Paysign, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 8, 2020. Paysign provides prepaid card programs and processing services. Comparisons are with Q1 2019 unless otherwise noted.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $10.58 million | $7.26 million | Up 46% |
| Gross profit / margin | $5.72 million / 54% | $3.78 million / 52% | Margin up about 2 percentage points |
| Operating income | $1.39 million | $0.74 million | Up 89% |
| Net income attributable to Paysign | $1.54 million | $0.87 million | Up 77% |
| Basic and diluted EPS | $0.03 | $0.02 | — |
| Adjusted EBITDA (non-GAAP) | $2.62 million | $1.72 million | Up about 52% |
| Operating cash flow | $10.75 million | $20.03 million | Down $9.28 million |
Plasma revenue was $7.34 million versus $5.88 million; pharma revenue was $3.02 million versus $1.37 million. Management attributed revenue growth mainly to new clients and programs with existing clients. Gross margin improvement reflected a favorable client mix and improved network interchange margins. SG&A rose 41% to $3.83 million, primarily from investment in technology, sales and marketing staff, and higher stock-based compensation. Depreciation and amortization increased to $0.50 million as technology and platform investment continued.
Cash, liquidity and balance sheet
- At March 31, cash was $9.42 million and restricted cash was $45.42 million; total cash and restricted cash was $54.85 million. Restricted cash is contractually designated for card programs and should not be treated as unrestricted liquidity.
- Total assets were $63.88 million; total liabilities were $42.29 million, primarily current liabilities including $40.29 million of customer card funding. Stockholders’ equity was $21.59 million.
- The balance sheet reports no debt. Operating cash flow included a $7.57 million increase in customer card funding, compared with a $19.15 million increase in Q1 2019. Investing used $1.50 million, mainly for fixed assets and platform-related intangible assets; financing provided $24,000 from option exercises.
- Management said unrestricted cash, anticipated revenue and operating profits were expected to fund operations for at least the next 12 months. The company was considering raising capital to diversify into new markets; without new capital, management expected expansion to be slower.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management planned further investment in technology, sales and marketing, customer service, and regulatory compliance.
- Management reported no negative business or financial impact from COVID-19 as of the filing, but said the duration and financial effects were uncertain and could not be reasonably estimated.
- Disclosure controls were deemed ineffective because of a previously reported material weakness in internal control over financial reporting. Remediation efforts included improving control design and testing, adding resources, and strengthening user-access and change-control procedures; management said remediation would require effective operation and testing over a sufficient period.
- Three putative securities class actions alleged misleading statements or omissions concerning internal controls and financial statements. The company had not been served as of the filing and could not estimate the likelihood of outcome or damages.
- Stock-based compensation was $724,183, up from $646,710. The quarter also included dissolution of Paysign, Ltd., eliminating the reported noncontrolling interest. The filing reported no material changes to the risk factors in the 2019 Form 10-K.
Important facts for investors to verify
- Progress and testing results for remediation of the material weakness, and whether disclosure controls become effective.
- Developments in the three securities lawsuits, including potential exposure once the company can assess the claims.
- COVID-19 effects on clients, card volumes and operations after the quarter-end; Q1 results alone do not establish the full-year impact.
- Availability of liquidity: distinguish unrestricted cash from program-restricted funds and monitor customer card funding obligations and cash-flow movements.
- The filing gives inconsistent Q1 2019 basic weighted-average share counts: 49,961,079 in the income statement and 46,961,079 in the EPS note. Confirm the correct comparative figure.