Payment Data Systems Announces 2017 Third Quarter Results

SAN ANTONIO, Nov. 14, 2017 (GLOBE NEWSWIRE) — Payment Data Systems, Inc. (Nasdaq:PYDS), an integrated electronic payment solutions provider, today announced financial results for the third quarter that ended September 30, 2017.

Third Quarter 2017 Financial and Operating Summary

  • Revenues were $3.59 million
  • Gross margin was $0.8 million, or 23.0% of revenues
  • Operating loss was $0.89 million
  • Adjusted EBITDA1 was a loss of $347,404, or (9.7%) of revenues
  • Net loss was $890,025, or ($0.10) per basic and diluted share
  • Achieved an all-time record for transaction processing volume

1See Reconciliation of GAAP Operating Income to Adjusted EBITDA in the accompanying financial tables.

Payment Data Systems is in solid financial condition, with $2.2 million in cash and cash equivalents, positive cash flows from operations for the year and no debt. With well-established ACH (Electronic Check) and credit card processing portfolios, emerging same day ACH debit and credit transactions, and consumer prepaid card businesses, the Company is positioned for future success. The Singular Payments, LLC acquisition closed during the quarter, bringing talented leadership and sales expertise to the Payment Data organization, along with an expanding credit card processing portfolio.

Credit card processing transaction volumes in the third quarter were up dramatically, reaching the highest level in the Company’s history in any quarter. Credit card dollars processed during the third quarter of 2017 were up 77% over the same time in 2016.

During the third quarter of 2017, electronic check transaction volumes were down 18% and returned check transactions processed were down 16%, both over the same time period in 2016. Electronic check transaction volumes during third quarter of 2017 were up 3% over the second quarter of 2017. Returned check transactions processed during the third quarter of 2017 were up 16% over the second quarter of 2017.

“The third quarter was a milestone for Payment Data Systems, as we announced an all-time record for transaction processing volumes,” stated President and CEO, Louis Hoch. “In addition to growing our existing businesses, we closed the Singular Payments acquisition in September, adding talented leadership, sales, and a robust credit card processing portfolio to the Payment Data team. Additionally, we are fortunate to have Vaden Landers join our management team. Mr. Landers, former CEO of Singular Payments, has assumed the role of Executive Vice President and Chief Revenue Officer. Also in the quarter, we announced the availability of same day ACH debits. This offering will facilitate a faster payment service that extends to all U.S. bank accounts, and enables businesses and consumers to send and receive payments and payment-related information on the same banking day through the ACH Network.”

“The successful execution of our revenue growth plan is now yielding results, and we are positioned for continued growth through the remainder of 2017 and throughout 2018.  As a result, we believe revenue in the fourth quarter should be the highest in the history of the Company, in excess of $5 million.” concluded Mr. Hoch.

“Bringing Singular Payments into the Payment Data Systems organization allows the Company to leverage the sales and marketing strengths and deep payments expertise of Singular Payments with the robust technology platforms, solution set and tenured leadership of Payment Data Systems,” commented Vaden Landers, Executive Vice President and Chief Revenue Officer.  “Our focus over the last twelve to eighteen months has been on building out our extensive suite of Application Programming Interfaces to allow app and software developers in key markets such as healthcare, property management, utilities, non-profits and others, to quickly and easily integrate to our feature rich platform. Further, with the launch of our new Payfac in a Box™ product, we are now able to simplify and entirely remove the friction of onboarding new clients for our strategic partners, both current and future, as we cultivate opportunities from within our ever-expanding pipeline.  We are very excited about the near and long-term growth prospects that we expect to follow the successful execution of our unique model in the payments space.”  

Financial Results
Three Months Ended September 30, 2017

Revenues were $3.59 million, up 17% compared to $3.1 million for the third quarter of 2016. The revenue increase is primarily attributed to the added volume from the recent Singular Payments acquisition, which contributed one month of credit card processing volumes, and the continued growth in PINless debit processing.  For the fourth quarter of 2017, management expects continued growth in PINless debit and three full months of contribution from the Singular Payments acquisition.

Gross margin dollars were $824,617, or 23.0% of revenues, compared to $965,485, or 31.5% of revenues, in the corresponding prior-year period. The decline in gross margin dollars was due to the significant increase in credit card revenues acquired in the Singular Payments acquisition. This acquired credit card portfolio purchased is lower margin, with a longer-term relationship. The gross margin percentage declined quarter to quarter and year over year as a percentage of sales is also due to the same significant increase in credit card revenues acquired in the acquisition.

Operating losses were $892,399 compared to an operating loss of $574,897 in the third quarter of 2016, reflecting lower revenues and gross margin.  Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for non-recurring and non-cash items) was a loss of $347,404, or (9.7%) of revenues, compared to a loss of $129,859, or (4.2%) of revenue, in the third quarter of 2016.  Net loss was $890,025, or ($0.10) per basic and diluted share, compared to a net loss of $565,957, or ($0.07) per basic and diluted share in the third quarter of 2016, reflecting higher expenses in the third quarter of 2017.

Financial Results
Nine Months Ended September 30, 2017

Revenues were $8.95 million, down 2.6% compared to $9.2 million for the nine months ended September 30, 2016. The revenue decrease was due to ACH processing transaction and ACH return transaction volume decreases described last quarter. Additionally, the Singular Payments acquisition only contributed one month to the period.

Gross margin dollars for the nine months ended September 30, 2017 were $2.5 million, or 27.5% of revenues, compared to $2.9 million, or 31.5% of revenues, in the corresponding prior-year period. The decline in gross margin dollars was due to an increase in cost of service expenses. 

Operating losses for the nine months ended September 30, 2017 were $1.8 million compared to an operating loss of $1.1 million for the nine months ended September 30, 2016, reflecting lower gross margins and higher sales, general and administrative expenses versus the prior period.  Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for non-recurring and non-cash items) for the nine months ended September 30, 2017 was a loss of $336,582 or (3.8%) of revenue, compared with positive Adjusted EBITDA of $389,722, or 4.2% of revenue, in the nine months ended September 30, 2016.  Net loss for the nine months ended September 30, 2017 was $1.7 million, or ($0.20) per basic and diluted share, compared to a net loss of $953,259, or ($0.12) per basic and diluted share in the nine months ended September 30, 2016, reflecting a lower revenue base in the current year.  Operating expenses increased $450,556 for the nine months ended September 30, 2017 versus the same prior year period.

Balance Sheet
At September 30, 2017, the Company had $2.2 million of cash and cash equivalents and no debt.

Conference Call and Webcast
Payment Data Systems, Inc.’s management will host a conference call with a live webcast today at 5:00 p.m. Eastern Time to provide a business update.  Individuals interested in dialing in to the conference call can dial (844) 883-3890 for U.S. participants and (412) 317-9246 for participants outside the U.S., referencing “Payment Data Systems.”  The call may also be accessed via webcast on the Company’s website at www.paymentdata.com/invest. If you would like to submit a question via email in advance please contact Preston Graham at Preston@stonegateinc.com.

A replay of the call will be available through November 28, 2017 by dialing (877) 344-7529 (U.S.) or (412) 317-0088 (international), using the passcode 10113920.

About Non-GAAP Financial Measures  
This press release includes non-GAAP financial measures, EBITDA and adjusted EBITDA, as defined in Regulation G of the Securities and Exchange Act of 1934, as amended. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP measures provides investors with financial measures it uses in the management of its business. The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles. The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock option costs and certain nonrecurring items, such as acquisitions. These measures may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA and adjusted EBITDA as indicators of the Company’s operating performance and ability to fund acquisitions, capital expenditures and other investments and, in the absence of refinancing options, to repay debt obligations.  Management believes EBITDA and adjusted EBITDA are helpful to investors in evaluating the Company’s operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded. EBITDA and adjusted EBITDA are supplemental non-GAAP measures, which have limitations as an analytical tool. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP financial measures do not reflect a comprehensive system of accounting, may differ from GAAP measures with the same names, and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. For a description of our use of EBITDA and adjusted EBITDA, and a reconciliation of EBITDA and adjusted EBITDA to operating income (loss), see the section of this press release titled “Non-GAAP Reconciliation.”

About Payment Data Systems, Inc.  
Payment Data Systems, Inc. (Nasdaq:PYDS), a leading integrated payment solutions provider, offers a wide range of payment solutions to merchants, billers, banks, service bureaus, and card issuers. The Company operates credit, debit/prepaid and ACH payment processing platforms to deliver convenient, world-class payment solutions and service to their clients. The strength of the Company lies in its ability to provide tailored solutions for card issuance, payment acceptance, and bill payments as well as its unique technology in the prepaid sector.  Payment Data is headquartered in San Antonio, Texas, and has offices in New York, New York; Long Beach, California; St. Augustine, Florida and Nashville, Tennessee.

Websites: www.paymentdata.com, www.singularpayments.com, www.payfacinabox.com, www.akimbocard.com and www.ficentive.com. Find us on Facebook®.

Forward-Looking Statements Disclaimer  
Except for the historical information contained herein, the matters discussed in this release include forward-looking statements which are covered by safe harbors. Those statements include, but may not be limited to, all statements regarding management’s intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. These forward-looking statements are identified by the use of words such as “believe,” “intend,” “look forward,” “anticipate,” “schedule”, and “expect” among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the Company’s business that could cause actual results to vary, including such risks related to the realization of the anticipated opportunities from the Singular acquisition, the management of the Company’s growth, the loss of key resellers, the relationships with the Automated Clearinghouse network, bank sponsors, third-party card processing providers and merchants, the security of our software, hardware and information, and compliance with complex federal, state and local laws and regulations, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission including its annual report on Form 10-K for the fiscal year ended December 31, 2016. One or more of these factors have affected, and in the future, could affect our businesses and financial results in the future and could cause actual results to differ materially from plans and projections. We believe that the assumptions underlying the forward-looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to our management. We assume no obligation to update any forward-looking statements, except as required by law.

Investor Contact:                                                                 
Preston Graham
Preston@stonegateinc.com
972-850-2001

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
   
    September 30,   December 31,
  2017     2016  
    (UNAUDITED)    
         
ASSETS        
Cash and cash equivalents   $   2,199,849     $   4,120,738  
Accounts receivable, net     805,350       907,750  
Settlement processing assets     31,521,290       43,851,311  
Prepaid expenses and other     226,812       142,029  
Notes receivable     200,000       200,000  
Current assets before restricted cash     34,953,301       49,221,828  
Restricted cash     14,908,900       15,803,641  
Total current assets     49,862,201       65,025,469  
         
Property and equipment, net     2,274,201       2,494,510  
         
Other assets:        
Intangibles, net     4,967,212       172,899  
Deferred tax asset     1,621,000       1,621,000  
Other assets     136,368       200,808  
Total other assets     6,724,580       1,994,707  
         
Total Assets   $  58,860,982     $  69,514,686  
         
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable   $   185,770     $   145,044  
Accrued expenses     882,696       703,322  
Settlement processing obligations     31,521,290       43,851,311  
Current liabilities before restricted cash     32,589,756       44,699,677  
Restricted cash     14,908,900       15,803,641  
Total current liabilities     47,498,656       60,503,318  
         
Stockholders’ Equity:        
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares issued and outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively     –        –   
         
Common stock, $0.001 par value, 200,000,000 shares authorized; 14,286,084 and 12,392,288 issued, and 13,615,343 and 11,795,939 outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively     183,711       181,818  
Additional paid in capital     68,147,195       63,881,365  
Treasury stock, at cost; 670,741 and 596,349 shares at September 30, 2017 (unaudited) and December 31, 2016, respectively       (827,531 )       (718,149 )
Deferred compensation       (4,178,463 )       (4,082,025 )
Accumulated deficit     (51,962,586 )      (50,251,641 )
Total stockholders’ equity     11,362,326       9,011,368  
         
Total Liabilities and Stockholders’ Equity   $  58,860,982     $   69,514,686  
   

PAYMENT DATA SYSTEMS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(UNAUDITED)  
     
    Three Months Ended September 30,   Nine Months Ended September 30,  
  2017       2016       2017       2016    
                   
Revenues   $   3,588,853     $   3,067,335     $   8,950,038     $   9,186,027    
                   
Operating expenses:                  
Cost of services     2,764,236       2,101,850       6,486,587       6,291,072    
Selling, general and administrative:                  
Stock-based compensation     230,206       264,154       655,885       835,590    
Cancellation of stock-based compensation     –        (44,875 )     –        (44,875 )  
Other expenses     1,172,021       1,095,344       2,800,033       2,505,233    
Depreciation and amortization     314,789       225,759       770,607       675,536    
Total operating expenses     4,481,252       3,642,232       10,713,112       10,262,556    
                   
Operating income (loss)       (892,399 )       (574,897 )       (1,763,074 )       (1,076,529 )  
                   
Other income:                   
 Interest income      16,381       25,754       88,927       72,739    
 Other income (expense)     993       (480 )     (121 )     97,199    
Other income (expense), net     17,374       25,274       88,806       169,938    
                   
Income (loss) before income taxes       (875,025 )       (549,623 )       (1,674,268 )       (906,591 )  
Income taxes (benefit) expense       15,000         16,334         36,677         46,668    
                   
Net Income (Loss)   $   (890,025 )   $   (565,957 )   $   (1,710,945 )   $   (953,259 )  
                   
                   
Earnings (Loss) Per Share                  
Basic earnings  (loss) per common share:   $   (0.10 )   $   (0.07 )   $   (0.20 )   $   (0.12 )  
Diluted earnings (loss) per common share:   $   (0.10 )   $   (0.07 )   $   (0.20 )   $   (0.12 )  
Weighted average common shares outstanding                  
Basic       8,954,831         7,819,608         8,637,169         7,759,205    
Diluted       8,954,831         7,819,608         8,637,169         7,759,205    
   

PAYMENT DATA SYSTEMS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(UNAUDITED)  
   
  Nine Months Ended September 30,  
    2017       2016    
         
Operating Activities          
Net income (loss)   $   (1,710,945 )   $   (953,259 )  
Adjustments to reconcile net income loss to net cash provided by operating activities:          
Depreciation     564,920       553,182    
Amortization     205,687       122,354    
Bad debt expense     71,667       –     
Non-cash stock based compensation     655,885       835,590    
Cancellation of stock based compensation       –          (44,875 )  
Issuance of stock to consultant     15,400       34,300    
Changes in operating assets and liabilities:          
Accounts receivable     30,733       134,178    
Prepaid expenses and other     (84,783 )     (29,826 )  
Other assets     64,440         3,103    
Accounts payable and accrued expenses       220,100         (69,166 )  
Net cash provided by operating activities     33,104       585,581    
           
Investing Activities          
Purchases of property and equipment       (344,611 )       (151,597 )  
Purchase of Singular Payments, LLC       (900,000 )      –     
Notes receivable (2017 Singular Payments, LLC reduction)       (600,000 )       (200,000 )  
Net cash (used) by investing activities       (1,844,611 )       (351,597 )  
           
Financing Activities          
Purchases of treasury stock       (109,382 )      –     
Net cash (used) by financing activities       (109,382 )     –     
           
Change in cash and cash equivalents     (1,920,889 )       233,984    
Cash and cash equivalents, beginning of year     4,120,738       4,059,606    
           
Cash and Cash Equivalents, End of Year   $   2,199,849     $   4,293,590    
           
Supplemental disclosure of cash flow information:          
Cash paid during the year for:          
Cash paid for interest      –         –     
Cash paid for income taxes   $   21,677     $   62,184    
Non-cash transactions:  
Non-cash purchase of Singular Payments, LLC   $   3,500,000     $  –     
Issuance of deferred stock compensation to Vaden Landers   $   630,000     $   –     
     

PAYMENT DATA SYSTEMS, INC.   
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES  
(UNAUDITED)  
   
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,   September 30,   September 30,  
  2017     2016       2017     2016    
                   
Reconciliation from Operating Income (Loss) to Adjusted EBITDA:                  
Operating Income (Loss)   $   (892,399 )   $   (574,897 )   $   (1,763,074 )   $   (1,076,529 )  
Depreciation and amortization     314,789       225,759       770,607       675,536    
EBITDA       (577,610 )       (349,138 )       (992,467 )       (400,993 )  
Non-cash stock-based compensation expense, net     230,206       219,279       655,885       790,715    
  Adjusted EBITDA   $   (347,404 )   $   (129,859 )   $   (336,582 )   $   389,722    
                   
                   
Calculation of Adjusted EBITDA margins:                  
Revenues   $   3,588,853     $   3,067,335     $   8,950,038     $   9,186,027    
Adjusted EBITDA       (347,404 )       (129,859 )       (336,582 )       389,722    
Adjusted EBITDA margins     -9.7 %     -4.2 %     -3.8 %     4.2 %