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PAYSIGN INCÂ (PAYS -2.67%)
Q3Â 2019 Earnings Call
Nov 14, 2019, 7:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to the PaySign Third Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. This presentation may include forward-looking statements to the extent that the information presented in this presentation discusses financial projections, information and expectations about the Company's business plans, results of operations, returns on equity markets, or otherwise make statements about future events. Such statements are forward-looking.
Such forward-looking statements can be identified by the use of the words such as should, may, intends, anticipates, believes, estimates, projects, forecast, expects, plans and proposes. Although the Company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading Risk Factors and elsewhere in our 2018 Form 10-K.
Forward-looking statements speak only as a date of the document in which they are contained and the Company does not undertake any duty to update any forward-looking statements, except as may be required by law. This presentation also includes adjusted EBITDA, a non-GAAP financial measure that is not prepared in accordance with nor an alternative to financial measures prepared in accordance with US generally accepted accounting principles, GAAP. In addition, adjusted EBITDA is not based on any standardized methodology prescribed by GAAP. It is not necessarily comparable to similarly titled measures presented by other companies.
It is now my pleasure to introduce your host, CEO of PaySign Mr. Mark Newcomer. Please go ahead, sir.
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Thank you, Kevin and good afternoon everyone. On behalf of PaySign, I'd like to welcome you to our third quarter 2019 earnings call. I'm Mark Newcomer, Chief Executive Officer here at PaySign. I will provide a brief review of the highlights for the third quarter and will reinforce our strategic direction. Following my remarks, I'll turn it over to our Chief Financial Officer, Mark Attinger to take us through the third quarter results. Following Mark's review, we will then field your questions.
PaySign is both a vertically integrated processor and a prepaid card program manager. We developed customized and innovative payment solutions in support of corporate, consumer and government programs. To learn more about our history and the services we provide and to review a copy of our most recent investor presentation, you may want to visit the investor section of our website at www.paysign.com. I'm very excited to share the results for an outstanding quarter. We experienced record revenue and earnings.
We continue to execute on our growth strategy and have gone live with our premier card, rolling this out to our cardholders at one of our plasma clients. Year-to-date, we have added 54 new card programs, 45 in plasma, seven in pharma and two other corporate incentive programs. As expected, all scheduled plasma centers were onboarded at the end of September, increasing the total number of centers we service by 13%. As of September 30th, there were 2.86 million cardholders on our platform.
In summary, revenues were record $9 million, an increase of 40% compared to the prior year. Net income was $3 million, also a record and up 270% and adjusted EBITDA was $3.3 million, an increase of 124%. We've continued to experience excellent growth and expect to see higher revenue in the fourth quarter, benefiting from recently onboarded new card programs. Guidance remains $35 million to $37 million and adjusted EBITDA of $10 million to $12 million. Strategically and consistent with our prior communications, we will continue to broaden and diversify our market focus for our prepaid card programs and we'll seek to introduce new products. We are evaluating the expansion of our premier card offering to other corporate incentive industry verticals. Lastly, we are making considerable progress in evaluating several opportunities on the M&A front.
However, there is nothing definitive to share at this time. As I previously shared -- as I've shared previously we will selectively pursue acquisition candidates that have a long-standing replications, corporate culture of innovation and that have demonstrated growth and profitability. At this time, I'd like to turn it over to Mark to take us through the numbers in a little more detail.
Mark Attinger -- Chief Financial Officer
Excellent. Thanks, Mark. So, I'm going to take us through the third quarter and the year-to-date top line numbers and provide some variance commentary. Any references to year-on-year improvements or percentage changes, unless stated otherwise refers to the third quarter ending September 30th, 2019 as compared to third quarter of 2018. Revenue for the quarter ended September 30th, 2019 was $9,008,117, an increase of 40.3% compared to the analyst consensus estimate of $8.98 million and the prior year of $6,421,396. This increase in revenue was attributable to continued growth in plasma programs and our new pharma business, which represents approximately 22% of the revenue for the current quarter.
Revenue for the nine months was $24,901,678 an increase of 50.4% year-on-year compared to $16,558,438. Gross profit increased 76.3% to $5.4 million or 59.6% of revenues compared to $3.0 million and 47.4% of revenue in 2018. The 1,216 basis point improvement was primarily driven by a favorable mix toward higher margin card programs. The operating expenses were $3.1 million, down from $3.4 million in the prior quarter and compared to $2.3 million in 2018. The quarter three year-on-year increase consisted primarily up $0.3 million in incremental salaries and benefits, $0.3 million in increased stock-based compensation and a $0.1 million increase in outside professional services.
Benefiting from higher cash balances, interest income was $114,000 compared to $37,000 the prior year. Net income for the third quarter ended September 30th, 2019 was $2,960,078 or $0.06 per basic share, an increase of 269.6% compared to $800,862 or $0.02 per basic share the prior year. Fully diluted, was $0.05 versus $0.02. For the first nine months, net income was $5,570,540 or $0.12 per basic share, an increase of 186.3% compared to $1,945,425 or $0.04 per basic share the prior year.
For the nine month period, fully diluted earnings per share was $0.10 versus $0.04 the prior year. Non-GAAP adjusted EBITDA was $3,252,332 or $0.07 per basic share, an increase of 123.6% compared to $1,454,224 or $0.03 per basic share the prior year. Furthermore, the adjusted EBITDA margin improved to 36.1%, up 1,346 basis points from 22.6% in the third quarter of 2018. For the nine month period, adjusted EBITDA was $7,563,486 or $0.16 per basic share, an increase of 123.1% compared to $3,390,833 or $0.07 per basic share the prior year.
We loaded $210 million to the card for the quarter versus $172 million the prior quarter -- excuse me, compared to $172 million same quarter the prior year and our revenue conversion rate of gross dollar volume loaded on cards was 4.29% or 429 bps compared to 3.72% or 372 bps the prior year. Worth noting and reflecting the new business onboarded in the third quarter, in October $88 million were loaded to the card compared to an average per month in Q3 of just $70 million loaded to cards.
From a balance sheet perspective, consolidated cash, including restricted cash has increased 30.2% or $9.6 million to $41.2 million compared to $31.7 million at year-end 2018. As a comparison, consolidated cash at October month end was $49.8 million, up $8.6 million from September, working capital increased to $13.1 million compared to $9.5 million at June 30th, 2019 and compared to $5.9 million at year-end. The $7.2 million improvement compared to last year was due primarily to increased consolidated cash, but also due to increased AR from higher client billings and decreases in accounts payable, partially offset by an increase in the card funding liability.
Our liquidity, as measured by adjusting the current ratio, excluding restricted cash and cardholder funds from both sides of the balance sheet, respectively, was 7.5 up from 5.4 at year-end. As we look to the fourth quarter we do expect to benefit from revenue contributed from the recently onboarded and signed new business, also considering the mix we expect slightly lower gross margins.
And I believe that concludes my remarks. At this time, I'll turn it back over to our moderator to begin a question-and-answer session. Thank you.
Questions and Answers:
Operator
[Operator Instructions] Our first question today is coming from Mark Palmer from BTIG. Your line is now live.
Mark Palmer -- BTIG -- Analyst
Yes, thank you very much. Question on the restricted cash balance, which declined sequentially from the second quarter. It had been, I guess $42.6 million, it was $33.2 million at September 30. I know that from our conversations after the second quarter, investors are not supposed to look at this is indicative of the health of the Pharma co-pay business, but if you could just give some commentary on what happened sequentially and what investor should take from that? Please.
Mark Attinger -- Chief Financial Officer
Yeah, Thanks Mark. I appreciate the question. Good to hear your voice. So one of the things we did point to is an increase in restricted cash and consolidated cash as of October month end. It increased by $9.6 million -- excuse me by $8.6 million back upto $49.8 million from the quarter end. I know you like to look at that number. It is a good number on trend over time. The other thing I would point to is that we did sign new clients in the Pharma space and as we've talked about before, this particular product provides funds to assist patients and consumers with their out-of-pocket expense on their prescriptions and early in the year for any given program, typically these programs load more, so there is a seasonality to it. Once their deductible is met, the loads start to subside and then you'll see those loads go right back up in the first quarter. So part of this is normal seasonality, part of this is timing, which is why we wanted to point to the October month end restricted cash. And part of this, we have actually new clients coming on board in the Pharma space. That's probably the best way to answer it, is timing, and new clients and seasonality.
Mark Palmer -- BTIG -- Analyst
Okay. So just to confirm, in terms of the $49.8 million that's a consolidated cash number at the end of October? I just wanted to see what the restricted cash number was at the end of October?
Mark Attinger -- Chief Financial Officer
Yeah, I don't have actually I can -- before we get to the end, I'll see if I can pull it up, I don't have it handy this very moment, but the restricted cash is roughly of that $49 million. It's going to be roughly $42 million of that is restricted, but I'll check that number to confirm it.
Mark Palmer -- BTIG -- Analyst
Okay, very good. And also just wanted to see -- with regard to the PaySign Premier program, if there is any initial indication of traction being gained on the go-live that you have with the one client, and I'll get back in the queue?
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Yeah. So we've been certainly signing up new customers, but it's too early and we do point to and have continue to reiterate that the material benefit from that program we expect to be in 2020, but we are making good progress.
Operator
Thank you. Our next question is coming from Austin Moldow from Canaccord Genuity. Your line is now live.
Austin Moldow -- Canaccord Genuity -- Analyst
Hi, thanks for taking my questions. First a quick housekeeping question. I'm not sure if I missed or not, but what was the Pharma revenue contribution in the quarter and then the follow up would be, can you give some color or context to your Pharma pipeline in terms of customers and campaigns and how you feel about those relationships yielding revenue next year? Thanks.
Mark Attinger -- Chief Financial Officer
Yeah, good question. Thanks, Austin. So Pharma represented approximately 22% of the revenue for the quarter and that was up from approximately 20% in the second quarter. As you may recall and so, and picking up a little bit on Mark's question Pharma continues to be a strength for us and continues to grow nicely. And Austin to that latter part of your question, yes, we have signed new business in the third quarter. I think Mark mentioned that we signed four new programs on the Pharma business this year in the actual third quarter and those -- three of those are regular prepaid, as we see in the revenue, the other is actually a co-pay Pharma program. In terms of the pipeline, yeah, there are several new opportunities that we're evaluating and in discussions with our clients on, and as you know, we work through channel partners who have introduced us to a number of programs.
Austin Moldow -- Canaccord Genuity -- Analyst
Great. And then my last question is can you -- can you talk about what you're seeing in the plasma space in terms of competition. I know the batch that you just brought on, was that something you won from a competitor and as you expand your market share, are you able to tap into any new relationships or is it mostly expanding within larger networks where you already have small footprint or something?
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
No our expansion in the plasma space is due to several factors, but primarily, there is always the new center build. We're expanding by that method and then there is winning business from our competitors. And yes, we were successful on the -- what was it marked 33, 34 centers, those were directly across from the customers.
Mark Attinger -- Chief Financial Officer
Yeah, 32 centers that we brought across on September 30, basically from with an existing client, something that we had been hoping to secure earlier in the year as you probably know. But, yeah, that was a win from another customer, I mean another competitor. That's correct. So one of the things that we've shared with you as a couple of our larger clients actually split our volume between us and our largest competitor and so we continue to look to differentiate in our performance to win new business and increase our share of those two clients and to Mark's point that's, this is exactly that example.
Austin Moldow -- Canaccord Genuity -- Analyst
Got it. Thanks very much for taking my questions.
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Absolutely.
Operator
[Operator Instructions] Our next question today is coming from Jon Hickman from Ladenburg Thalmann. Your line is now live.
Jon Hickman -- Ladenburg Thalmann -- Analyst
Hi, thanks for taking my question. Did you -- maybe I missed it, but could you tell me what the cash flow from operations for this quarter?
Mark Attinger -- Chief Financial Officer
Yeah, Jon, I'll have to get back with you on that. I don't have that handy.
Jon Hickman -- Ladenburg Thalmann -- Analyst
Okay. So I didn't miss it. So then, could you talk a little bit more about why the revenue conversion was up from -- I mean, it's almost 50 basis points?
Mark Attinger -- Chief Financial Officer
Yeah, so typically the revenue conversion rate on the Pharma business is higher and so that higher mix toward Pharma results in a higher composite during the quarter.
Jon Hickman -- Ladenburg Thalmann -- Analyst
Okay. Thank you. Nice quarter. Appreciate it.
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Thank you Jon. I appreciate it.
Operator
Thank you. Our next question is coming from Eric Wright from BW Investment. Your line is now live.
Eric Wright -- BW Investment -- Analyst
Thanks guys. First off, congratulations on the record quarter and consistent results and also the launch of the new premier card. I know lots of questions have been covered, but I know obviously margins have been increasing substantially these days, and then a large portion of that is attributed to the product mix, but is there any other factors that is causing the margin to increase this much, and I see also that -- I mean operating expenses in Q2, 2019 versus to Q3, 2019 actually decreased, so, can you also comment on that?
Mark Attinger -- Chief Financial Officer
Yeah, good question. On the margins, we will see that taper a little bit on the gross margin in the fourth quarter as you see those new plasma centers come on board and run at that rate that we kind of saw last year on that gross margin for the plasma business. So that'll bring it down on a consolidated basis, a little bit, not too much of a move, but just keep that in mind. From an operating expense standpoint most of that was timing of expenses that we were getting taken care of on the -- getting through our audits, getting through our outside professional services and recognizing the expense for some 401k expenses, things that hit in the second quarter that we didn't have in the third quarter. So just want to -- I would expect the fourth quarter for our operating expenses to come back up a little bit, be a little bit closer to what they were in the second quarter.
Eric Wright -- BW Investment -- Analyst
Okay, that's great. And if we're trying to gage in terms of sort of operating leverage, I mean, do you guys have the capabilities that you guys need to continue to execute on this growth trajectory that you guys are doing and so how variable is that operating expense line?
Mark Attinger -- Chief Financial Officer
Yeah, it's a great question and one of the things we've continued to talk about with all of you analysts and on these calls, is that we are seeing improvements in our operating leverage. If you look at last year, year-on-year the growth in opex was about 80%, this year were in about the mid 30 percentile range on a year-to-date basis. And so we do not expect that to grow at the same rate that we have our revenues growing. So we should get better and better margins.
Eric Wright -- BW Investment -- Analyst
Okay, that's great, thanks a lot, Mark.
Operator
[Operator Instructions] Our next question today is coming from Jeff Feinberg from Feinberg Investments. Your line is now live.
Jeff Feinberg -- Feinberg Investments -- Analyst
Thank you very much. Nice job, guys. I just want to make sure -- it look to me like you did beat the consensus revenue. I think you mentioned in the prepared call, what was that coming in, I know we did a little over $9 [phonetic] million?
Mark Attinger -- Chief Financial Officer
Looks like it was $8.98 million is what we saw on a couple of sites that took a composite of the four analysts that cover us.
Jeff Feinberg -- Feinberg Investments -- Analyst
Yeah, that's what I got too. Okay, great. With regard to the margin profile couple of people have asked about, I'd like to look at it this way. The incremental EBITDA margin, this particular quarter was 70%, $0.70 every dollar dropped through, at the nine months, its 50%. Can you provide more perspective with the mix shifting toward the higher margin business overtime, PaySign Premier and the other opportunities? How we can think about incremental margins for next year?
Mark Attinger -- Chief Financial Officer
Yeah, it's a good question. Let me just kind of glance over at the models and take a quick look at it, I mean I think that we will see probably things settle in that 60% range on a gross margin basis. We've got to get a better read on exactly how well we're seeing conversion on the Premier card and there's a number of factors in the Premier card that affect the gross margin on that products. We're going to get some learning's on that. We have a number of new Pharma programs that just went live that we want to see how those perform.
We have a really good read obviously on plasma and then we're also looking at some other corporate incentives programs that will need to factor in as well. So there is a number of dynamics here, but I think probably on a go forward basis at least into 2020 as premier card comes on kind of a twiner between the Pharma gross margin and the plasma gross margin, I think you'll see it at around 60%. I don't think you'll see that level in the fourth quarter and again, I don't believe will be at 59.6% of where it was this quarter.
Jeff Feinberg -- Feinberg Investments -- Analyst
I'm referring to the incremental EBITDA margins, I understand completely on the gross margin, but for every dollar of revenue this particular quarter, $0.70 flow through to the EBITDA, for the nine months, its $0.50. It sounds like the way to think about next year, is that the incremental EBITDA should probably be somewhere in between maybe 60% or so. So hypothetically the analyst are right, you grow the $60 million revenue, up from $35 million -- $25 million incremental revenue, $15 million or so that would flow through it, is that the way to think about it?
Mark Attinger -- Chief Financial Officer
Yeah, I think that's fair. I mean if you look at our full-year EBITDA margins this year, right, we're looking at -- on adjusted EBITDA, we're looking at a full year that's at least through the third quarter we did 36% will see that taper in the fourth quarter and finished probably closer to 30% on a full year basis. So when you look to next year, that's still look like a reasonably good composite on a full year basis.
Jeff Feinberg -- Feinberg Investments -- Analyst
Pretty excited. If I do the math, that gets us to [Indecipherable] in EBITDA, I really appreciate the time. Thank you.
Mark Attinger -- Chief Financial Officer
You bet.
Operator
Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Thanks, Kevin. Again, we're very pleased with this quarter and with our progress overall. And we continue to focus on building a world-class payments company. We appreciate your listening and for participating in this update and have yourselves an outstanding week.
Operator
[Operator Closing Remarks].
Duration: 26 minutes
Call participants:
Mark Newcomer -- Co-Founder, Vice Chairman, President and Chief Executive Officer
Mark Attinger -- Chief Financial Officer
Mark Palmer -- BTIG -- Analyst
Austin Moldow -- Canaccord Genuity -- Analyst
Jon Hickman -- Ladenburg Thalmann -- Analyst
Eric Wright -- BW Investment -- Analyst
Jeff Feinberg -- Feinberg Investments -- Analyst
