Paysign, Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 26, 2021. This is an annual report, not a standalone fourth-quarter earnings report, and the supplied filing text does not provide a clear Q4-only financial result.
Business context
Paysign provides prepaid-card programs and payment processing for corporate, consumer, healthcare, pharmaceutical, plasma-donor and government applications. It earns fees from cardholder activity, interchange, program management and settlement income. At year-end, it reported approximately 3.5 million participating cardholders across 360 programs; it served approximately 36% of U.S. plasma collection centers.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $24.12 million | $34.67 million | Down 30.4% |
| Gross profit / margin | $9.30 million / 38.6% | $19.24 million / 55.5% | Profit down 51.6%; margin down 16.9 percentage points |
| Operating income (loss) | ($8.34 million) | $6.10 million | Decreased $14.44 million |
| Net income (loss) attributable to Paysign | ($9.14 million); ($0.19) per diluted share | $7.45 million; $0.14 per diluted share | Decreased $16.60 million |
| Adjusted EBITDA (non-GAAP) | ($2.82 million) | $10.11 million | Down from positive earnings |
| Operating cash flow | $13.78 million | $16.71 million | Down $2.94 million |
| Investing / financing cash flow | ($3.34 million) / ($0.07 million) | ($3.24 million) / $0.43 million | Investing outflow increased; financing turned to outflow |
Cash and obligations: Year-end cash was $7.83 million, excluding $48.10 million of restricted cash held for card programs. Customer card funding liability was also $48.10 million. Total assets were $67.83 million and total liabilities $54.60 million. The balance sheet reports no conventional borrowings; it includes operating lease liabilities of approximately $4.33 million. Management said available unrestricted cash, anticipated revenue and expected 2021 operating profits should fund operations for the next 12 months. No material off-balance-sheet arrangements were reported.
Material changes versus 2019
- Plasma revenue fell 13.3% to $23.40 million, primarily as COVID-19 restrictions and collection-center disruptions slowed donations and card loads.
- Pharma revenue fell 95.6% to $0.33 million. A change in the estimate for settlement-income breakage reduced 2020 Pharma revenue by $6.29 million and increased after-tax net loss by $4.97 million, or $0.10 per basic and diluted share. Paysign now expects to recognize unspent balances at card and program expiration rather than over the program lifecycle.
- Gross margin declined as revenue fell, particularly higher-margin Pharma revenue, while costs did not decline proportionately. SG&A rose 29.5% to $15.09 million, reflecting increased staffing and compensation, professional services, technology costs and the new office lease.
- Gross dollars loaded onto cards increased to $968 million from $882 million, but revenue conversion fell to 2.49% from 3.93%; gross-profit conversion fell to 0.96% from 2.18%. Management attributed the lower conversion rates primarily to the Pharma settlement-income estimate change.
- Operating cash flow remained positive, but included a $15.38 million increase in customer card funding liability; this cash-flow measure should be viewed alongside the corresponding restricted cash and customer-funding obligations.
Outlook, risks and unusual items
- Management plans further investment in technology, sales and marketing, customer service and regulatory compliance in 2021. It may evaluate raising capital for expansion, but said it believes internal funds could support entry into new markets if it does not raise capital. No quantified revenue or earnings guidance was provided.
- Management reported that COVID-19 slowed plasma donations and card loads in the second and third quarters, with a slight recovery in the fourth quarter; it expected pandemic-related economic effects to continue through a significant portion of 2021. The ultimate impact was not estimable.
- Key risks include dependence on issuing-bank and card-network relationships, regulatory and compliance obligations, cybersecurity and service interruptions, intense competition, interchange-rate changes, and the ability to attract and retain customers and personnel.
- Paysign recorded a $382,414 impairment of an intangible asset after suspending efforts to obtain a business license, and a $42,898 loss on abandoned assets associated primarily with its office relocation.
- Two securities class-action complaints were consolidated, and a derivative action was stayed pending a ruling in the class action. The company filed a motion to dismiss the amended class-action complaint; it said it could not meaningfully estimate likely outcomes or damages.
- Management concluded that internal control over financial reporting was effective at year-end after remediation of previously reported material weaknesses. The 2020 financial-statement audit opinion was unqualified; the auditor did not express an opinion on 2020 internal-control effectiveness.
- The company recorded a full valuation allowance against net deferred tax assets in 2020. Subsequent events included the CFO’s resignation effective February 19, 2021, and appointment of a successor effective February 22, 2021.
Important facts for investors to verify
- How much of the 2020 Pharma revenue and loss deterioration reflects the one-time $6.29 million estimate adjustment versus underlying program economics, and when settlement income may be recognized as programs expire.
- Whether plasma activity and card loads recovered after year-end, and whether revenue and gross-profit conversion rates improve.
- Cash available for corporate use versus restricted card-program funds, and the nature and timing of customer card-funding obligations.
- Progress in resolving the securities and derivative litigation, and whether remediated financial-reporting controls remain effective.
- Whether management’s 12-month liquidity expectation and planned 2021 investments are supported by operating results, given the 2020 net loss and negative adjusted EBITDA.