent services. As a result, compliance revenue grew $340,000, or 18%. and $525,000, or 15% during the three and six months ended June 30th, 2021, compared to the same periods of 2020. Due to the reliance on the markets and timing of certain projects, revenue from these services tends to fluctuate from quarter to quarter. Changing gears to gross margin, our overall gross margin increased 20%, or $718,000, and 25%, or $1,541,000 during the three and six months ended June 30th, 2021, compared to the same periods of the prior year. Gross margin percentage was 74% for the second quarter of 2021 and 73% for the first half of 2021, compared to 72% and 71% for the same periods of last year. Gross margin from our communications business was flat for the quarter at 75%. It increased 1% for the first half of 2021 to 74% from 73% in the prior year. Gross margin percentage from our compliance business improved from 68% during Q2 2020 and 66% for the first half of 2020 to 72% for both the second quarter and first half of 2021. The increase in compliance margin is due to the increase in transfer agent revenue on a relatively fixed cost base, as well as a decrease in amortization of our compliance software and lower fulfillment costs associated with our legacy ARS business. Moving down to operating income, we posted operating income of $1,361,000 for the second quarter of 2021 compared to $1,001,000 during the second quarter of 2020. For the six months ended June 30th, 2021, operating income increased 66% to $2,070,000 from just over 1.3 million during the first half of 2020. The increase is primarily attributable to the aforementioned increases in gross margin, partially offset by an increase in operating expenses due to continued investment in our sales and marketing, product development, and corporate teams. Sales and marketing costs increased 27% for the second quarter and 24% for the first half of 2021, compared to the same periods of 2020, due to an increased headcount, commissions, and digital marketing costs. Product development costs increased 55% for the quarter and 41% for the first half of 2021, compared to the same periods of the prior year. This increase is also due to an increase in headcount in our development team. We also capitalized $161,000 of costs related to the development of our newsroom products, which Brian will go into more detail about in a few minutes. On a GAAP basis, during Q2 2021, we generated net income of $1,106,000, or 29 cents per diluted share, compared to $772,000, or 21 cents per diluted share during Q2 of 2020. Net income was $1,651,000, or $0.43 per diluted share for the first half of 2021, compared to net income of $998,000, or $0.26 per diluted share for the first half of 2020. Looking at some non-GAT metrics, EBITDA for the second quarter of 2021 was $1,641,000, or 29% of revenue, compared to $1,354,000, or 28% of revenue during Q2 of the prior year. For the first half of 2021, EBITDA was $2,633,000, or 25% of revenue, compared to $1,976,000, or 22% of revenue during the first half of 2020. Non-GAAP net income was $1,185,000, or $0.31 per diluted share for Q2 2021, compared to $974,000, or $0.26 per diluted share during Q2 2020. And for the first half of 2021, non-GAAP net income increased to $1,872,000, or $0.49 per diluted share, compared to $1,372,000, or $0.36 per diluted share during the first half of 2020. Switching over to the balance sheet and cash flow statement, our deferred revenue balance, which is revenue we expect to recognize primarily over the next 12 months, increased to $2,699,000 as of June 30, 2021, compared to $2,212,000 as of December 31, 2020, an increase of 22%. On the cash flow statement, our cash flow from operations for Q2 2021 declined to $812,000 from $1,477,000 during Q2 2020, however, remains flat for the first half of 2021 at $2,081,000 compared to $2,079,000 in the prior year. The decrease in Q2 is primarily related to the timing of collections, as well as the amount and timing of tax payments made during 2021 as compared to 2020. We expect to see increases in cashflow from operations in the back half of 2021. With the investments we have been making in our products, development teams, and sales and marketing, combined with the growth in customer accounts and the base of platform subscriptions we've built, we're excited to see what the remainder of 2021 and beyond will bring for us. We'll continue to execute our strategy and goal to continue generating year-over-year revenue, EBITDA, and cash flow growth. I'll now hand it back over to Brian, who will provide some updates on the business, our new products, and everything else we have planned for the remainder of the year. Brian?
Brian Balberny
Thank you, Steve. It's gratifying to deliver record results again this period. Like the first quarter, Q2 resulted in record revenues, earnings, and customer counts. We are very appreciative of our team's continued hard work this quarter and equally thankful to our longstanding customers and to our new customers this quarter, Thank you. We look forward to working with you and supporting your communications compliance needs. Continuing the momentum is important right now as we continue to accelerate our business, release new products, and demonstrate strong signs of average revenue for customers, increasing in our platform subscription business. Our team remains excited about our continued growth, which we're seeing in our financial results and in our pipeline, our product development, and client success team. I am honored to see our accomplishments, but as most of you know from past quarters, and also conference presentations. Those results are in the rearview mirror, and we're driving faster towards sustained growth and a scale in our business. Steve touched on new subscriptions sold for the quarter a few minutes ago, ending the quarter with 403, resulting in an average revenue per subscription of $8,280. Interesting, however, the average revenue per customer continued to climb. New deals in Q2 averaged $9,500 per subscription. Over the past 12 months, we have been removing unlimited terms to our subscriptions and giving customers only what they need. This has been met with equal value by the majority of our clients. However, we do understand that certain markets, unlimited is a sought-after option. Therefore, we will work our way through those agreements. We see this as a short-term matter and something we're not concerned with. Our shareholders know our views and long-term thinking about our business. Our proofs have grown higher than guided last quarter. From what we expected at the end of the year to be 8,000 is now 8,280 for June 30th. we should expect year-end ARPU ranges now closer to the 9,000 number in our platform ID business. We say this because of a few leading indicators. First, we continue to see demand in our communications products in combination. And secondly, the result of inline XBRL being made a requirement by the SEC for fiscal filers June 15th or later. Both of these will drive further value in our customer average spends. As we begin to market our newsroom suite into our private customers, we are going to see average spends increase in that customer group as well, as they typically spend less than our core platform public customers. To close my thoughts on unlimited comments a minute ago, our new subscriptions sold thus far over the last six months should illustrate some opportunities late in the contract year for added revenues, exactly what we spoke about last quarter as usage-based billing. As we move our entire subscription businesses by and provide product innovation to our growing customer base, We will see ARPU expansion grow upwards of 12 to 15% over the next 12 months as a result of this alone. Moving along in the business, our compliance business performed well again this quarter, where we saw continued AGM and stock transfer businesses achieve better than anticipated results from a very active capital market period. We will continue to watch the second half of the year, but at this point still feel positive that so long as the capital markets, IPOs, and transactions business continue, we will see growth over prior years. Our communications business continues to grow both on a year-over-year basis but also sequentially, led by our Newswire offerings and complete platform subscription business. This is the part of our business where we have focused virtually our entire R&D budget and have our product teams in the lab innovating and optimizing our applications every day. Over the last quarter, we have spoken about a strategic communications product that we would be able to share with you in the coming quarter. These developments have led us to releasing just a few days ago a collection of applications that we are now calling our Newsroom Suite. a do-it-yourself corporate newsroom builder, brand asset manager, and contact manager. The trio of products will be made available to current customers first, beginning at $249 a month or on a prepaid annual subscription basis of $2,388. This is a natural add-on to our communication subscription business and will help us drive annual reoccurring revenues and customer stickiness. Our product and development team did a great job at building this suite of products in a relatively short period of time. They have already been working on some amazing features and advances that we plan to release each quarter to our customers. We see this product set as a way to increase our individual customer ARPU in a private customer segment by up to 50% or greater. Although that is exciting to both our employees and shareholders, it is also an equally exciting solution for our customers as we extend their storytelling process to more of a brand building initiative. Our passion is doing what we do each day, and that's helping our customers tell, build, and deliver their brands to you, our audience. Our Newsroom Suite has been designed to be elegant, simple, and easy to use as a content management system. It provides our customers the ability to lead, to let our technology add their articles in real time, but also give them the time placed of other coverage from the media to highlight to their audiences. Our Asset Manager allows users to easily upload corporate brand assets deciding what is made public and what to keep internally for storytellers, then elegantly embedded into our collaboration and real-time drafting editor for easy inclusion into a press release from our platform. Speaking of press releases from our platform, our Newswire business continues to show strong signs of growth, as Steve said, increasing 30% for the second quarter compared to last year. Coupling that with our strong customer growth and new products we just spoke about, we continue to believe these customer counts and revenues will continue to grow this year. giving us a transformed ARR model that fits every customer. We believe the scale in this business can increase even more next year as we continue to invest in our future, our platform, and most importantly, our team. Lastly, I want to thank everyone who was involved in our access to giving virtual investor conference last month. We learned a lot in this endeavor. We fulfilled our pledge 1% commitment by raising awareness in general about investor education and advocacy, donated a small amount of money to both organizations called As You Sow and the National Endowment for Financial Education hosted 50 companies and several panelists in a three-day event. Thank you to those who took part in this event. We look forward to seeing you and many others next year when we do this again, as our access to giving initiative is now a small part of a very evolving ESG program we're building here at Issuer Direct. In closing, I'm happy to report that on June 11th, two new independent board members were elected to the company's board of directors, bringing the total to six. The first, Ms. Marty Beller, a marketing veteran with over 25 years' experience, We look forward to having Marty on board and helping us on our sales and marketing initiatives as we build our brand and our new products in the coming year. And Graham Rain of Yorkmont Capital Partners, a firm who has been a longstanding shareholder of IssueDirects for several years. Marty will also serve as the company's compensation committee member, and Graham has become an additional audit committee member. Welcome, Marty. Welcome, Graham. It is always a pleasure spending time with you, talking about our results and where we're headed. Thank you all for listening today. Operator, could we please open up the call for questions?
Operator
Yes, thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, Please press star 1 on your telephone keypad at this time. One moment while we poll for questions. We'll take our first question from Mike Grondahl with Northman Securities. Please go ahead, sir.
Mike Grondahl
Hey, thanks, Brian and Steve, and congratulations on another nice quarter. Brian, if you could give a little bit more insight to kind of the customer funnel and kind of your outreach. I mean, on the private company side, I think you said 52% growth in private companies. Just help us understand better how you're driving that growth.
Brian Balberny
Thanks, Mike. I appreciate the question. Our sales team is divided into three quadrants. There's an account management team, obviously managing our book of business and our clients, a business development team that is a territory-based, and our sales development resources, SDRs. And that's where we're seeing the biggest opportunity for growth. And as you think about headcount growing and the rate that it had from 24 to 33 in sales and marketing, We've had a heavy emphasis on both inbound, outbound. So that includes is what we've talked about in prior quarters about our e-commerce initiatives and our digital strategy and how we're driving customers through a journey to learn about who AccessWire is, what our platform ID products can benefit them. The majority of these private customers obviously are looking to tell their stories and build their brands by using AccessWire. So the sales development team that we've invested heavily in over the last year is where we're seeing the biggest area of opportunity for us as we continue to invest in that area, we think that we can continue to get 30% or stronger growth out of our Newswire business.
Mike Grondahl
That's great. And what percent of those new private companies are using AccessWire? I mean, is it most of them, 70% of them?
Brian Balberny
Yeah, I would say literally 90-plus percent of them are using AccessWire. And then there are some that use, you know, maybe a more broad platform, maybe a custom feed or part of a whistleblower platform or an IR initiative because they're thinking about complying to go public at some point.
Mike Grondahl
And then secondly, Could you walk us through – I mean, I personally don't issue press releases or anything, but could you walk us through maybe a real-life example of somebody using your newsroom product and how that would work just so we could kind of understand that real-world application? Sure.
Brian Balberny
Yeah, it is super easy and elegant to use. Let's take an example of a brand-new customer that visits accesswire.com for the first time. They're driven there by some marketing campaign. They can register, create an account, pick their distribution, add a newsroom, a brand asset manager, and a contact manager suite of subscription to this. The minute they complete their registration and payment information, They land on their dashboard. They're given a tour to show them how easy it is to use the product. Assuming they have a story to tell or a press release ready, within three clicks of a couple of buttons, they're able to draft a release, submit it to editorial. That press release automatically gets set in queue to appear on their newsroom that's pre-made for them in a content management system. The minute the press release goes live to the market, whether it's public or private, customer, the newsroom comes to life and that URL is then embedded into their corporate website. Typically, we as ingesters of content would go to, for example, us, newsroom.issuedirect.com. I want to go see all the news for the company. I want to subscribe, get the contact information. see their brand assets, meaning headshots, presentations, product images, the whole bit. So it's a very set it and forget it application. Customers can create their custom newsroom and their brand assets in under 30 minutes. They can draft their press releases in seconds if they have the copy and the content ready. And then as they build journalist and media relationships and assuming that their brand is extended for coverage to the media, they can add those articles and content that may show up in Business Insider and other publications in their local community that they can also add to their newsroom. Each article that's added, whether a press release or some coverage from the media, automatically is distributed to a custom database that they built inside of their newsroom, part of their contact manager. to give them the ability to follow up book meetings and follow-up appointments. In a PR world, it's much like IR, right? We do follow-up on earnings events. We do follow-up quarterly or month-to-month with strategic investors and outreach to the market in a non-deal roadshow capacity. In a PR world, it's not much different, just different vernacular. They want to reach all the right media personalities at the right time, either kind of planned before a story or news break or right after to do interviews. So we feel that the custom newsroom and the content management system we built helps extend beyond this traditional storytelling process that we've had for years into more of a brand-building process, giving customers the ability to build their brand and strengthen their relationships with the constituents that they have.
Mike Grondahl
Got it. And lastly, I think you said $249 a month. I guess repeat the pricing and how that compares to your competition.
Brian Balberny
Yeah, it's a 1.0 version product, so it's priced very competitive at a month-to-month kind of an MRR rate of $249. If customers decide to prepay to get the discount, it drops 20% and change to $199 a month, which is almost $2,400 a year, giving them the ability to prepay to get that discount. And so our hope is is take that ARR business into this private company segment that we've got, these SMBs, to really begin to cross-sell. The majority of those private customers spend much less than a couple thousand dollars a year in press releases. So our hope is to increase the average revenue per customer significantly by the added part of our newsroom. But customers can still subscribe in an MRR model, right? And we believe that in some cases with marketing, we're going to give away 30 days to try it. give them an opportunity to learn the benefits of the platform and what it can do for them.
Mike Grondahl
Great. Thank you, guys.
Brian Balberny
Thank you, Mike.
Operator
We'll take our next question from Walter Ramsley with Walrus Partners. Please go ahead.
Walter Ramsley
Hello, Brian. Congratulations. Things are cooking right along, I would have to say. The company's operating margin in the second quarter is From what I can see anyway, it's kind of at the high end of the range, like the longer-term range that the company normally does. Do you think you can maintain that, or is that just kind of a surge? Then you might have to give a little back with all the hiring and other spending that's coming up.
Brian Balberny
Look, I think our hiring processes are very well planned in a model that we build here. They're strategically placed out throughout the year. We've got added headcount in sales and marketing to come as well as we continue to build scale. We've got operational ads as we need it for production reasons to fulfill client success and to keep customers happy. We've been, I think we're good, Walter. I think as we build scale, you know that a lot of this business falls to the bottom line. And we firmly believe that we're at a point now of focusing in and optimizing critical mass so that we can continuously operating margins you know, equal to what you see in the first half and the back half of this year, and then continue to grow next year.
Walter Ramsley
Nice. Okay. And then last quarter you were kind of alluding to the fact that some of your new customers are turning out to be bigger companies than you've seen in the past. Has that trend continued, or what do you think about, you know, getting into the bigger public companies?
Brian Balberny
It has. It has in two ways. It has in IPO customers, right? These are the clients that are exiting into becoming a public-listed company. We're getting more and more of those every day, which is a good indicator for us. But I think as we all know, the markets are good. And when that activity is there, we tend to benefit from that like everybody else does. The second half of it is by inertia in our sales team, we are beginning to climb upstream to mid- and large-cap customers. So, you know, single-digit, double-digit, billion-dollar, and greater public companies have begun using our platform in the first half of this year. There is obviously some work that we need to continue to do to invest in those areas to be more successful than we are today. We're happy with the progress we're making there. It's ahead of where we anticipated us being. In the news business particularly, there's a lot of SOC 2 vernacular needed in security that larger public companies are concerned about. So we're meeting those needs. As an organization, we need to do that, and we're prepared to do that, and we're on target to meet that by the end of the year. And as far as I know, there's only one other newswire out there that has a SOC 2 type 2 audit report. So I think we put ourselves in good company. We begin to continue to to have customers inbound wanting to talk to us about our product platform that are in the large and mega cap space and large mutual fund space, which is fantastic for us, again, ahead of what our projections and thoughts were. So, yeah, I think it does continue, and it's still doing well.
Walter Ramsley
That sounds nice, too. And then just one last thing, the platform ID product, I mean, you've got maybe, well, it's like 25% of customers your public company. You've got 1,600 public companies, let's say, and 400 platform IDs. So I don't know if you have private customers for that or not. But just in general, I mean, are you beginning to kind of saturate that potential, or is that just going to keep cranking?
Brian Balberny
No, I think it continues because to your prior question and what we just talked about, as we grow up through market cap sizes, as everybody knows, current shareholders and past folks listening to our call and ones that may be new, we've predominantly been a small micro cap, you know, focused business where we tend to do well. And so to your point, those results we're getting today are coming from that segment. But as we move up, these customers are looking to license platforms. They're looking to find synergy and product to put together to have a clear ROI, a better process, a more secure platform, an easier company to work with. an integrated system that has open API architecture. So those are the reasons why we're winning there. So I think that we're going to continue to find opportunities where there's scale there and we're not near a saturation point. I think it goes without saying there are the balance of those public company customers that subscribe to individual products. And as we think through what a subscription is and how we disclose subscriptions, we're going to talk more about that at the end of the year of how many of these customers are actually subscribing to on an annual basis, you know, one, two, three products compared to an entire platform.
Walter Ramsley
Well, everything sounds good, Brian. Congratulations.
Brian Balberny
Thank you, Walter.
Operator
As a reminder, ladies and gentlemen, if you do have a question or comment, please press star 1 on your telephone keypad at this time. Again, that's star 1 on your telephone keypad to queue up for a question. Please hold a moment while we poll the audience. And there appear to be no further questions at this time. We'll turn the floor back to Mr. Balbirnie for closing remarks.
Brian Balberny
Thank you, Taryn, very much. And as always, a busy earnings day. I want to thank you for listening. We look forward to following up with you again soon. As a reminder, we will be presenting at the Canaccord 41st Annual Growth Conference here next week, August 12th at 1230. And we'll be available for one-on-one meetings that day and the day before. We look forward to visiting with you again. Take care.
Operator
Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time and have a great day.
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