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Innovative Payment Solutions, Inc. (IPSI)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 2018 revenue was $1.465M, up 58% year over year and up 37% sequentially versus the quarter ended December 2017, reflecting expansion into new locations and added services; management highlighted growth in municipalities in Querétaro and integration of Mexico’s lottery Pronósticos into the payment gateway .
  • Profitability deteriorated: gross loss of $55.9K (vs. $73.9K gross profit in Q1 2017), operating loss of $628.4K, and net loss of $1.668M with diluted EPS of $(0.03); drivers included accounting adjustments to cost of sales, an inventory adjustment on kiosks, and high interest expense from convertible note discount amortization, partially offset by a $2.531M favorable derivative liability revaluation .
  • Liquidity and capital structure remain pressured: cash was $54K, current liabilities $3.405M, derivative liability $1.415M, and negative working capital; management disclosed substantial doubt about going concern without additional financing .
  • No formal financial guidance was provided; key catalysts are continued service/provider additions and municipal deployments against the backdrop of heavy reliance on convertible financing and derivative liability dynamics .

What Went Well and What Went Wrong

What Went Well

  • Revenue momentum: Q1 2018 revenue rose 58% YoY and 37% sequentially, aided by expansion into new municipal locations and broader service portfolio .
  • Customer collections strength: management reported customer collections grew over 100% versus Q1 2017, reflecting broader adoption of the platform .
  • Strategic service additions: “We also have continued to incorporate leading service providers in the country in our payment gateway, including exciting new services like Pronosticos,” noted CEO Gaston Pereira .

What Went Wrong

  • Margin compression: Q1 2018 recorded a gross loss of $55.9K vs. a $73.9K gross profit in Q1 2017, driven by accounting adjustments impacting cost of sales and an inventory adjustment on kiosks (no kiosk sales in Q1 2018) .
  • Financing burden: interest expense surged to $1.246M (vs. $142K in Q1 2017), primarily from $1.144M non-cash amortization of debt discounts on convertible notes; loss on conversions also weighed on results .
  • Going concern and liquidity pressure: cash of $54K, derivative liability of $1.415M, and negative working capital led management to raise substantial doubt about continuing as a going concern without fresh capital .

Financial Results

Core P&L Comparison (oldest → newest)

MetricQ1 2017Q3 2017Q1 2018
Revenue ($USD)$927,310 $931,318 $1,464,789
Gross Profit (Loss) ($USD)$73,858 $(3,715) $(55,877)
Operating Income (Loss) ($USD)$(400,520) $(703,233) $(628,361)
Net Income (Loss) ($USD)$(555,938) $(1,397,810) $(1,668,483)
Diluted EPS ($USD)$(0.01) $(0.03) $(0.03)

Revenue Mix

Revenue SourceQ1 2017Q1 2018
Sales of Services ($USD)$801,692 $1,443,107
Payment Processing Fees ($USD)$10,060 $5,294
Kiosk Sales ($USD)$113,921 $0
Other ($USD)$1,637 $16,388
Total ($USD)$927,310 $1,464,789

Liquidity Snapshot (oldest → newest)

MetricDec 31, 2017Mar 31, 2018
Cash ($USD)$19,028 $54,025
Inventory ($USD)$504,794 $537,216
Total Current Assets ($USD)$1,088,127 $1,222,977
Total Current Liabilities ($USD)$5,784,310 $3,405,311
Derivative Liability ($USD)$3,277,621 $1,414,834
Working Capital ($USD)$(4,696,183) $(2,182,334)

KPIs and Footprint (oldest → newest)

KPIQ3 2017FY 2017Q1 2018
Kiosks & Terminals Deployed (company-reported)“over 307” “over 216” “over 224”
Service Providers Integrated“over 137” “over 140 as of Q1’18” (noted in FY context) “in excess of 140”

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue2018 / Q2 2018None disclosed in filings reviewed None disclosed in filings reviewed Maintained (no guidance)
Margins2018 / Q2 2018None disclosed in filings reviewed None disclosed in filings reviewed Maintained (no guidance)
OpEx2018 / Q2 2018None disclosed in filings reviewed None disclosed in filings reviewed Maintained (no guidance)
Tax Rate2018 / Q2 2018None disclosed in filings reviewed None disclosed in filings reviewed Maintained (no guidance)
Segment-specific2018 / Q2 2018None disclosed in filings reviewed None disclosed in filings reviewed Maintained (no guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2018)Trend
Service/technology expansionPlatform integrated “over 137” services; targeting retailers and banks to reduce teller congestion (Q3’17) Added Pronósticos lottery; continued incorporation of leading providers Broadening service breadth
Municipal penetrationTrials and deployments across states/municipal payments in Mexico (FY’17) Expanded into municipalities in Querétaro Geographic expansion
Kiosk footprint“over 307” kiosks & terminals (Q3’17) “over 224” kiosks & terminals (Q1’18) Mix shifts; reporting varies period-to-period
Financing & capital structureHeavy use of convertible notes; derivative liabilities rising (Q3’17) Interest expense from debt discount; derivative liability credit of $2.531M (Q1’18) Reliance persists; liability revaluation favorable
Macro/currencyMexico cash-dominated payments; FX volatility impacting results (Q3’17) FX gain $152,931 (Q1’18) FX tailwind in Q1’18
Regulatory/legalNo material legal proceedings (FY’17/Q3’17) No material proceedings; standard risk disclosures (Q1’18) Stable regulatory backdrop

Management Commentary

  • “We’re excited with our first quarter revenue growth as we implemented our strategy to position QPAGOS in Mexico’s expanding electronic payments sector. We also have continued to incorporate leading service providers in the country in our payment gateway, including exciting new services like Pronosticos” — Gaston Pereira, CEO .
  • Strategic context emphasizes Mexico’s large cash-based market, underserved by electronic payments, with kiosks/terminals and multiple channels enabling bill pay, prepaid mobile top-ups, transportation, utilities, municipal services, and more .

Q&A Highlights

  • No Q1 2018 earnings call transcript was furnished in the reviewed filings; therefore, Q&A highlights and any guidance clarifications are unavailable from primary sources .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2018 EPS and revenue was unavailable for IPSI/QPAGOS at the time of retrieval; coverage appears limited for this micro-cap issuer. In absence of estimates, comparisons to consensus cannot be made from primary sources.

Key Takeaways for Investors

  • Revenue inflection: Q1 2018 delivered strong top-line growth (+58% YoY, +37% sequential), driven by geographic expansion and service additions (e.g., Pronósticos), validating demand for cash-to-digital payments in Mexico .
  • Margin/COGS issues need monitoring: gross loss tied to accounting and inventory adjustments suggests near-term margin variability; mix without kiosk sales and wholesale dynamics can compress margins .
  • Financing overhang: substantial interest expense from convertible notes and derivative liabilities continues to depress earnings quality; conversions and revaluations can create P&L volatility and equity dilution risk .
  • Liquidity risk: low cash and negative working capital underscore the need for external financing; management disclosed going concern uncertainties, making capital access a key near-term swing factor .
  • Execution vector: continued provider integration and municipal penetration can sustain transaction volumes and fees; focus on higher-margin channels (company-operated kiosks vs. wholesale) could improve gross profitability over time .
  • FX and derivative liability provided a temporary P&L offset in Q1 (FX gain, derivative credit); these are non-operational and should not be relied upon for sustainable earnings .
  • With no formal guidance disclosed, investors should track quarterly filings for revenue mix, margin normalization post adjustments, and financing activity to gauge trajectory and potential catalysts .