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Payment Data Systems Announces Second Quarter 2016 Results

SAN ANTONIO, Aug. 11, 2016 (GLOBE NEWSWIRE) -- Payment Data Systems, Inc. (NASDAQ:PYDS), an integrated payment solutions provider, today announced financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Financial and Operating Summary

  • Revenues were $2.9 million
  • Gross margin was $855,621, or 30% of revenues
  • Operating loss was $455,220
  • Adjusted EBITDA1 was $54,081
  • Net loss was $355,301, or $0.05 per share
  • Total dollars processed for the second quarter of 2016 exceeded $683 million, compared to $807 million in the second quarter of 2015
  • Second quarter credit card transaction processing volume increased 4% and credit card dollars processed decreased 4% compared with the same period in 2015
  • ACH (Electronic check) transaction volumes decreased 17%; returned check transactions processed decreased 31% compared to the second quarter of 2015

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

Management Commentary

“Despite a second quarter revenue decrease due to lower ACH transaction volumes, our gross margin percentage actually improved versus the second quarter of last year, underscoring the strength of our business model,” said Louis Hoch, President and CEO, Payment Data Systems, Inc. “We operate in a highly competitive and dynamic industry. Our revenue decline reflects market-related headwinds including merger and acquisition activity with some of our partners and some customer attrition.

“We are taking strong actions to increase revenues and drive future growth. We recently expanded our ACH network capacity with the addition of a new processing bank, which we expect will increase revenue from both existing and new clients. We are also increasing our investment in sales and marketing for both our ACH and prepaid businesses, including participation in upcoming industry trade shows. We are confident that our ACH traffic and total revenues will improve as the new processing bank is fully online during our seasonally strong fourth quarter.”

Financial Results

Three Months Ended June 30, 2016

Revenues of $2.9 million decreased 16% compared to $3.4 million for the second quarter of 2015, due to a decrease in the volume of ACH transactions and returned checks processed.

Gross margins were $855,621, or 30% of revenues, compared to $998,144, or 29% of revenues, in the corresponding prior-year period.

Operating loss was $455,220, compared to operating income of $91,833 in the second quarter a year ago, reflecting higher selling, general and administrative expenses to support the Company’s growth, as well as higher amortization expense related to the assets acquired from Akimbo in December 2014.

Adjusted EBITDA was $54,081 compared to adjusted EBITDA of $578,306 in the corresponding prior-year period. Please see a reconciliation of Adjusted EBITDA to operating income in the accompanying financial tables.

Net loss was $355,301, or $0.05 per share, compared to net income of $24,850, or $0.00 per diluted share in the second quarter of 2015.

Balance Sheet

At June 30, 2016, the Company had $4.4 million of cash and cash equivalents.

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 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.

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."

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 may do so by dialing (844) 883-3890 for U.S. participants or (412) 317-9246 for participants outside of the U.S., referencing “Payment Data Systems” to the operator. 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 Elizabeth Brossy at ebrossy@finprofiles.com.

A replay of the call will be available through Thursday, August 25, 2016 by dialing (877) 344-7529 (U.S.) or (412) 317-0088 (international), using the passcode 10090554.

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 Systems is headquartered in San Antonio, Texas, and has offices in New York, New York; and Los Angeles, California.

For additional information please visit www.paymentdata.com. Websites: www.ficentive.com, www.akimbocard.com, www.streamprepaid.com, www.zbill.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.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2016 December 31, 2015
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$4,378,405 $4,059,606
Accounts receivable, net 1,070,236 1,135,384
Settlement processing assets 25,071,987 39,797,232
Prepaid expenses and other 217,416 149,118
Current assets before restricted cash 30,738,044 45,141,340
Restricted cash 18,316,160 17,972,065
Total current assets 49,054,204 63,113,405
Property and equipment, net 2,847,699 3,077,421
Other assets:
Intangibles, net 260,247 341,816
Deferred tax asset 1,621,000 1,621,000
Note receivable 200,000 -
Other assets 202,298 202,849
Total other assets 2,283,545 2,165,665
Total assets$54,185,448 $68,356,491
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$203,629 $143,180
Accrued expenses 1,226,964 1,328,738
Deferred revenues 33,000 -
Settlement processing obligations 25,071,987 39,797,232
Current liabilities before restricted cash 26,535,580 41,269,150
Restricted cash 18,316,160 17,972,065
Total current liabilities 44,851,740 59,241,215
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at June 30, 2016 (unaudited) and December 31, 2015 - -
Common stock, $0.001 par value, 200,000,000 shares authorized; 12,419,816 and 12,379,537 issued, and 12,070,184 and 12,029,905 outstanding at June 30, 2016 (unaudited) and December 31, 2015, respectively 185,580 185,533
Additional paid-in capital 64,449,901 64,302,498
Treasury stock, at cost; 349,632 and 349,632 shares (286,393) (286,394)
Deferred compensation (5,573,078) (6,031,362)
Accumulated deficit (49,442,302) (49,054,999)
Total stockholders’ equity 9,333,708 9,115,276
Total liabilities and stockholders’ equity$54,185,448 $68,356,491
See notes to interim consolidated financial statements.


PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
Revenues $ 2,890,060 $3,424,756 $ 6,118,691 $7,167,216
Operating expenses:
Cost of services 2,034,439 2,426,612 4,189,222 4,802,006
Selling, general and administrative:
Stock-based compensation 283,747 393,525 571,436 627,056
Cancellation of stock-based compensation - - - (163,936)
Other expenses 801,540 419,838 1,409,889 937,018
Depreciation and amortization 225,554 92,948 449,777 178,520
Total operating expenses 3,345,280 3,332,923 6,620,324 6,380,664
Operating income (loss) (455,220) 91,833 (501,633) 786,552
Other income and (expense):
Interest income 24,974 19,358 46,985 38,358
Other income (expense) 98,279 (32,305) 97,679 (32,409)
Total other income and (expense), net 123,253 (12,947) 144,664 5,949
Income (loss) before income taxes (331,967) 78,886 (356,969) 792,501
Income taxes 23,334 54,036 30,334 59,036
Net income (loss) $ (355,301) $24,850 $ (387,303) $733,465
Basic earnings per common share: $ (0.05) $0.00 $ (0.05) $0.10
Diluted earnings per common share: $ (0.05) $0.00 $ (0.05) $0.06
Weighted average common shares outstanding
Basic 7,738,759 7,369,329 7,729,003 7,369,329
Diluted 7,738,759 12,081,754 7,729,003 12,102,919
See notes to interim consolidated financial statements.


PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six months Ended June 30,
2016 2015
Operating activities:
Net income (loss) $(387,303) $733,465
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 368,208 158,679
Amortization 81,569 19,841
Non-cash stock based compensation 571,436 627,056
Cancellation of stock based compensation - (163,936)
Issuance of stock to consultant 34,300 -
Changes in current assets and current liabilities:
Accounts receivable 65,148 132,305
Prepaid expenses and other (68,298) (29,437)
Other assets 551 27,564
Accounts payable and accrued expenses (41,325) (161,673)
Deferred revenue 33,000 -
Settlement processing assets, net - -
Net cash provided by operating activities: 657,286 1,343,864
Investing activities:
Purchases of property and equipment (138,487) (555,778)
Note receivable (200,000) -
Net cash (used) by investing activities: (338,487) (555,778)
Financing activities:
Net cash (used) by financing activities: - -
Change in cash and cash equivalents 318,799 788,086
Cash and cash equivalents, beginning of period 4,059,606 2,803,455
Cash and cash equivalents, end of period $4,378,405 $3,591,541
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest - -
Income taxes $62,184 77,369
See notes to interim consolidated financial statements.


RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
In thousands 2016 2015 2016 2015
Reconciliation from Operating Income to Adjusted EBITDA:
Operating income $ (455,220) $ 91,832 $ (501,633) $ 786,552
Depreciation and amortization 225,554 $ 92,948 449,777 $ 178,520
EBITDA (229,666) 184,781 (51,856) 965,072
Expenses related to NASDAQ uplisting and reverse stock split - - - 182,362
Acquisition costs - - 20,000
Non-cash stock compensation expense (net) 283,747 393,525 449,777 14,584
Adjusted EBITDA $ 54,081 $ 578,306 $ 397,921 $ 1,182,017
Calculation of Adjusted EBITDA margins:
Revenues $ 2,890,060 $ 3,424,756 $ 6,118,691 $ 7,167,216
Adjusted EBITDA $ 54,081 $ 578,306 $ 397,921 $ 1,182,017
Adjusted EBITDA margins 1.9% 16.9% 6.5% 16.5%

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

Source:Payment Data Systems, Inc.