Paysign - Earnings Call - Q1 2020

Transcript

Speaker 0

Good day, everyone, and welcome to today's PaySign twenty twenty First Quarter Earnings Call. At this time, all participants are in a listen only mode. Later, you will have an opportunity to ask questions during the question and answer session. This presentation may include forward looking statements. To the extent that the information presented in this presentation discusses financial projections, information, or expectations about the company's business plan, results of operations, the impact of COVID-nineteen, returns on equity, expected gross margins, markets or otherwise make statements about future events.

Such statements are forward looking. Such forward looking statements can be identified by the use of words such as should, may, intends, anticipates, believes, estimates, projects, forecasts, expects, plans, and proposes. Although the company believes that the expectations reflected in these forward looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward looking statements. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading Risk Factors and elsewhere in our 2019 Form 10 ks. Forward looking statements speak only as of the date of the document in which they are contained, and the company does not undertake any duty to update any forward looking statements except as may be required by law.

This presentation also includes adjusted EBITDA, a non GAAP financial measure that is not prepared in accordance with nor an alternative to financial measures prepared in accordance with The US Generally Accepted Accounting Principles, GAAP. In addition, adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to to similarly titled measures presented by other companies. Please note this call is being recorded. It is now my pleasure to turn today's program over to CEO, Mark Newcomer. Please go ahead.

Speaker 1

Thank you, Priscilla. Good afternoon, everyone, and thank you for joining us for a discussion about our first quarter twenty twenty financial results. I'm Mark Newcomer, President and Chief Executive Officer, Harriet Pasein. With me this afternoon is Mark Attinger, our Chief Financial Officer. Before I begin my commentary on the business with regards to COVID-nineteen pandemic, we hope all of you and your families are staying safe during this unprecedented time.

We continue to work hard to best ensure the health and welfare of the PaySign team and continue to provide the highest level of service to both our customers and our cardholders. I remain very pleased with the company's performance and extremely proud of everyone here at PaySign and their exceptional contributions towards our continued growth, which has contributed to strong results on all fronts. For the first quarter, our revenues were a record $10,600,000 an increase of 48% compared to the prior year. Net income was $1,500,000 an increase of 77%. And our adjusted EBITDA was 2,600,000 an increase of 52%.

In the first quarter, we added two pharmaceutical programs to the Patient Affordability business line and added several pharma and Patient Affordability programs to the pipeline. Our pipeline remains robust in all segments. In the first quarter, we began offering digital banking solutions, which include use of the PaySign Premier card for corporate use, all of which is being well received. Our plasma pipeline has expanded and now includes blood and blood product collection centers. We now have in excess of 3,100,000 cardholders on our platform.

We did not see much of an effect during Q1 related to the COVID-nineteen pandemic, although we are beginning to see some effect, which Mark will address during his remarks. That being said, many centers have started to recruit recovered COVID-nineteen patients as convalescent plasma donors for use in possible COVID-nineteen therapies. These plasma collection centers are generally located in areas with large affected populations. At this time, about 175 of our centers are recruiting donors for this. These donors are compensated at a significantly higher level than standard plasma donors.

Not being affected by the pandemic, we continue to see excellent year over year growth in our patient affordability solutions and traditional pharmaceutical programs with no apparent effect from the current pandemic. I remain very confident in the future and profitability of the future growth and profitability of the company. As I had shared previously, with new opportunities opening in the space, we have expanded beyond our long standing pharmaceutical payment offerings and established our patient affordability business line to include services required requested by our hub service clients, which include pharmacy based co pay, medical claims processing and payments, centralized billing and payment services as well as other products. In the first quarter, we have contributed we've continued to build out this business line and expand the PaySign team with proven industry veterans. These steps have been instrumental in creating new products, features and functionality for our clients as well as refreshing our brand.

If you haven't had the opportunity to visit our website recently, please visit www.paysign.com. This past Monday, we went live with a much improved website providing clients, investors and prospects access to relevant information and more effectively conveying our strategy and the composition of our products and offerings. Looking ahead, we will continue to broaden and diversify our market focus. We will continue to develop new business to business solutions to enhance and create new value added services and continue to build out our patient affordability offerings. We remain extremely enthusiastic about the long term growth of the company and will continue to focus on maximizing shareholder value.

At this time, let me turn it over to our CFO, Mark Attinger, who will take us through the financials in more detail. Mark?

Speaker 2

Thank you, Mark. So I will take us through the first quarter results, provide some variance commentary and touch briefly on April. Before I begin, I did want to mention that while our results have been released through Business Wire, the issuance to all registered investors by our Investor Relations team has been submitted to NASDAQ, but it appears to be slowed in distribution by NASDAQ due to volumes. You should see that come out shortly. As I proceed, references to year on year improvements, percentage changes or comparisons to 2019, unless stated otherwise, refers to quarter one twenty twenty as compared to quarter one twenty nineteen.

Revenue for the quarter ending 03/31/2020, was $10,576,473 an increase of 46% compared to the prior year of 7,257,290. Revenue consisted of $7,300,000 or 69% in support of the plasma industry, a 25% year on year improvement $3,000,000 or 29% pharma, a 120% improvement and $200,000 or 2% in other revenue. Gross profit increased 51.5 to $5,700,000 or 54.1% of revenues compared to $3,800,000 and 52% of revenues in 2019. The two zero seven basis point improvement primarily driven by a favorable mix towards higher margin programs. Total operating expenses were $4,300,000 an increase of 42.5% versus 3,000,000 in 2019.

The increase consisted primarily of $700,000 in salaries and benefits, 200,000.0 in outside professional services, 200,000.0 in depreciation and amortization and $100,000 as an increase in stock based compensation. Reflecting the impact of the reduction in the Fed funds rate occurring intra quarter, our income was just 62,000 compared to $119,000 the prior year interest income. Net income for the year was $1,540,965 or $03 per basic share, an increase of 76.8% compared to $8.71 $6.71 or $02 per basic share the prior year. Fully diluted EPS was also $03 compared to $02 Non GAAP adjusted EBITDA was $2,617,812 or $05 per basic share, an increase of 52.4 percent compared to 1,717,004 and $79 or $04 per basic share the prior year. Furthermore, the adjusted EBITDA margin improved to 24.8%, up 109 basis points from 23.7 the prior year.

We loaded $326,000,000 to the card versus $215,000,000 the prior year, up 52%. Our revenue conversion rate of gross dollar volume loaded on cards was 3.24% or three twenty four bps compared to 3.38% or three thirty eight bps the prior year. Recognizing the unique timing of dollar loads, spend and revenue recognition, the first quarter is seasonally our lowest revenue conversion rate. For example, in quarter two twenty nineteen, revenue conversion rate increased to 4.21. Similarly, reviewing our key indicators for April 2020, the preliminary revenue conversion rate was 4.23%.

From a balance sheet perspective, consolidated cash, including restricted cash, has increased $9,300,000 or 20% to $54,800,000 compared to $45,600,000 at year end 2019. Working capital ending quarter one twenty twenty increased to $14,900,000 compared to $13,600,000 at year end 2019 and compared to $7,200,000 ending quarter one twenty nineteen. Our liquidity, as measured by an adjusted current ratio, excluding restricted cash and card funding liability, reflected 5.9x coverage versus 7.9x at year end. I'd like to touch a little bit further on cash and pick up on the PPPL question from the prior call. Currently, we have 9,400,000 in unrestricted cash.

We modeled three different scenarios versus our baseline plan. We expect to generate cash on a full year basis under all scenarios, adding to an already strong current cash position. However, we had immediately applied for the Paycheck Protection Program loan and received funds on May 1. After completing our modeling, we determined that we do not have a business need nor do we project a need. We have, therefore, submitted a bank request to return the funds nullifying our application and the receipt of the loan.

With respect to April, although we have not completed our closing for the books for the month just yet, preliminary plasma revenue appears down approximately 15% versus April 2019. The existing pharma business is performing as expected. As we look forward, we continue to refrain from issuing revenue guidance to allow for a better understanding of the implications of COVID-nineteen. As we grow the Patient Affordability division and additional lines of business, we expect to benefit from continued revenue growth and similar gross margins to 2019. I think that concludes my remarks at this time.

I'll turn it back over to Priscilla, our moderator, to begin our question and answer session. Thank you.

Speaker 0

And we'll go first to Peter Heckmann from Davidson. Your line is open.

Speaker 3

Hey, good afternoon, everyone. Thanks for taking my question. I was hoping you could dig in a little bit more within pharma, the two campaigns or programs that you added in first quarter, when might those start? And then as well, you went over some of the new opportunities within patient affordability fairly quickly. And if you could go over those a little bit in more detail, and if you have had some early success in any of those areas, if you could let us know.

Speaker 2

Yeah. So I'll touch on the two pharma programs that Mark referenced and that we referenced on the last call that were added in the first quarter. If you recall, Pete, we talked about ending the year with eight, but adding back two, getting back to 10. And so those two programs that we've referenced, one of them is live, but the other one has not gone live. They've both started up and have generated a little bit of start up fees, kind of professional fees, to make those programs active.

But one of them is loading a little bit. The other one is giving themselves a little bit more time before they begin loading. So that's the status of those two programs. With respect to patient affordability, our

Speaker 1

CEO is better suited to answer that. Yes. In respect to patient affordability, we're talking along the lines of pharmacy co pay cards and vouchers. I mean, most of what we're providing is in support of our hub service providers and other folks that are providing co pay sales, and other co pay sales organizations. So, basically, we're providing tools for them to meet brand needs and the goals of the brands, such as pharmacy co pay cards and vouchers, virtual debit cards, physical debit cards, medical claims, you know, such as processing payments of paper and electronic medical claims and patient affordability programs, centralized billing solutions, used to deliver solutions to limited network medical practices and to address patient specific needs such as travel and or per diems.

And also patient prescriber portals designed to deliver affordability products direct to a prescriber or patient. These portals can show various levels of detail to enhance the patient or prescriber's awareness. So those are some of it's obviously a large topic of conversation to cover, but those are some of just some of the solutions that we're offering.

Speaker 3

Got it. That's helpful. And then whether this is related or not, I I I thought I'd also heard you said you started offering digital banking services enabled by the SafeMind Premier card. Did you take for corporate accounts? So so that would be, like, for travel or for DM.

Is is that correct?

Speaker 1

Yeah. Digital banking services around, you know, very, very similar to the PaySign premier card that we're offering. It would be, you know, being offered to other businesses, and and that could be I mean, you could think of that in the way of, you know, insurance companies or other companies that might have a need for those types of services or distribution of funds.

Speaker 3

Got it. And so generally one time use charge, or would those be reloadable?

Speaker 1

Those would be reloadable in most situations or one time. I mean, it it depends on the it depends on the opportunity.

Speaker 3

Okay. Great. I'll get back in queue. Thanks.

Speaker 0

We'll go next to Austin Moldow from Canaccord. Your line is open.

Speaker 4

Thanks very much for taking my questions. Can you talk about the gross margin in your in just the Plasma segment and how it compares to last quarter when you noticed you had some less favorable transactions that led to a bit of contraction there?

Speaker 2

Yeah. Give me a give me a moment to take a look at that, Austin. So we did see an improvement in both revenue conversion rate and gross margin for plasma in quarter one relative to quarter four. So we are seeing some normalcy there. We see a what's interesting is typically we see a slightly lower revenue conversion rate in the first quarter as customers receive other tax benefits and other monies that they don't have as much of a need in February, March time frame to convert the revenue that they donate.

So you see a little bit lower spend and revenue conversion rate in the first quarter. However, that said, and I think partly addressing some of the, I would say, lackluster performance in the fourth quarter on the revenue conversion rate for plasma, we actually saw an increase in the first quarter compared to the fourth quarter. And our margin improved several 100 basis points on the plasma business relative to the fourth quarter.

Speaker 4

Got it. Thanks for that clarity. And I think I heard a comment blood working with blood centers. Can can you sort of clarify what what you meant when you mentioned that and, you know, if it means you're you're partnering with other kinds of donation centers?

Speaker 1

Yeah. In relation to blood collection and blood product collection centers, those are just some new product lines that have come into our pipeline and and and something we're pursuing. Okay. So there are there opportunities that are that are available to the company.

Speaker 4

Gotcha. And one last question, if I can. Can you you mentioned that I think the pipeline is robust for plasma and pharma. Is there any more color you can give for pharma contract as you did last quarter, kind of maybe anticipated signings or closing?

Speaker 2

Yes, probably not. I mean, what we can say and we don't like to talk about things until they occur. We indicated to you when we did our call last, even though we hadn't closed the first quarter, since we had that slight delay in the year end call, we mentioned to you in the first quarter that we signed two new pharma clients. If we had something signed in the month of April or the May, we'd certainly want to go ahead and tell you about that. We have several opportunities that we're well into, but it would be premature to say more than that.

Speaker 4

Okay. Thanks very much.

Speaker 1

You bet.

Speaker 0

We'll go next to John Hickman with Ladenburg. Your line is open.

Speaker 5

Could I get a little color on the what you expect for your SG and A levels to kind of grow this year on a year over year basis?

Speaker 2

Yep. Taking a look at it, John. I'm gonna have a general idea, but let me just take a peek one more time.

Speaker 5

Okay.

Speaker 2

And we've we've we've talked a little bit about this.

Speaker 5

No asking because there was a fairly healthy jump from q one to q or q four to q one.

Speaker 2

Understood. Understood. Yeah. I have it rolled up into a consolidated line. So let me just back let me take a look specifically at SG and A.

Let me make sure I gave you halfway decent direction on that. Nothing mysterious about that. And actually, was going to say 42.5%. Looks like it's about 42.6% at the moment is what we've got modeled. There's some play in that as we look at different opportunities.

And we're making sure we make the investments for the future of the company. And as Mark's talked about the patient affordability business, that's a tremendous opportunity, a very significant total addressable market. And we're making investments in people, in infrastructure, in technology capabilities. And so that's something we don't want to be light on to achieve a short term objective. We want to make investments and build it right from the get go.

And so that's what you're seeing in that first quarter. But we should see about kind of in that 40% to 45% range is what we're projecting for this year.

Speaker 5

Okay. Then can I ask a little bit about the con environment for the plasma? Your main competitor is having some, I don't know, maybe financial difficulties, it looks like. Is is anything changing there? Do you see, plasma centers unhappy?

Or I mean, I know you gathered quite a few last year. Can you talk about that at all?

Speaker 1

You know, I mean, I I understand what you're saying about about our competitor that that that is having the problems. And, you know, I can't really speak to to too much to that at this point in time. I mean, you know, we're we're gonna do what we always do, which is continue to go out and try to take market share. You know, in in relation to preempting that with anything further, I think I'm gonna take a pass at this point.

Speaker 5

Okay. So you can't comment if it's getting easier or harder to take market share?

Speaker 1

You know, I mean, right now, I don't think it's it's currently making too much of a difference. I'm sure that, it's not wearing well on on our competitors. But but, yeah, I don't have too much else to say about it.

Speaker 5

At the very end of your comment about growth for the year, did you say that you expect similar revenue growth year over year as in 2019? Is that what I heard

Speaker 2

you No. Similar gross margins. We expect to see continued growth. And as a separate statement, similar gross margins to 2019. Revenue growth, I think we haven't changed anything.

If you go back and look at the prior call, we gave a range on guidance for revenue growth. That was about all we said.

Speaker 0

And we'll take a follow-up question from Peter Heckmann with Davidson. Your line is open.

Speaker 3

Just a couple of quick follow ups. Could you give us a projection, maybe a range of what we might see in terms of net new plasma centers this year? Do you have some in the contract issue you can talk about? And if so, kind of the timing that they might sponsor the year?

Speaker 2

Yeah. Don't have a projection. As you know, we added 32 to 40 centers, something like that last year. This year, at the moment, I think we're sitting with two eighty seven centers, 10 pharma programs, and four other programs. So that's where we sit right now, at three zero one combined programs.

Difficult to project, we would be guessing. There's obviously conversations occurring for new business. In some cases, those can be a handful of centers. In other cases, that can be a large number of centers. And therefore, picking exactly which item in the pipeline is going to be secured is a bit tenuous.

Speaker 3

Got And just in terms of the decline then in terms of when you were talking about plasma in April, I believe that was a revenue figure was down about 15%. So that would would And that be almost exclusively units, number of units were down, the same amount as revenue? Or were there other changes in terms of revenue conversion or or or else you should think about?

Speaker 2

Yeah. I didn't go back and look specifically at the conversion rates for the month of April last year. We did look at revenue. We did look at the current conversion rate for April. We did look at the quarter and the fourth quarter and the quarter last year, but not specifically at April's conversion rate last year.

So I can't comment on that. I would tend to think it's probably dollars loaded, I. E. Donations being down and similar conversion rates, and therefore just that trickling through to overall revenue being down.

Speaker 3

Right. Right.

Speaker 2

Well, think But I yep. Go ahead.

Speaker 3

Well, that's good. And and so, Mark, newcomer, you're the only one on the call, I think, who has the reference for for the financial crisis. But but, historically, when you've seen spikes in unemployment and a slowing economy, has that generally resulted in in poor volume coming through the system? And and if so, does that have any effect on on on the compensation that plasma centers are giving? Or or does that stay constant volume goes up?

Speaker 1

I mean, there's there's several factors that that, you know, change the compensation that they're giving. I mean, you know, whether whether whether or not it's specialized plasma and things like that, It's quite possible that it could raise some of the prices that they're offering as they try to collect more plasma and they try, you know, I mean, it's a very competitive market out there to collect the plasma. So, but I can't speak too much to what they will do. Typically, in these downturn markets, however, that from what we've seen, we've done fairly well. And we haven't seen much of an effect.

If anything, it seemed to be an upturn, not a downturn.

Speaker 2

Obviously COVID-nineteen is a completely different animal.

Speaker 1

I think we're still trying to understand and get our hands around the COVID nineteen. And until until that starts to stabilize a little bit, it's it's hard to say.

Speaker 3

Got it. That's helpful. Thank you.

Speaker 2

You're welcome.

Speaker 0

And once again, if you would like to ask a question today, please press star and one on your touch tone phone, and we'll pause for a moment to allow any further questions to queue. And I am showing that we have no further questions at this time. I'll turn the call back for any additional or closing remarks today.

Speaker 1

Thank you, Priscilla. Again, I'm very pleased with the strength of this quarter. We will continue to focus on our mission to grow the company. Thank you for your continued interest, your questions and your participation in the earnings call. And you all have a nice evening.

Speaker 0

This does conclude today's program. Thank you for your participation. You may disconnect at any time.