Paysign, Inc. (3PEA International, Inc.) — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. The filing issuer is 3PEA International, Inc., which markets its prepaid card services under the PaySign brand.
Business context
The company provides prepaid card programs and processing services for corporate, consumer and government customers through its PaySign platform. Focus areas included healthcare reimbursement, pharmaceutical assistance, plasma donor payments and corporate incentives.
Financial highlights
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $2.18 million | $1.60 million; up 36% |
| Gross profit / margin | $1.01 million / 46% | $553,152 / 35% |
| Operating income (loss) | $51,153 | $(426,478) |
| Net income (loss) attributable to 3PEA | $81,940; basic and diluted EPS reported as $0.00 | $(441,795); basic EPS $(0.01) |
| Cash from operations | $(278,829) | $(495,079) |
| Cash used in investing / financing | $(186,646) / $(5,938) | $(389,868) / $(821,356) |
Revenue growth was attributed primarily to plasma donation programs. Cost of revenue rose 12%, slower than revenue, and fell to about 54% of revenue from 65%. Management attributed improved gross margin to efficiencies from the PaySign platform. SG&A declined 8% to $831,499, mainly due to lower European Union expansion costs. Depreciation and amortization was $123,633; interest expense was $15,556. There was no income tax provision.
At March 31, cash was $918,081, versus $1.39 million at year-end. Restricted cash of $7.67 million was matched by an equal customer card-funding liability and is not freely available for general liquidity. Current assets were $9.16 million and current liabilities $9.43 million. Total liabilities were $9.52 million and stockholders’ equity $1.25 million. Notes payable totaled $168,160, including a $150,000 unsecured, 8% shareholder note due on demand and equipment financing. The company also had $1.01 million remaining on its legal settlement payable, including current and long-term portions.
Operating cash use improved year over year but included working-capital outflows, notably a $203,138 increase in accounts receivable and a $247,186 decrease in legal settlement payable. Cash used for investment primarily funded processing-platform enhancements. Unrestricted cash decreased by $471,413 during the quarter.
Changes, outlook and risks
- Compared with Q1 2015, the company moved from an operating loss and attributable net loss to operating and net income. Its basic weighted-average share count increased to 42.68 million from 36.83 million.
- Management expected revenue to continue trending upward through the remainder of 2016 as its plasma donation customer base grew, while cautioning that first-quarter plasma card usage is seasonal. This is not a quantified earnings or revenue forecast.
- Management stated that cash on hand, together with anticipated revenue and operating earnings, should fund operations for the next 12 months. It also said expansion into new markets would require investment in technology, sales and marketing, and regulatory compliance; without additional capital, expansion could be slower.
- The $2.5 million PSKW settlement was agreed in October 2015 and expensed in 2015. The remaining balance was payable in monthly installments over 18 months at 3% interest. The action was dismissed with prejudice, with the court retaining jurisdiction to enforce the settlement.
- The company reported no material litigation at the filing date, no material off-balance-sheet arrangements, and no material change in internal controls; management considered disclosure controls effective. The filing did not provide a separate applicable risk-factor discussion.
Important facts for investors to verify
- Whether revenue growth and margin improvement persisted beyond Q1, particularly given plasma-program seasonality and customer concentration or program trends.
- Cash conversion, collections of the sharply higher accounts receivable balance, and availability of liquidity excluding restricted customer funds.
- Ability to meet the PSKW settlement installments and the shareholder note due on demand while funding planned growth.
- Whether expansion plans require external capital and how any financing could affect dilution, liquidity or execution.
- The reported $81,940 attributable net income versus $39,428 consolidated net income before noncontrolling interest; the difference reflects a $42,512 loss attributable to the noncontrolling interest.