Paysign, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparative period is Q1 2018. The company changed its name from 3PEA International, Inc. to Paysign, Inc. in April 2019 and changed its Nasdaq symbol to PAYS.
Business context
Paysign provides prepaid card products and processing, program management, and related services for corporate, healthcare, consumer, and government applications. Revenue comes from transaction and interchange fees, card program management, and other program services.
Financial highlights
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $7.26 million | $4.68 million; up 55% |
| Gross profit and margin | $3.78 million; 52% | $2.24 million; 48% |
| Operating income | $736,444 | $418,053; up 76% |
| Net income attributable to Paysign | $871,671; $0.02 per basic and diluted share | $412,548; $0.01 per share |
| Adjusted EBITDA | $1.72 million | $775,387 |
| Operating cash flow | $20.03 million | $1.68 million |
| Investing cash flow | $(559,415) | $(352,533) |
Revenue growth reflected new corporate incentive card products and growth in existing programs. Management attributed improved gross margin to client mix and network interchange margins. SG&A increased 71% to $2.70 million, primarily from infrastructure and staffing investment and higher stock-based compensation; stock-based compensation was $646,710, versus $137,401 a year earlier.
Gross dollar volume loaded onto cards was $191 million, versus $127 million. Management reported revenue conversion of 379 basis points versus 368 basis points, gross profit conversion of 197 versus 177 basis points, and net profit conversion of 46 versus 32 basis points. The filing’s text renders the 2018 revenue conversion as “368% or 368 bps”; the percentage value is inconsistent with the stated basis points.
Balance sheet and liquidity
At March 31, 2019, cash was $5.21 million and restricted cash was $45.93 million, compared with $5.62 million and $26.05 million, respectively, at year-end 2018. Restricted cash is contractually reserved for card programs. Total assets were $56.10 million; current liabilities were $45.69 million, including $45.11 million of customer card funding. The filing reports no debt. Stockholders’ equity was $10.41 million.
Operating cash flow included $19.15 million from the increase in customer card funding. Excluding that change, management reported operating cash flow of $881,467, compared with cash use of $225,389 in Q1 2018. Cash and restricted cash together increased $19.47 million. Management said unrestricted cash, together with expected revenue and operating earnings, should fund operations for the next 12 months.
Outlook, risks, and other notable items
- Management expected revenue growth for the rest of 2019 to be equal to or better than the Q1 growth rate, citing existing program growth and expected new card products. It also anticipated lower cost of revenue as a share of revenue and further gross-margin improvement, including from pharmaceutical business expansion. These are forward-looking expectations, not guarantees.
- The company planned further investment in technology, sales and marketing, customer service, and regulatory compliance. It was considering raising capital to diversify into new markets; management said expansion could proceed with internally generated funds but would be slower without new capital.
- The substantial operating cash-flow figure is principally associated with customer card funding and should not be read as equivalent to unrestricted cash generation.
- The company reported no material litigation, no material off-balance-sheet arrangements, and no applicable risk-factor updates in this filing. It cautioned that actual results may differ from forward-looking statements and that quarterly results may not indicate full-year performance.
- In April 2019, after quarter-end, the company issued 500,000 shares for previously earned and vested awards. The name and ticker change also occurred after quarter-end.
Important facts for investors to verify
- Whether card-program growth and management’s 2019 revenue and margin expectations were achieved.
- How much of operating cash flow reflects customer funding versus recurring cash generation, and the availability and restrictions on program cash.
- The effects of increased SG&A, stock-based compensation, and potential equity issuance on future profitability and dilution.
- The precise 2018 revenue-conversion percentage, given the filing’s inconsistent “368%” and “368 bps” wording.