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Payment Data Systems Announces Third Quarter 2015 Results

Adjusted EBITDA of $2.2 Million for Nine Months Ended September 30, 2015; up 42% Y-o-Y

Prepaid and Incentive Card Services Provide Strong Catalyst for Future Growth

SAN ANTONIO, Nov. 16, 2015 (GLOBE NEWSWIRE) -- Payment Data Systems (NASDAQ: PYDS), an integrated payment solutions provider, today announced financial results for the third quarter ended September 30, 2015.

Third Quarter 2015 Financial Highlights

  • Revenues were $3.6 million
  • Gross margins of $1.2 million, or 34.2% of revenues; up 5.1% year-over-year
  • Adjusted EBITDA of $620,408
  • Adjusted earnings of $565,028 or $0.05 per diluted share

Nine Months Ended September 30, 2015 Financial Highlights

  • Revenues of $10.7 million; up 11.3% year-over-year
  • Gross margins of $3.6 million, or 33.4% of revenue; up 30.2% from $2.7 million, or 28.5% of revenue a year ago
  • Adjusted EBITDA of $2.2 million; up 41.5% year-over-year
  • Adjusted earnings of $1.9 million, or $0.16 per diluted share; up 20.1% from $1.6 million, or $0.18 per diluted share a year ago
  • Cash flow from operations of $1.7 million, excluding customer deposits; up 42% year-over-year

Third Quarter Operating Highlights

  • Record dollars processed of more than $864.7 million, up 8.6% from $796.0 million in the third quarter of 2014
  • Record credit card processing volume - dollars and credit card transactions up 14% and 3%, respectively, compared to the third quarter of 2014
  • Electronic check transaction volumes up 6%; Returned check transactions processed down 9%

Management Commentary

"During the third quarter, we delivered record credit card transaction volumes," said Michael Long, CEO. "We believe this trend will continue in our fourth quarter, which is our seasonally strongest due to the holiday season and charitable giving. In addition, the one-time charges related to listing on NASDAQ and other related expenses were fully incurred in the third quarter and are now behind us. As a result, we expect to deliver strong revenue growth and profitability in the fourth quarter."

Long added, "During the third quarter, our revenues were impacted by a 9% decline in returned check transactions processed. I am pleased to report that in October, we introduced a new product in this area that is better matched to market needs and enables merchants to remain within regulatory compliance without building out large and complex systems and incurring great expense. We have already seen strong response to this product and we expect our return revenues to rebound in the fourth quarter."

"With 20 years of experience in the payment processing business, we have built a powerful platform that provides a recurring revenue stream from loyal customers and generates consistent cash flow that enables us to invest in new growth opportunities that position Payment Data Systems to deliver long-term growth and returns," added Long.

"We have strategically positioned our company to be a leader in the prepaid and incentive card market by offering customers speed, mobility and anywhere, anytime access. As we look ahead to 2016, we plan to continue to develop and deliver new products and services that will be attractive to both our existing customer base as well as new prospective customers," said Long.

"For example, we recently launched the Stream Prepaid MasterCard, our robust platform that allows customers to disburse cash instantly and conveniently. This is an ideal solution for businesses such as insurance companies and sales agencies that make regular payments to individuals. We also launched Akimbo Now, a new payment service and API (Application Program Interface) that allows businesses and application developers to send virtual gift cards by email. We are focused on signing up new merchants and consumers to these new prepaid and virtual payment solutions and we expect these products to be an exciting growth catalyst for us in 2016 and beyond."

Long added, "We have identified unmet needs in the fast growing market for prepaid cards that gives us a unique competitive position. Our products are focused on businesses, both large and small, where we can provide a high level of customization and service, including helping major pharmaceutical corporations seamlessly compensate clinical trial participants to helping trucking companies incentivize their drivers for efficiency to helping churches manage weekly donations. We see tremendous opportunity in serving these customers who are largely ignored by banks and other large transaction processors or are encumbered by an inflexible platform."

"Our September quarter results reflect continued investment in technology, product development, sales, customer service, and compliance while remaining profitable. This year, we have already invested more than $500,000 in technology to enhance the value of our platform," said Habib Yunus, CFO.

"We have a strong balance sheet, remain debt free and have generated positive cash flow from operations of $1.7 million, excluding customer deposits, for the first nine months of this year, which is a 42% increase over last year. We believe this gives us the financial flexibility to pursue future growth opportunities," said Yunus. "In addition, we have more than $40.0 million in net operating loss carryforwards that can be potentially used to offset future taxable income and free up more earnings for reinvestment in our growth."

Financial Results

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

Revenues of $3.6 million decreased 1.3% compared to $3.6 million. Record credit card processing volumes were offset by a decline in returned check processing.

Gross margins increased 5.1% to $1.2 million, or 34.2% of revenues, up from $1.2 million, or 32.1% of revenues.

Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization adjusted for non-recurring and non-cash items) was $620,408 compared to $759,971.

Net income was $117,780, or $0.01 per diluted share, compared to $688,560, or $0.08 per diluted share.

Adjusted earnings (Earnings adjusted for non-recurring and non-cash items) were $565,028, or $0.05 per diluted share, compared to $761,555, or $0.09 per diluted share.

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

Revenues of $10.7 million increased 11.3% from $9.6 million, driven primarily by increased transaction volumes.

Gross margins increased 30.2% to $3.6 million, or 33.4% of revenue, from $2.7 million, or 28.5% of revenue.

Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization adjusted for non-recurring and non-cash items) of $2.2 million increased 41.5% from $1.6 million.

Net income of $851,246, or $0.07 per diluted share, compared to $1,337,101, or $0.15 per diluted share.

Adjusted earnings of $1.9 million, or $0.16 per diluted share; up 20.1% from $1.6 million, or $0.18 per diluted share a year ago

Balance Sheet

At September 30, 2015, the Company had $52.2 million of cash and cash equivalents. After offsetting $48.4 million in customer deposits payable, the Company's net cash position is around $3.8 million.

About Non-GAAP Financial Measures

This press release includes non-GAAP financial measures, EBITDA, adjusted EBITDA and adjusted earnings, 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 non-recurring 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. The Company defines adjusted earnings and adjusted earnings per share as net income (loss) adjusted for non-cash stock compensation costs, plus certain non-recurring items, including acquisitions.

Management believes EBITDA, adjusted EBITDA and adjusted earnings 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, adjusted EBITDA and adjusted earnings 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, adjusted EBITDA and adjusted earnings, and a reconciliation of EBITDA and adjusted EBITDA to operating income (loss), and adjusted earnings to net income (loss) see the section of this press release titled "Non-GAAP Reconciliation."

About Payment Data Systems, Inc.

Payment Data Systems is an integrated payment solutions provider to merchants and billers. The organization provides an extensive set of products to deliver world-class payment acceptance. Payment Data has solutions for merchants, billers, banks, service bureaus, and card issuers. The strength of the Company is its ability to offer specifically tailored solutions for card issuance, payment acceptance, and bill payments. For additional information, visit www.paymentdata.com.

Websites: www.paymentdata.com, www.ficentive.com, www.zbill.com, www.streamprepaid.com, www.akimbocard.com. Find us on Facebook®

FORWARD-LOOKING STATEMENTS DISCLAIMER

Except for the historical information contained herein, the matters discussed in this release include certain forward-looking statements, which are intended to be covered by safe harbors. Those statements include, but may not be limited to, all statements regarding our management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, the factors detailed from time to time in our filings with the Securities and Exchange Commission. 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.

(Financial Tables Follow)

PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Revenues $ 3,550,463 $ 3,596,004 $ 10,717,679 $ 9,631,000
Operating expenses:
Cost of services 2,336,270 2,440,410 7,138,450 6,881,704
Selling, general and administrative:
Stock-based compensation 338,488 72,995 965,544 223,985
Cancellation of stock-based compensation -- -- (163,936) --
Other expenses 758,573 395,623 1,695,415 1,180,882
Depreciation and amortization 93,800 10,202 272,320 30,812
Total operating expenses 3,527,131 2,919,230 9,907,793 8,317,383
Operating income 23,332 676,774 809,886 1,313,617
Other income and (expense):
Interest income 20,097 18,642 58,455 47,729
Other income (expense) 90,600 2,144 58,190 7,529
Total other income and (expense), net 110,697 20,786 116,645 55,258
Income before income taxes 134,029 697,560 926,531 1,368,875
Income taxes 16,249 9,000 75,285 31,774
Net income $ 117,780 $ 688,560 $ 851,246 $ 1,337,101
Basic earnings per common share: $ 0.02 $ 0.08 $ 0.12 $ 0.16
Diluted earnings per common share: $ 0.01 $ 0.08 $ 0.07 $ 0.15
Weighted average common shares outstanding1
Basic 7,373,656 8,334,303 7,373,656 8,334,065
Diluted 12,057,255 8,941,209 12,057,255 8,871,865
.
1Common shares outstanding have been adjusted to reflect a 1-for-15 reverse stock split effected on July 23, 2015.
PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2015 December 31, 2014
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 52,168,838 $ 54,989,851
Accounts receivable, net 881,405 1,037,208
Deferred tax asset, current 773,000 773,000
Prepaid expenses and other 155,921 129,258
Total current assets 53,979,164 56,929,317
Property and equipment, net 3,189,643 2,705,517
Other assets:
Intangibles, net 382,601 412,363
Deferred tax asset, noncurrent 848,000 848,000
Other assets 175,549 204,112
Total other assets 1,406,150 1,464,475
Total assets $ 58,574,957 $ 61,099,309
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 169,973 $ 37,808
Accrued expenses 1,357,638 1,851,033
Customer deposits payable 48,396,754 52,186,396
Total current liabilities 49,924,365 54,075,237
Stockholders' equity:
Common stock, $0.001 par value, 200,000,000 shares authorized; 12,372,037 and 9,848,072 issued, and 12,032,995 and 9,515,062 outstanding at September 30, 2015 and December 31, 2014, respectively1 185,565 184,177
Additional paid-in capital 64,222,428 62,989,131
Treasury stock, at cost; 339,042 and 333,010 shares at September 30, 2015 and December 31, 2014, respectively1 (264,698) (238,157)
Deferred compensation (6,272,862) (5,839,992)
Accumulated deficit (49,219,841) (50,071,087)
Total stockholders' equity 8,650,592 7,024,072
Total liabilities and stockholders' equity $ 58,574,957 $ 61,099,309
1Common shares outstanding have been adjusted to reflect a 1-for-15 reverse stock split effected on July 23, 2015.
PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months Ended September 30,
2015 2014
Operating activities:
Net income $ 851,246 $ 1,337,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 242,558 30,812
Amortization 29,762 --
Non-cash stock based compensation 965,544 223,985
Cancellation of stock based compensation (163,936) --
Changes in current assets and current liabilities:
Accounts receivable 155,803 (350,053)
Prepaid expenses and other (26,663) (38,568)
Other assets 28,563 (44,560)
Accounts payable and accrued expenses (361,231) (87,500)
Customer deposits payable (3,789,642) 33,166,643
Net cash provided by operating activities: (2,067,996) 34,237,331
Investing activities:
Purchases of property and equipment (726,476) (35,346)
Net cash (used) by investing activities: (726,476) (35,346)
Financing activities:
Purchase of treasury stock (26,541) --
Net cash (used) by financing activities: (26,541) --
Change in cash and cash equivalents (2,821,013) 34,201,985
Cash and cash equivalents, beginning of period 54,989,851 26,573,771
Cash and cash equivalents, end of period $ 52,168,838 $ 60,775,756
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ 32,369 $ --
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Reconciliation from Operatng Income to Adjusted EBITDA:
Operating income $ 23,332 $ 676,774 $ 809,886 $ 1,313,617
Depreciation and amortization 93,800 $ 10,202 272,320 30,812
EBITDA 117,132 686,976 1,082,206 1,344,429
Professional fees related to non-recurring items 164,788 -- 315,903 --
Acquisition costs -- -- 20,000 --
Non-cash stock compensation expense (net) 338,488 $72,995 801,608 223,985
Adjusted EBITDA $ 620,408 $ 759,971 $ 2,219,717 $ 1,568,414
Calculation of Adjusted EBITDA margins:
Revenues $ 3,550,463 $ 3,596,004 $ 10,717,679 $ 9,631,000
Adjusted EBITDA $ 620,408 $ 759,971 $ 2,219,717 $ 1,568,414
Adjusted EBITDA margins 17.5% 21.1% 20.7% 16.3%
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
Reconciliation from Net Income to Adjusted Earnings:
Net Income $ 117,780 $ 688,560 $ 851,246 $ 1,337,101
Professional fees related to non-recurring items 164,788 -- 315,903 --
Acquisition costs -- -- 20,000 --
Non-cash stock compensation expense (net) 338,488 72,995 801,608 223,985
Income tax effect related to reconciling items (56,028) -- (114,207) --
Adjusted Earnings $ 565,028 $ 761,555 $ 1,874,550 $ 1,561,086
Calculation of Adjusted Earnings (Loss) Per Common Share
Basic $ 0.08 $ 0.09 $ 0.25 $ 0.19
Diluted 0.05 0.09 0.16 0.18
Weighted Average Common Shares Outsanding1
Basic 7,373,656 8,334,303 7,373,656 8,334,065
Diluted 12,057,255 8,941,209 12,057,255 8,871,865
1Common shares outstanding have been adjusted to reflect a 1-for-15 reverse stock split effected on July 23, 2015.

CONTACT: Investor Contact: Julie MacMedan Elizabeth Brossy Financial Profiles PYDS@finprofiles.com

Source:Payment Data Systems, Inc.