Paysign, Inc. — Q3 2023 Form 10-Q
Business context and period. Paysign provides prepaid card programs, payment processing, patient affordability programs and digital banking services. This unaudited report covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $12.40 million | $10.60 million | $33.58 million | $27.42 million |
| Gross profit / margin | $6.33 million / 51.1% | $5.75 million / 54.3% | $17.00 million / 50.6% | $15.44 million / 56.3% |
| Operating income (loss) | $590,432 | $623,008 | $(799,251) | $29,829 |
| Net income | $1.10 million | $852,109 | $836,318 | $314,680 |
| Diluted EPS | $0.02 | $0.02 | $0.02 | $0.01 |
| Adjusted EBITDA (non-GAAP) | $2.35 million | $1.93 million | $4.21 million | $3.79 million |
Q3 revenue increased 17.0%, led by plasma (+12.5%), pharma (+48.0%) and other revenue. Nine-month revenue rose 22.5%, primarily from plasma and new payroll, retail and other card programs. Cost of revenue grew faster than revenue in both comparisons, contributing to lower gross margins.
For the nine months, selling, general and administrative expense increased 12.5% to $14.95 million and depreciation and amortization increased 33.6% to $2.85 million. Higher interest income helped lift net income despite a year-to-date operating loss: interest income, net, was $1.80 million for nine months versus $350,000 a year earlier. Q3 operating income declined 5.2%, while net income increased 29.2%.
Cash, liquidity and capital resources
- At September 30, 2023, cash was $9.94 million and restricted cash was $78.02 million, compared with $9.71 million and $80.19 million, respectively, at December 31, 2022. Restricted cash is contractually designated for card and pharma programs and is matched by a $78.02 million customer card funding liability.
- Total current assets were $98.86 million and current liabilities were $90.01 million. The filing shows no borrowing debt; reported long-term obligations include operating lease liabilities of $3.03 million, plus $378,001 current.
- Nine-month operating cash flow was $4.18 million, versus $30.95 million in 2022; investing cash use was $5.00 million, including $4.78 million for internally developed software; financing cash use was $1.12 million, mainly share repurchases. Cash and restricted cash declined $1.94 million over the period.
- Management said unrestricted cash, together with forecast revenue and cash flows, was expected to support operations for at least 18 months from September 30, 2023. No numerical revenue or earnings guidance was provided.
Material changes, outlook and risks
- Management attributed plasma growth to more plasma centers and donations, pharma growth to new patient affordability programs, and other growth to payroll and retail/disbursement programs. It plans to continue investing in technology, sales and marketing, customer service and regulatory compliance; it may evaluate raising capital but said it believes existing funds can support operations and expansion.
- Gross margin declined amid higher transaction/network costs, card materials, service-provider pricing and customer-service costs; management also cited the termination of the pharma prepaid business in 2022. SG&A rose with hiring, compensation and stock-based compensation. Capitalized platform development costs increased.
- Gross dollar volume loaded on cards was $448 million in Q3, down from $462 million. Revenue conversion increased to 2.77% from 2.29%; gross-profit conversion rose to 1.41% from 1.24%.
- The company reported approximately $40.21 million in deposits above federal insurance limits at September 30. After quarter-end it initiated a deposit-swapping program intended to provide FDIC coverage for deposits over $250,000.
- Two pharma customers represented 20% and 19% of accounts receivable at quarter-end. The filing also notes concentration of deposits primarily at one financial institution.
- Pending securities class-action and shareholder derivative litigation concerns alleged financial reporting and internal-control issues; the court partly granted and partly denied a motion to dismiss in February 2023. A further derivative action was filed in October 2023. The company said it could not meaningfully estimate outcomes or damages.
- Management maintained a full valuation allowance on deferred tax assets, believing they were not more likely than not to be realized in the near future. The filing states disclosure controls were effective as of September 30, 2023 and reports no material change in internal control during the quarter.
Important facts for investors to verify
- Whether plasma program growth and card volume trends continue, and how growth translates into revenue and margins.
- Drivers of the persistent gross-margin decline and whether operating expenses and software investment generate expected returns.
- Availability and terms of unrestricted liquidity, effectiveness of the deposit-swapping program, and the distinction between company cash and restricted customer funds.
- Customer concentration, collection timing and the impact of pharma receivables on operating cash flow.
- Developments, potential exposure and costs related to the securities and derivative litigation; outcomes and damages remain unquantified in the filing.
- Progress toward sustained operating profitability, given nine-month operating losses despite positive net income supported in part by interest income.