Paysign, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Paysign provides prepaid card programs, payment processing, patient affordability and digital banking services. This unaudited quarterly report covers the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $8.60 million | $6.65 million | $16.82 million | $12.93 million |
| Gross profit / margin | $4.70 million / 54.6% | $3.15 million / 47.4% | $9.70 million / 57.6% | $5.98 million / 46.3% |
| Operating loss | $271,345 | $936,177 | $593,179 | $2.57 million |
| Net loss | $228,034 | $931,967 | $537,429 | $2.56 million |
| Adjusted EBITDA (non-GAAP) | $930,122 | $218,926 | $1.86 million | $(178,040) |
Q2 revenue growth was led by plasma, up 31.3%; pharma revenue increased 20.6%. For the six-month period, plasma revenue rose 34.2% and pharma revenue 3.7%. Gross margin expanded in both comparisons. Basic and diluted loss per share were $(0.00) for Q2 and $(0.01) for the six-month period in 2022.
Cash flow and liquidity: Six-month operating cash flow was $16.40 million, versus $17.58 million in 2021; investing cash use was $1.58 million, mainly reflecting $1.54 million of capitalized internally developed software. Financing cash flow was zero. Cash and restricted cash totaled $83.50 million at June 30, including $76.97 million of restricted cash held for card programs and matched by customer card funding liabilities. Unrestricted cash was $6.53 million. Management said available unrestricted cash and forecast revenue and cash flows should sustain operations for the next 12 months.
Balance sheet: Total assets were $99.90 million and stockholders’ equity $13.51 million. No conventional borrowings are reported; operating lease liabilities totaled $3.85 million, of which $350,753 was current. Restricted card funds are not available for general corporate use.
Material changes and management commentary
- Revenue increased 29.3% in Q2 and 30.1% for the first half, primarily as plasma center activity, donations and card loads improved as pandemic restrictions eased. Paysign added or converted 62 plasma centers during Q2 and 71 during the six-month period.
- Management attributed improved gross profit to higher plasma revenue, variable transaction costs and a restructured agreement. Costs also rose for new-center launches, customer service and pharma network activity.
- SG&A increased 22.5% in Q2 and 21.2% for the first half, including higher compensation and technology costs. Six-month SG&A also included a $354,000 increase in legal settlements.
- Gross dollar volume loaded on cards was $376 million in Q2 versus $267 million, and $699 million for the first half versus $546 million. Q2 revenue conversion of card loads decreased to 2.29% from 2.49%, while gross-profit conversion improved to 1.25% from 1.18%.
Outlook, risks and unusual items
- No numerical revenue, earnings or margin guidance is provided. Management plans continued investment in technology, sales and marketing, fraud and disputes, customer service and regulatory compliance; it may evaluate raising capital but says expansion can continue with internally generated funds.
- COVID-19-related plasma center closures, reduced donation incentives, labor shortages and restrictions on Mexican nationals donating plasma remain headwinds. Management noted more loads per average center in Q2 than Q1, but could not estimate when pre-pandemic per-center levels might return or quantify further pandemic effects.
- The company recorded $459,755 of employee retention credit in Q2 after filing for a refund. Other receivables included $1.30 million of employee retention credit refunds at June 30, 2022.
- A securities class action and two shareholder derivative actions relate to alleged financial reporting and internal-control issues. The class-action motion to dismiss was fully briefed; the derivative cases were stayed pending its resolution. The company said it could not meaningfully estimate likely outcomes or damages.
- Two pharma customers represented 51% and 11% of accounts receivable at June 30. Approximately $37.05 million of cash and restricted cash exceeded federally insured limits. Management reported disclosure controls effective at period-end and no material change in internal control during the quarter.
Key facts for investors to verify
- Whether plasma donation volumes and center additions continue to support revenue growth, and how new-center costs affect margins.
- How much of reported operating cash flow reflects changes in customer card funding rather than cash generated from operations available to the company.
- Collection timing and recoverability of employee retention credit receivables, and the status and potential exposure of the securities and derivative litigation.
- Customer concentration, uninsured bank balances and the adequacy of unrestricted liquidity relative to planned investment and operating needs.