Paysign, Inc. — Q2 2019 Form 10-Q
Business and period: Paysign provides prepaid card products and processing and program-management services for corporate, healthcare, consumer and government applications. This unaudited report covers the three and six months ended June 30, 2019, compared with the corresponding 2018 periods. The company changed its name from 3PEA International, Inc. to Paysign, Inc. in April 2019 and its Nasdaq symbol to PAYS.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $8.64 million | $5.46 million | $15.89 million | $10.14 million |
| Gross profit / margin | $5.04 million / 58% | $2.62 million / 48% | $8.81 million / 55% | $4.86 million / 48% |
| Operating income | $1.63 million | $0.70 million | $2.37 million | $1.12 million |
| Net income attributable to Paysign | $1.74 million | $0.73 million | $2.61 million | $1.14 million |
| Diluted EPS | $0.03 | $0.01 | $0.05 | $0.02 |
| Adjusted EBITDA (non-GAAP) | $2.59 million | $1.16 million | $4.31 million | $1.94 million |
Q2 revenue increased about 58% year over year; net income attributable to Paysign rose about 138%. For the first half, revenue grew about 57% and attributable net income about 128%. Management attributed growth chiefly to new corporate incentive card products and expansion in existing programs. Gross margin improved with better network interchange margins and favorable client mix. SG&A and depreciation and amortization also increased, reflecting investment in staffing, infrastructure, stock compensation and platform development.
Cash, liquidity and capital
- At June 30, cash was $6.29 million, restricted cash was $42.60 million, and total cash and restricted cash was $48.89 million. Restricted funds support card programs and are contractually restricted.
- Operating cash flow for the first half was $18.19 million, versus $5.08 million in the prior-year period. The increase included a $14.36 million inflow from customer card funding.
- Investing cash outflow was $0.97 million, primarily for platform enhancements and telephony and equipment infrastructure. No financing cash flows were reported.
- Total liabilities were $41.33 million, including $40.32 million of customer card funding. The filing reports no borrowings or other debt.
- Management said available unrestricted cash, together with anticipated revenue and operating earnings, would be sufficient for operations for the next 12 months. It was considering raising capital to accelerate diversification and expansion; without new capital, management expected expansion to be slower.
Outlook, risks and other items
- Management expected revenue growth for the rest of 2019 to be equal to or better than the rate achieved in the first half, citing existing-product growth and anticipated new card products. It expected gross margins to remain at recent levels or improve slightly.
- Management expected interest income to continue benefiting from cash balances and continued investment in platform enhancements.
- Forward-looking statements are subject to uncertainties, and actual outcomes could differ. The filing identifies no material litigation, says there were no material off-balance-sheet arrangements, and marks risk factors “not applicable.”
- Stock-based compensation was $1.21 million for the first half, versus $0.35 million a year earlier; diluted weighted-average shares rose to 54.74 million from 51.44 million. The company also issued 1.12 million shares for previously vested awards during the first half.
- Disclosure controls were assessed as effective as of June 30, 2019; no material change in internal control over financial reporting was reported. No material subsequent events were disclosed.
Important facts for investors to verify
- How much operating cash generation is recurring apart from changes in customer card funding, and how much of reported cash is available for general corporate use?
- Whether expected new programs and client mix can sustain revenue growth and improved gross margins, and whether added operating costs will moderate profitability.
- The scale and timing of future stock-based compensation, vesting and dilution; the filing reports 47.57 million shares outstanding at July 29, 2019.
- The six-month SG&A amount: the income statement reports $5.72 million, while the MD&A narrative reports $5.73 million. Verify the correct figure against the filed financial statements.