Paysign, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; filed August 14, 2020. Paysign provides prepaid card products, program management, and payment-processing services, including programs for plasma donors and pharmaceutical assistance.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $6.44 million | $8.64 million | $17.02 million | $15.89 million |
| Gross profit / margin | $3.30 million / 51.3% | $5.04 million / 58.3% | $9.03 million / 53.0% | $8.81 million / 55.5% |
| Operating income (loss) | $(646,000) | $1.63 million | $745,000 | $2.37 million |
| Net income (loss) attributable to Paysign | $(219,000) | $1.74 million | $1.32 million | $2.61 million |
| Adjusted EBITDA (non-GAAP) | $504,000 | $2.59 million | $3.12 million | $4.31 million |
- Revenue mix: Q2 plasma revenue fell 30.1% to $4.57 million and pharma revenue fell 15.5% to $1.77 million; other revenue was $102,000. For the first half, plasma revenue decreased 4.1% to $11.92 million, while pharma revenue increased 38.2% to $4.79 million and other revenue was $315,000.
- Costs and margins: Q2 cost of revenue declined 12.8%, less than the revenue decline, and gross margin contracted 7.0 percentage points. First-half operating expenses increased 28.4%, including a 26.4% rise in SG&A and 38.3% higher depreciation and amortization.
- Cash flow: First-half operating cash flow was $4.26 million versus $18.19 million a year earlier. Investing used $2.06 million, mainly for fixed assets and platform development; financing used $221,000. Cash and restricted cash together increased $1.98 million.
- Liquidity and obligations: June 30 cash was $7.63 million, separate from $39.92 million of restricted cash held for card programs. Current liabilities were $35.28 million, including $33.85 million of customer card funding. The filing reports no borrowings; operating lease liabilities totaled $4.48 million, including $301,000 current.
Material changes and management commentary
- Management attributed Q2 revenue declines primarily to COVID-19-related reductions in plasma donations and card loads, with lower pharma revenue also contributing. The pandemic’s duration and financial effects remained uncertain, and management said it could not reasonably estimate future effects on results, cash flows, or financial condition.
- First-half revenue rose 7.1%, which management linked to growth in new card programs and a strong first quarter, partly offset by Q2 pandemic effects. Gross dollar volume loaded on cards was $509 million for the first half, up from $420 million.
- Management said it expected available unrestricted cash, anticipated revenue, and operating profits to support operations for the next 12 months. The company planned continued investment in technology, sales and marketing, customer service, and regulatory compliance, and said it could pursue acquisitions and capital raising; no specific revenue or earnings guidance was provided.
- The company relocated its headquarters and recognized a $42,898 asset-abandonment loss. A new 10-year office lease began in June; future lease payments total $6.01 million before imputed interest.
- Disclosure controls were deemed ineffective because of a previously reported material weakness in internal control over financial reporting. Remediation efforts were ongoing; management had not yet concluded the weakness was remediated.
- Two putative securities class actions remained disclosed; a third was voluntarily dismissed. Paysign had not been served as of the filing and said it could not meaningfully estimate outcome or damages. The complaints allege misleading disclosures concerning internal controls and financial statements; these are allegations, not findings.
Key facts for investors to verify
- Whether plasma collections and card loads recover, and whether the COVID-19 impact persists across plasma and pharma programs.
- Whether revenue growth converts into improved gross margin and operating profitability as costs and investment spending rise.
- How much reported cash is unrestricted and available for corporate use; restricted cash supports card programs and is not equivalent to available liquidity.
- Progress and testing results for remediation of the material weakness, and any developments in the disclosed securities litigation.
- The sustainability of management’s 12-month liquidity assessment and the cost and commitments associated with the new lease and planned investments.