Paysign - Earnings Call - Q2 2019

Transcript

Speaker 0

Greetings, and welcome to the PaySign, Inc. Second Quarter twenty nineteen Earnings Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

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 plans, results of operations, returns on equity, 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, our 2018 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 U. S. 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 similarly titled measures presented by other companies. A reconciliation of these measures to the most direct comparable GAAP measure is included in the appendix of the presentation. It is now my pleasure to introduce CEO, Mark Newcomer. Please go ahead, sir.

Speaker 1

Thank you, and good morning, everyone. On behalf of PaySign, I'd like to welcome you to our second quarter twenty nineteen earnings call. I'm Mark Newcomer, Chief Executive Officer here at PaySign Inc. I will provide a brief review of some of the highlights for the second quarter and will reinforce our strategic direction. Following my remarks, I'll turn it over to our Chief Financial Officer, Mark Adinger, who will take us through the second quarter results.

Following Mark's review, we will then field your questions. For those of you that are new to our story, PaySign is both a vertically integrated payment processor and a prepaid card program manager. We develop customized and innovative payment solutions in support of corporate, consumer and government programs. To learn more about our history and the services we provide and to review a copy of our most recent investor presentation, you may want to visit the Investors section of our website at www.paysign.com. We are very pleased with our second quarter results as both revenue and profit have reached record levels as we continue forward with our growth strategy.

Our ability to design, implement and manage large scale customized programs remains a key differentiator for the company and enables us to effectively retain and grow our existing client programs and secure new business. In summary, revenues were a record $8,600,000 an increase of 58% compared to the prior year. Net income was $1,700,000 also a record quarter, representing an increase of 138%. Adjusted EBITDA was $2,600,000 representing an increase of 123%. We've continued to experience excellent growth in our existing client programs and from new programs onboarded in 2018 and 2019.

We expect to continue to experience strong growth, improving margins and operational performance for the balance of the year and on into 2020. There are no changes to our financial guidance, which has been previously communicated for 2019 as revenues of 38,000,000 to $40,000,000 and adjusted EBITDA of 10,000,000 to $12,000,000 Strategically and consistently with our prior communications, we will continue to broaden and diversify market focus for our prepaid card programs and we'll seek to introduce new products. With respect to PaySign Premier Card, we're wrapping up a successful internal pilot and preparing go live with the first of several existing clients that have expressed interest in the product. You may have noticed that we've listed in some new leadership talent, including the hiring of an experienced executive, Matt Lanford, who's our Chief Product Officer. We've also added some very talented and experienced individuals to our business development and technical teams.

There are important and very purposeful steps in our journey to building a leading business model and set of world class capabilities in the payment space and beyond. Lastly, we continue to pursue suitable acquisition candidates that have demonstrated growth and profitability. At this time, I'd like to turn it over to Mark, our CFO, to take us through in a

Speaker 2

little more detail. Thanks Mark. So I will take us through the second quarter and year to date top line numbers and provide some variance commentary. As I stated last quarter references to year on year improvements or percentage increases unless stated otherwise does refer to the second quarter ending June 3039 as compared to second quarter twenty eighteen. So we'll jump into it.

Our revenue for the quarter ending June 3039 was 8,631,002 and $71 an increase of 58.2% compared to $5,460,723 This increase in revenue was attributable to continued growth in our existing clients and from the maturation of new business secured in both the 2018 and early twenty nineteen. Revenue for the 2019 was $15,893,561 an increase of 56.8% compared to 10,137,042. Gross profit increased 92.3% to 5,000,000 or 58.3% of revenues compared to $2,600,000 and 48% of revenues in 2018. This ten thirty six basis point improvement resulted primarily from favorable client and industry mix and a continued optimization of our network costs. The operating expenses were $3,400,000 compared to $1,900,000 The quarter two year on year increase consisted primarily of $900,000 in incremental salaries and benefits and $400,000 as an increase in stock based compensation both primarily driven by investments in new personnel the 2018.

However, as expected we are continuing to see improved operating leverage as OpEx increased just 17.5% compared to fourth quarter twenty eighteen. Similarly, OpEx as a percentage of revenue decreased two forty basis points compared to the prior year. Benefiting from consolidated cash balance of $48,900,000 interest income was $132,000 compared to just $33,000 the prior year. Net income for the second quarter ended June 3039 was 1,738,791 or $04 per basic share, an increase of 137.5% compared to 732,056 or $02 per basic share the prior year. For the 2019, net income was 2,610,004 and $62 or $06 per basic share, an increase of 128.1% compared to 1,144,005 and $63 or $03 per basic share the prior year.

The first half fully diluted earnings per share was $05 versus $02 the same prior year same period prior year. Non GAAP adjusted EBITDA was 2,593,006 and $75 or $05 per basic share, an increase of 123.3% compared to $1.161769 or $03 per basic share the prior year. Furthermore, the adjusted EBITDA margin improved to 30%, up eight seventy six basis points from 21.3% in the second quarter twenty eighteen. Non GAAP earnings per share was $04 versus $02 the prior year and first half non GAAP adjusted EBITDA was $4,311,001.54 dollars or $09 per basic share, an increase of 122.6% compared to the $1,936,609 or $04 per basic share the same six month period the prior year. We loaded $2.00 $5,000,000 to the card for the quarter versus $149,000,000 the same period the prior year and our revenue conversion rate of gross dollar volume loaded on cards was 4.21% or four twenty one bps compared to 3.66% or three sixty six bps the prior year.

From a balance sheet perspective, consolidated cash has increased 54% or $17,200,000 to $48,900,000 compared to $31,700,000 at year end 2018. Restricted cash was $42,600,000 versus $26,000,000 in December 2018. Please note restricted cash represents both dollars loaded to card and dollars to be loaded at a point in time. Clients provide funds at various points in time and by one month to as many as six months in advance. Furthermore, not all products generating revenue in 2019 will require cash to be loaded to the card as has typically been the case in our prepaid card business.

Working capital, current assets less current liabilities increased to $9,500,000 from $5,900,000 at year end due to increased consolidated cash, increased accounts receivable from higher client billings and decreases in accounts payable partially offset by smaller increases in the card funding liability. Our liquidity as measured by an adjusted current ratio excluding restricted cash and cardholder funds from both sides of balance sheet respectively was 8.2%, up from 5.4% at year end. And finally, there remains no debt on the balance sheet. As we continue to execute against our operating plan in the 2019, we expect to see continued increase in revenues. We also expect on average similar gross margins to those experienced this quarter.

And lastly, we anticipate further improvements to our operating leverage and therefore higher net income and adjusted EBITDA margins. I think that's about it for my remarks. Thank goodness. At this time, I'll turn it back over to our moderator, Kevin, to begin a question and answer session. Thank you.

Speaker 0

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Austin Moldow from Canaccord Genuity. Your line is now live.

Speaker 3

Hi, thanks for taking my questions and congrats on the nice quarter. My first one is on the Pharma business. Wondering if you can provide how much Pharma revenue contributed to the quarter in percent terms or something else? And if you could just give more color on what materialized in the Pharma segment this quarter and what kind of traction you're seeing maybe if you can talk about success you're having with channel partners? Thank you.

Speaker 2

Yes, question Austin. Thank you for that. So for the quarter, pharma represented approximately 20% of our revenue, up from 15% the prior quarter. And in the third quarter of last year and in the first quarter of this year, we implemented several new pharma client programs and we've seen a maturation of those. We are preparing to onboard additional programs as well.

And we're seeing good success in our channel partner relationships and in overall our execution really on plan as we expected.

Speaker 3

Got it. And my second question is on the Premier Card. You mentioned you're doing an internal test but you have some interest from other customers. Can you talk about maybe the potential scale of what could be in your pipeline for when you roll that out? And maybe if you could update on timing of a potential launch?

Speaker 2

Yes. I think we I believe we included a little bit of that in the press release and I'll just reiterate aspect of it and then talk about kind of directional. So we have a commitment from one client that we are preparing to implement by the August. Probably the latest would be the earliest, September, but we do expect to go live by the August. We have been piloting that program to date and are very pleased with how it's progressing.

We have several clients that are interested in being able to offer this product to their customers as well and we're continuing to evaluate that. So one of the advantages we have is we have over 2,500,000 cardholders on our platform and therefore they are a captive audience. A portion of those are active cardholders and a portion of those are historical cardholders on our platform. So it's important that we continue to learn from the acceptance rate and the performance of those before we make any further comments about the growth, But we do expect this to be a material contributor to our earnings in 2020.

Speaker 3

Great.

Speaker 2

And just one more comment Austin is as we talked about before and shared we have not included any of the PaySign Premier in our projections for this year.

Speaker 3

Understood. And my final question if I could. I'd love to ask about the plasma business in terms of the number of plasma centers you now have on your network. I know you have in the past provided a penetration rate, which

Speaker 0

I

Speaker 3

think was 33% last time you updated it. I'm wondering if you can share any progress on flipping new centers over to your network and what kind of success you're seeing and maybe winning them from other card programs they're currently on?

Speaker 2

Yes. We won't comment in detail on that, but I can tell you we're having success and we're continuing to grow in absolute dollars as well as in market share.

Speaker 3

Great. Thanks for taking my questions.

Speaker 0

Thank you. Our next question is coming from John Hickman from Ladenburg Thalmann. Your line is now live.

Speaker 4

Hi. Thanks for taking my questions. Nice quarter. Could you elaborate a little bit more on the personnel that you're adding to the platform? And you went through that pretty fast.

If you could, would you kind of go through that again for me?

Speaker 2

Hey, John.

Speaker 3

So

Speaker 2

as our CEO pointed out, we did bring on Matt Lanford as a Chief Product Officer. But with respect to technologies, we have a core processing platform and a well built team and set of capabilities around that and have continued to add to that infrastructure and to that development effort. We've also continued to add development resources for mobile application development and for some of the new products that we're implementing just to round out the team. So nothing beyond continued strengthening of development and infrastructure resources to enable our growth.

Speaker 1

And that's both on the business development and technology teams.

Speaker 2

Yes, good point. So as Mark stated, hopefully you heard that. So that's biz dev as well as the technology development.

Speaker 4

So the previous questioner asked most of my questions and answered them and thank you for that. Could you just like, I don't know who wants to answer this, but like what's is there something that is the gating factor that you're most concerned about right now?

Speaker 2

That's a great question. I mean it's always about execution and it's always about continuing to implement as has been done for many quarters and in the last number of years on our growth trajectory. So we have been successful in securing business and successful in implementing and retaining business and we will continue to work hard to do that each and every quarter. But there's not something in particular that keeps us up at night if that's your question.

Speaker 4

Okay. And then one last one for me. So you're on an well, on an organic basis, you seem to be executing quite well. Could you make any comments about growth through maybe tuck in acquisitions or whatever other kind of acquisitions? Is that on your radar?

Speaker 2

Yes. So as our CEO has stated in prior earnings releases as well as our calls, We are continuing to evaluate opportunities and we will seek to find companies that are a good strategic fit that we can bring value to and then maybe round out some of our product offerings that's accretive to our shareholders. So we're going to be very selective, but that's been an ongoing process that was communicated as recently as or I should say as long ago as fourth quarter of last year and has been reiterated on each of the calls. That's to address it head on that's purposely why the shelf offering is out there, so we can be ready when the opportunity presents itself.

Speaker 4

Okay. Thank you.

Speaker 0

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.

Speaker 2

Yes, once again we'd like to thank everyone for listening to our call, for following us and we are very pleased with how this quarter went. Solid revenue growth, gross margins and net margins and we continue to execute on plan for the year. So, thank you and have a great rest of your day.

Speaker 0

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day.