Paysign - Earnings Call - Q2 2020

Transcript

Speaker 0

Hello, and welcome to the PaySign twenty twenty Second Quarter Earnings Conference Call. At this time, all 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, 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 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 and 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 or 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. I would now like to turn the conference over to CEO, Mark Newcomer.

Mark, please go ahead.

Speaker 1

Thank you, Kevin. Good afternoon, everyone, and thank you for joining us for PaySign's second quarter twenty twenty earnings call. I'm Mark Newcomer, President and Chief Executive Officer here at PaySign and joining me this afternoon is Mark Attinger, our Chief Financial Officer. We hope all of you and your families are staying safe during the COVID-nineteen pandemic. We continue to work to ensure the health and safety of our employees while supporting our clients and cardholders and focusing on the long term success of PaySign.

For the second quarter, our revenues were $6,400,000 a decrease of 25% compared to the prior year of $8,600,000 Net income was a loss of $200,000 compared to net income of $1,700,000 in the prior year. And our adjusted EBITDA was $500,000 compared to $2,600,000 for the second quarter for the prior year. Our business was impacted more than anticipated by the effects of the COVID-nineteen pandemic, as well as the restrictions imposed by the various federal, state and local governments. And in the case of plasma collections, the effects of CARES Act unemployment benefits. We did see a partial recovery beginning in late May as restrictions began to be lifted, as well as more recent improvements related to the expiration of the CARES Act unemployment benefits.

In the second quarter, we added one new pharmaceutical program to our patient affordability business line. Our first full end to end medical claims processing program and added several new pharma and patient affordability programs to the pipeline. We continue to expand our footprint in plasma space, adding an additional 49 plasma and blood center locations expecting to complete go live by early fourth quarter. One of the 49 centers, 38 are plasma centers with six new and 32 mature center transitions from an existing provider and also 11 blood centers. Subsequently, we have assisted a client with their business continuity plans by onboarding 104 plasma centers.

By early fourth quarter, we are on pace to exceed the number of new card program go lives achieved in 2019. We expect to launch a new product called the PaySign Business Card. This innovative product is used by medium, small, large businesses to manage their day to day expenses as well as distribute funds in various scenarios. They can receive incoming disbursements linked to their other bank accounts and use to pay suppliers, etcetera. Our pipeline remains robust, strengthened by recent changes in the competitive landscape.

We remain extremely optimistic as we position PaySign to emerge from these trying times as a stronger company focused on maximizing long term shareholder value. At this time, I'd like to turn it over to our CFO, Mark Attinger, who will take us through the financials in more detail.

Speaker 2

Thank you, Mark. Good afternoon or evening. At this time, I will take us through the second quarter results and provide some variance commentary. As I proceed, references to year on year changes in dollars or percents or comparison to 2019 unless stated otherwise refers to Q2 twenty twenty as compared to Q2 twenty nineteen. Revenue for the quarter ending 06/30/2020 was 6,443,065, a decrease of 25.4% compared to the prior year of 8,636,271.

Revenue consisted of $4,600,000 or 71% in support of the plasma industry, a 30.1% decrease $1,800,000 or 27% pharma, a 16% decrease and $100,000 or 2% in other revenue. The consolidated decrease was primarily due to a significant decrease in plasma donations and dollars loaded to card combined with a smaller decrease in pharma revenues resulting from a slowdown in load volume, lower unspent balances and improved client management. Both industries were impacted by COVID-nineteen. Including a strong first quarter, revenue for the 2020 was $17,000,000 an increase of 7.1% year on year compared to $15,900,000 Cost of revenues were $3,100,000 and decreased $460,000 compared to the same period in the prior year and constituted approximately 4942% of total revenues for the three months ended 06/30/2020 and 2019 respectively. The reduction in the cost of revenues consisted of a favorable volume variance of 914,000 due to the decrease in transactions offset by an unfavorable rate variance of $454,000 resulting from a decrease in higher margin revenue business.

Gross profit for three months ended 06/30/2020 decreased $1,700,000 or 34.4% to $3,300,000 or 51.3% of revenues compared to $5,000,000 and 58.3% of revenues in 2019. The seven zero five basis point degradation in gross margin resulted from an unfavorable cost of revenues rate variance and a lower consolidated revenue conversion rate. Total operating expenses were $4,000,000 an increase of 15.9% versus $3,400,000 in 2019. The SG and A component increased $389,000 and consisted primarily of an increase in staffing and therefore salaries and benefits of 329,000 technologies and telecom of $87,000 and rent and occupancy of $60,000 offset by a decrease in travel of $103,000 Depreciation and amortization increased $111,000 and we wrote off some leasehold improvements of $43,000 PaySign net income for the quarter was a loss of $219,234 or $0.00 per basic share compared to net income of $1,738,792 or $04 per basic share the same period the prior year. Fully diluted EPS was also $00 compared to $03 the prior period.

Non GAAP adjusted EBITDA for the quarter was $539.89 or $01 per basic share compared to $2,593,006.75 dollars or $05 per basic share the prior year. The adjusted EBITDA margin decreased to 7.8, down from 30% the prior year and first half adjusted EBITDA was $3,121,801 or $06 per basic share compared to $4,311,154 or $09 per basic share the same six month period the prior year. Our gross dollar volume loaded to cards was $183,000,000 versus $2.00 $5,000,000 loaded to prior year, down 11%. Our revenue conversion rate, revenue divided by the GDV was 3.53% or three fifty three bps, an increase compared to three twenty four bps the prior quarter, but a decrease compared to 4.21% or four twenty one basis points the prior year. The decrease resulted primarily from a lower revenue conversion rate on Pharma due to lower unspent balances.

From a balance sheet perspective, consolidated cash, including restricted cash, has increased $2,000,000 or 4% to $47,600,000 compared to $45,600,000 at the 2019. Working capital ending Q2 twenty twenty increased to $14,400,000 compared to $13,600,000 at year end 2019 and compared to $9,500,000 ending quarter two twenty nineteen. Our liquidity as measured by an adjusted current ratio, excluding restricted cash and the current funding liability from both sides of the balance sheet reflected 6.8 times coverage versus 7.9 times at year end. Operating cash flow was $4,300,000 for the six months ending 06/30/2020. Looking to the remainder of the year, while we have seen a partial recovery related to the easing of government restrictions in the latter portion of the second quarter, We anticipate similar results for the current quarter followed by an upturn in Q4 resulting from onboarding a number of new client programs.

The Q4 additions coupled with a very strong pipeline and some anticipated COVID relief give us confidence in our projections to return to our growth trajectory in 2021. That concludes my remarks. At this time, I'll turn it back over to our moderator, Kevin, to begin the 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 Peter Heckmann from Davidson. Your line is now live.

Speaker 3

Good afternoon, everyone. Thanks for taking the question. You noted the end of the CARES Act and the stimulus that went to individuals ended at the July. I don't know how real time your data might be, but can you talk about maybe the trends that you've seen most recently, the most recent trends that you can talk about in terms of year over year decline in volumes?

Speaker 2

Yes. So, in the month of June, we saw a little bit of a pickup relative to April and May, but nothing material, but it did firm. The May looks to be the low watermark in our results and that appears to be the case as we look to kind of early indications on how July has performed, which we're still closing the books on just getting through this quarter. July has picked up a little bit from June, but again as we stated, I think that the year on year and the quarter three will be similar, a little bit better than quarter two, but more similar than divergent from quarter two. We do expect a strong fourth quarter.

Speaker 3

Got it. Got it. And then can you talk about some of the dynamics you noted as regards to the pharma business? I understand fewer prescriptions filled, but the improved client program management comment just some of the dynamics within that and whether or not some of those are going to be longer lasting than just the pandemic?

Speaker 2

Yes, good question. I'm going to actually introduce Matt Turner. He's our Vice President and General Manager for the Head of the Overall Patient Affordability Program. And he can probably talk to you on what he's saying.

Speaker 4

Yes. Hi. So I think we obviously saw a little bit of a downturn in the number of patients that are going to the doctor that are going to be accessing new therapy. As people are laid off, as the job market is more uncertain, people are not going to be spending as much money in the health care area as far as going to the doctor, getting on newer high cost drugs. Patients that are already on therapy most likely already have a prescription that's available for the next twelve months.

Doctors are a little more lenient as far as calling in a refill without having to have the patient show back up in the doctor's office if they know they can't afford it. So I think as the recovery continues, we'll continue to see an acquisition of new patients, which will result in higher claim volumes on our products.

Speaker 3

Okay. Okay. That's helpful. But in terms of the program management, doesn't indicate any increased shift of the business of the underlying business model in Pharma?

Speaker 2

Increasing shift in business itself resulting from this like does it change our position and our product set? Can you just clarify your question maybe a little bit further?

Speaker 3

Like program. I think you said you added several. I'm just curious how some of those programs are coming in relatively large or relatively smaller? What type of fees they're generating?

Speaker 2

So we have 11 pharma programs today and three of those 11 including one new one that was added in the second quarter, two that were added in the first quarter. And if you recall, ended last year after two programs expiring, ended with eight last year. So we're sitting with 11 now. Three of those 11 are in the non buy and bill space and Matt can speak to kind of size and what's in the pipeline perhaps.

Speaker 4

Yes. So on the co pay side, the transactional volumes are low on the co pay side. And when you're talking I believe you've had a question around the program management fees. So that tends to be a smaller amount on the buy and bill side as far as what the revenue percentage is and the transactional fees are what make up the difference. In the smaller copay or pharmacy based products, it tends to be flipped where the management fees make up a majority of the revenue and then the transactional pieces are a smaller portion of that.

And as far as the pipeline is concerned, we're very confident with the pipeline that we have right now moving into the latter part of this year and moving into next year as we've had a substantial amount of opportunities put in our hands and we think we're going to be able to pull those through into next year.

Speaker 3

That's great. I appreciate it. I'll get back in the queue.

Speaker 0

Thank you. Our next question is coming from Austin Moldow from Canaccord Genuity. Your line is now live.

Speaker 5

Thanks for taking my questions. You mentioned a little of the COVID impact on Pharma. But was the pipeline for the Pharma segment impacted? Were any contracts delayed or deferred indefinitely?

Speaker 2

Not indefinitely. We did have one client that we one of the two clients that we communicated with you on from the first quarter that while we had some startup fees, we actually only recently began funding into that client. So they seem to have taken a pause and got some temperature before they rolled that program out. Many of those programs require that the manufacturers and the representatives on behalf of manufacturers can get out to the physicians and educate and onboard physicians as part of that. So that those physicians are actually offering their biologics and medications for the conditions of those patients.

And when you can't travel that made them take a pause and slow down, but nothing has suspended any clients. And as Matt indicated, the pipeline is very strong.

Speaker 1

The RFPs have continued to come in and Yes, correct.

Speaker 2

Preemptives as well as RFPs. Absolutely.

Speaker 5

Got it. Can you elaborate a little more on the revenue conversion rates, but in the individual segments, how they trended on a like for like basis or what the major impacts were on those individually?

Speaker 2

Sure. So the revenue conversion rate on the plasma side was actually stronger than the first quarter. The revenue conversion rate on the pharma side, while it was better than the first quarter, typically it picks up markedly in the second and third quarter as loads start to come down, but you still have projected money left on card rates, kind of settlement income that you expect when those programs are to expire and the cost of sales on those as well as the revenue conversion rate on those since loads are descending tends to just to the way ASC six zero six works tends to increase your revenue conversion rate in subsequent quarters until you get back to the first quarter. In this particular case, what we saw is with loads descending and also customers using up those remaining balances and the program management of those funds being tighter, we had to bring down our projected left on card forecast and therefore just due to revenue recognition that resulted in lower conversion rates.

Speaker 5

Got it. And my last question is on expense management. Can you talk about your expense management in the quarter specifically and maybe for Q3 as you're kind of coping with lower top line?

Speaker 2

Yes, good question Austin. So we did take some solid measures to reduce some expenses that were not essential to limit all travel unless it was revenue producing and to suspend hiring unless it was going to be contributing to critical infrastructure or to top line growth. We also established a new banking agreement, which gave us some favorable pricing And these were all levers that we identified essentially going into the forecasting budgeting process for the year and kind of executed those during the second quarter. And that allowed us, as you can see, to kind of moderate that what had been a growth rate in that area. That said, we do continue to invest in people and in capabilities to make execute on all of the pipeline and business products that we're implementing.

So I do think we'll see a little bit of a pickup in the third and fourth quarter on the total OpEx, but we are being very cautious with our spend right now.

Speaker 5

Okay. Thanks for taking my questions.

Speaker 0

Thank you. Our next question today is coming from Mark Palmer from BTIG. Your line is now live.

Speaker 6

Yes. Thank you and thank you for taking my questions. First of all, as you mentioned, there have been some recent changes in the competitive landscape. Obviously, Wirecard is going through at Saga. If you can talk about how many centers could potentially be coming up for bid during the balance of 2020 and then into 2021, such that you'd have an opportunity to go after those?

Speaker 2

I'm going to start and I think Mark Newcomer wants to comment on this. I'm going basically say that, look, Wirecard North America is a solid organization. They continue to do a great job retaining clients. We are competing with them on the plasma business and we have had some success in building our entire plasma business at their expense. That said, it's hard work and the numbers that we quoted, which Mark can speak to, many of those are takeaways.

But there isn't a clear roadmap on how other business from any competitor might be in our future. So we're going to continue to work hard, do what we do well as a processor and a very nimble and capable company. But nothing clear on the road map. But Mark, you're probably much more suited to answer that.

Speaker 1

Yes. I mean, obviously, we're actually talking with many companies right now. The number of centers range smaller to larger.

Speaker 2

Though we remain in talks

Speaker 1

and that's about all I can comment at this point in time. But we look at it as a positive opportunity for us.

Speaker 6

Thank you. And just from a housekeeping perspective, what is was the total count on centers at the end of the quarter? What would you estimate your market share is at the end of the quarter?

Speaker 1

And I'll get back to you. Give

Speaker 2

me just one moment and I'll get back on track here. So there we currently have two ninety plasma centers, 11 pharma programs and four other programs for three zero seven. That's essentially up seven from the prior quarter and that represents I think it's roughly 38% right in that ballpark.

Speaker 1

Thank you.

Speaker 0

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

Speaker 2

Hi.

Speaker 7

Thanks for taking my questions. Can you explain what these 104 centers are in support of a client's business continuity plan? What does that mean?

Speaker 1

What that means is that we can't tell you that those 104 centers are going to go live. It's really up to the client and what they make and what decision they make in the end. They were nervous in respect to what's going on in the world what's going on with one of their service providers and therefore asked us to provide a continuity plan and which we did.

Speaker 2

Yes, I think it's important to point out that all of those centers have received card product and can go live immediately the

Speaker 1

day

Speaker 2

they make that decision. The technology, the card product, the terms and conditions, all of the packaging is in each site. Okay. But those 104,

Speaker 7

they don't have 49 centers that

Speaker 1

They do not. That's correct.

Speaker 7

Okay. So 49 is a pretty healthy percentage above what you're

Speaker 3

doing right now.

Speaker 7

Okay. So that was actually my my other questions have been asked and answered.

Speaker 0

Thank you. Our next question is a follow-up from Peter Heckmann from Davidson. Your line is now live.

Speaker 3

Great. That last answer was helpful. So no revenue related to those 104,000,000 on the 49,000,000 that have been won and are going on boarded. I think that's about a 1517% year over year increase. In order for the third quarter to have for the plasma to perform the same in the third quarter to second quarter with those new units, you'd have to expect donation volumes to be down more, which doesn't seem to foot with some of the things as we're opening up.

So is there something else about those new centers in terms of how they might ramp up that might be slower? Or maybe they're more back end loaded where you just don't have the benefit of any of them in the third quarter?

Speaker 2

Yes, more of the latter. Also just to clarify, Mark, many of those were blood centers? 11 or blood, those blood have the equivalent roughly of about two centers. So the plasma generate more load volume and more revenue. And then you you hit it on the head there, we will be a little bit more back loaded, but should be by the October 1, all 49 centers should be unloaded, that's the

Speaker 0

That's the schedule. Schedule. So there's a specific rollout of exactly when

Speaker 2

the centers go live by week essentially, but most of that's backloaded.

Speaker 3

Got it. Got it. Okay. And so we'll continue to monitor and monitor the publicly traded companies. But if we see more recovery, rebound in donation volumes, we should suspect that or expect that you'll see kind of the same rebound.

Speaker 2

Absolutely.

Speaker 3

Great. Thank you.

Speaker 1

You bet.

Speaker 0

Thank

Speaker 7

you.

Speaker 0

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 1

Yes. Thanks, Kevin. Again, although our business was impacted by the effects of the COVID-nineteen pandemic, we believe that we have made significant strides that will enable us to resume our growth trajectory in 2021 and beyond. Thank you for your continued interest, your questions and your participation in this earnings call. Stay safe and have a nice evening.

Thank you.

Speaker 0

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