Paysign, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Paysign provides prepaid card programs, payment processing, digital banking and patient affordability services. Its revenue is concentrated in plasma and pharma-related card programs.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $11.04 million | $8.60 million | $21.18 million | $16.82 million |
| Gross profit / margin | $5.62 million / 50.9% | $4.70 million / 54.6% | $10.66 million / 50.3% | $9.70 million / 57.6% |
| Operating loss | $646,886 | $271,345 | $1.39 million | $593,179 |
| Net loss | $104,156 | $228,034 | $264,286 | $537,429 |
| Adjusted EBITDA | $1.14 million | $930,122 | $1.86 million | $1.86 million |
Q2 revenue increased 28.4%, principally from plasma programs (+28.3%); pharma revenue declined 5.7%, while other revenue rose from a small base. For the first half, revenue grew 26.0%, driven by plasma and new payroll, retail and other card-disbursement programs. Cost of revenue rose faster than revenue, reducing gross margin. SG&A and depreciation and amortization also increased.
Operating losses widened in both comparisons as growth-related costs increased. Net losses narrowed, chiefly because interest income rose with higher interest rates and bank balances. The company reported net interest income of $600,867 in Q2 and $1.19 million for the first half. Adjusted EBITDA is a non-GAAP measure; first-half adjusted EBITDA was essentially flat year over year.
Cash flow, liquidity and balance sheet
- Six-month operating cash flow was $151,348, versus $16.40 million in 2022. Management attributed the decrease mainly to timing-related declines in customer card funding and higher accounts receivable.
- Investing cash use was $3.04 million, primarily reflecting $2.96 million capitalized for internally developed software. Financing cash use was $968,067, including share repurchases.
- Cash and restricted cash totaled $86.04 million at June 30, 2023, including $7.67 million unrestricted cash and $78.37 million restricted cash. Restricted cash is contractually tied to card and pharma programs and is matched by the customer card funding liability.
- Total liabilities were $92.35 million, mainly customer card funding of $78.37 million and operating lease liabilities of $3.50 million. The filing presents no borrowings or other debt balance.
- Management stated that available unrestricted cash and its forecast for revenue and cash flows should sustain operations for the next 18 months. It said it may evaluate raising capital, but believes it can support existing operations and expansion with internally generated funds if it does not.
Outlook, changes and notable matters
- For the remainder of 2023, Paysign plans to continue investing in technology, sales and marketing, customer service and regulatory compliance. The filing provides no quantified revenue, earnings or cash-flow guidance.
- Management linked plasma growth to more centers and donations, including easing of prior COVID-related restrictions, and described demand for plasma therapies as supportive. New pharma patient affordability programs partly offset the end of legacy pharma prepaid programs in 2022.
- Cost pressures include higher card-network and service-provider expenses, customer-service wages, and personnel and insurance costs. Platform development and equipment investment are also increasing depreciation and amortization.
- Gross dollar volume loaded on cards was $405 million in Q2, up from $375 million. Q2 revenue conversion was 2.73%, compared with 2.29% a year earlier.
- The company repurchased 319,558 shares for $977,667 during the first half at a weighted-average $3.06 per share. A $5 million repurchase program was authorized in March 2023; $4.02 million remained available at June 30.
- Pending securities class-action and consolidated shareholder derivative litigation concerns allegations related to prior financial reporting and internal controls. The company said it cannot meaningfully estimate the outcome or potential damages.
- At June 30, two pharma customers represented 35% and 14% of accounts receivable. Approximately $38.2 million held at banks exceeded federally insured limits. Management said it monitors its banking relationships.
- Management concluded disclosure controls were effective as of June 30, 2023, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether plasma-card activity and new programs can sustain revenue growth as legacy pharma prepaid revenue winds down.
- Whether gross margins stabilize given cost growth, network expenses and customer-service inflation.
- Receivables collection and operating cash flow, particularly given pharma customer concentration and the large first-half decline in customer card funding.
- Availability of unrestricted cash, bank-deposit exposure and management’s 18-month liquidity assumptions; restricted program funds are not general-purpose liquidity.
- Developments and potential financial consequences of the securities and derivative lawsuits, for which no loss estimate is provided.