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Payment Data Systems Announces 2017 Second Quarter Results

SAN ANTONIO, Aug. 14, 2017 (GLOBE NEWSWIRE) -- Payment Data Systems, Inc. (NASDAQ:PYDS), an integrated electronic payment solutions provider, today announced financial results for the second quarter and six months ended June 30, 2017.

Second Quarter 2017 Financial and Operating Summary

  • Revenues were $2.6 million
  • Gross margin was $0.7 million, or 27.3% of revenues
  • Operating loss was $548,737
  • Adjusted EBITDA1 was a loss of $103,705, or (4.1%) of revenues
  • Net loss was $534,337, or $0.06 per basic and diluted share
  • Total dollars processed for the second quarter of 2017 were $614 million, down 10.2% from $683 million in the second quarter of 2016
  • 2.4 million transactions were processed, down 16.9% from a year ago

Six Months Ended June 30, 2017 Financial and Operating Summary

  • Revenues were $5.4 million, compared to $6.1 million in 2016
  • Gross margin was $1.6 million, or 30.6% of revenues
  • Operating loss was $870,675
  • Adjusted EBITDA1 was income of $10,822, or .2% of revenues
  • Net loss was $820,920, or $0.10 per basic and diluted share
  • Total dollars processed for the six months ended June 30, 2017 were $1.3 billion, down 7.9% from $1.4 billion in the six months ended June 30, 2016
  • 5.2 million transactions were processed, down 15.2% from a year ago

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

The Company is in solid financial condition with $3.2 million in cash and cash equivalents, positive cash flows from operations for the year and no debt. The Company has well established ACH (Electronic Check) and credit card processing portfolios and emerging same day ACH debit and credit transaction and consumer prepaid card businesses, positioning the Company for future success. The Company believes it is in the final stages of closing the potential Singular Payments, LLC acquisition which will bring 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 second quarter were down 46% compared to last year. The credit card processing decrease was nearly offset by revenue gains in the emerging PIN-less debit processing business, resulting in the third highest revenue level from credit/debit card processing in previous quarters. The Company expects continued growth for its PIN-less debit processing business for the foreseeable future.

Electronic check (ACH) transaction volumes were down 15% in the quarter ended June 30, 2017 versus the same period in 2016. Returned check transactions processed during the same period were down 12% versus Q2 2016. A large electronic check (ACH) merchant sold their customer portfolio and, as a result, the Company lost the associated payment processing transactions. The same merchant is building a new portfolio of customers and the Company expects the volume to recover in the future.

“We remain very excited about our technology platforms, capabilities and existing portfolios. With efforts underway to drive revenue growth, our strong sales pipeline and the implementation of same day ACH credits and debits and technology improvements in our prepaid card platforms, we believe revenue growth will improve in the fourth quarter and early 2018,” stated President and CEO Louis Hoch. “We expect to see an increase in the number of enrolled merchant customers for whom we provide ACH processing, credit and debit card transactions, and a number of new clients to create increased transaction volumes. Our prepaid card transactions and our recently implemented PIN-less debit transactions should drive revenue growth.”

“The Company’s strategy looks to leverage and grow its profitable ACH business while driving growth in its newer, innovative FinTech businesses,” continued Mr. Hoch. “Additionally, we expect the acquisition of Singular Payments to be completed soon, enhancing our ability to deliver more robust FinTech solutions to the developer community. We believe the combined Company will add thousands of new payment merchants with dramatically increased revenues and the associated operating metrics of dollars and transactions processed.”

Financial Results
Three Months Ended June 30, 2017

Revenues were $2.6 million down 11.8% compared to $2.9 million for the second quarter of 2016. The revenue decrease was due to ACH processing transaction and ACH return transaction volume decreases. A major driver of the ACH decreases were as a result of a large customer selling a portion of their portfolio and starting the process to rebuild the portfolio again.

Gross margin dollars were $696,035, or 27.3% of revenues, compared to $855,621, or 29.6% of revenues, in the corresponding prior-year period. The decline in gross margin dollars was due to lower revenue and partially offset by a 8.8% decline in cost of service expenses. The gross margin percentage declined quarter to quarter and year over year as a percentage of sales due to the fixed components of cost of goods sold.

Operating losses were $548,737 compared to an operating loss of $455,220 in the second 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 $103,705, or (4.1)% of revenue, compared with income of $54,081, or 1.9% of revenue, in the second quarter of 2016. Net loss was $534,337, or ($0.06) per basic and diluted share, compared to a net loss of $355,301, or ($0.05) per basic and diluted share in the second quarter of 2016, reflecting a lower revenue base and higher expenses in the second quarter of 2017.

Financial Results
Six Months Ended June 30, 2017

Revenues were $5.4 million down 12.4% compared to $6.1 million for the six months ended June 30, 2016. The revenue decrease was due to ACH processing transaction and ACH return transaction volume decreases. A major driver of the ACH decreases was as a result of a large customer selling a portion of their portfolio in Q2 2017 and starting the process to rebuild the portfolio again.

Gross margin dollars for the six months ended June 30, 2017 were $1,638,834, or 30.6% of revenues, compared to $1,929,469, or 31.5% of revenues, in the corresponding prior-year period. The decline in gross margin dollars was due to lower revenue and partially offset by an 11.1% decline in cost of service expenses.

Operating losses for the six months ended June 30, 2017 were $870,675 compared to an operating loss of $501,633 for the six months ended June 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 six months ended June 30, 2017 was income of $10,822, or .2% of revenue, compared with $519,580, or 8.5% of revenue, in the six months ended June 30, 2016. The net loss for the six months ended June 30, 2017 was a net loss of 820,920, or $0.10 per basic and diluted share, compared to a net loss of $387,303, or $0.05 per basic and diluted share in the six months ended June 30, 2016, reflecting a lower revenue base in the six months ended June 30, 2017. Overall, operating expenses were down $388,464 for the six months ended June 30, 2017 versus the same prior year period.

Balance Sheet
At June 30, 2017, the Company had $3.2 million of cash and cash equivalents and no debt.

“The Company remains well-positioned for future success with a tremendous technology platform and the ability to structure solutions that are easy to implement and cost effective for the consumer,” stated Tom Jewell, Senior Vice President and Chief Financial Officer. “We are aggressively pursuing new opportunities to satisfy the evolving needs of existing and new customers. In addition, to pursuing growth in our existing businesses, we are very excited about the potential acquisition of Singular Payments, LLC that will add talented leadership, sales, and a robust credit card processing portfolio to the Payment Data team.”

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 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 August 28, 2017 by dialing (877) 344-7529 (U.S.) or (412) 317-0088 (international), using the passcode 10110948.

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 (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; and Long Beach, California. For additional information please visit www.paymentdata.com. Websites: 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 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 management’s intent, belief and expectations, such as statements concerning the Company’s future and operating and growth strategy. These forward-looking statements are identified by the use of words such as “believe,” “proceed,” “continue” 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 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 loss of key personnel, growing competition in the electronic commerce market, the security of the Company’s software, hardware and information, and compliance with complex federal, state and local laws and regulations, and other risks detailed from time to time in its 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 the Company’s businesses and financial results in the future and could cause actual results to differ materially from plans and projections. Management believes 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 the Company or any other person that the Company’s objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to management. Management assumes no obligation to update any forward-looking statements, except as required by law.


PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2017
2016
(UNAUDITED)
ASSETS
Cash and cash equivalents $3,226,451 $4,120,738
Accounts receivable, net 882,103 907,750
Settlement processing assets 36,551,837 43,851,311
Prepaid expenses and other 228,739 142,029
Note receivable 700,000 200,000
Current assets before restricted cash 41,589,130 49,221,828
Restricted cash 14,952,520 15,803,641
Total current assets 56,541,650 65,025,469
Property and equipment, net 2,418,688 2,494,510
Other assets:
Intangibles, net 91,329 172,899
Deferred tax asset 1,621,000 1,621,000
Other assets 223,375 200,808
Total other assets 1,935,704 1,994,707
Total Assets $60,896,042 $69,514,686
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $135,680 $145,044
Accrued expenses 733,417 703,322
Settlement processing obligations 36,551,837 43,851,311
Current liabilities before restricted cash 37,420,934 44,699,677
Restricted cash 14,952,520 15,803,641
Total current liabilities 52,373,454 60,503,318
Stockholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares issued and outstanding at June 30, 2017 (unaudited) and December 31, 2016, respectively - -
Common stock, $0.001 par value, 200,000,000 shares authorized; 12,460,932 and 12,392,288 issued and 11,790,558 and 11,795,939 outstanding at June 30, 2017 (unaudited) and December 31, 2016, respectively 181,886 181,818
Additional paid-in capital 63,970,168 63,881,365
Treasury stock, at cost; 670,374 and 596,349 shares at June 30, 2017 (unaudited) and December 31, 2016, respectively (827,088) (718,149)
Deferred compensation (3,729,817) (4,082,025)
Accumulated deficit (51,072,561) (50,251,641)
Total stockholders' equity 8,522,588 9,011,368
Total Liabilities and Stockholders' Equity $60,896,042 $69,514,686

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
2017
2016
2017
2016
Revenues $2,550,441 $2,890,060 $5,361,185 $6,118,691
Operating expenses:
Cost of services 1,854,406 2,034,439 3,722,351 4,189,222
Selling, general and administrative:
Stock-based compensation 217,759 283,747 425,679 571,436
Other expenses 799,740 801,540 1,628,012 1,409,889
Depreciation and amortization 227,273 225,554 455,818 449,777
Total operating expenses 3,099,178 3,345,280 6,231,860 6,620,324
Operating income (loss) (548,737) (455,220) (870,675) (501,633)
Other income:
Interest income 38,730 24,974 72,546 46,985
Other income (expense) (2,653) 98,279 (1,114) 97,679
Other income (expense), net 36,077 123,253 71,432 144,664
Income (loss) before income taxes (512,660) (331,967) (799,243) (356,969)
Income taxes (benefit) expense 21,677 23,334 21,677 30,334
Net Income (Loss) $(534,337) $(355,301) $(820,920) $(387,303)
Earnings (Loss) Per Share
Basic earnings (loss) per common share: $(0.06) $(0.05) $(0.10) $(0.05)
Diluted earnings (loss) per common share: $(0.06) $(0.05) $(0.10) $(0.05)
Weighted average common shares outstanding
Basic 8,471,494 7,738,759 8,478,339 7,729,003
Diluted 8,471,494 7,738,759 8,478,339 7,729,003

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2017
2016
Operating Activities
Net income (loss) $(820,920) $(387,303)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 374,249 368,208
Amortization 81,569 81,569
Non-cash stock based compensation 425,679 571,436
Issuance of stock to consultant 15,400 34,300
Changes in operating assets and liabilities:
Accounts receivable 25,647 65,148
Prepaid expenses and other (86,710) (68,298)
Other assets (22,567) 551
Accounts payable and accrued expenses 20,731 (41,325)
Deferred revenues - 33,000
Net cash provided by operating activities 13,078 657,286
Investing Activities
Purchases of property and equipment (298,426) (138,487)
Notes receivable (500,000) (200,000)
Net cash (used) by investing activities (798,426) (338,487)
Financing Activities
Purchases of treasury stock (108,939) -
Net cash (used) by financing activities (108,939) -
Change in cash and cash equivalents (894,287) 318,799
Cash and cash equivalents, beginning of year 4,120,738 4,059,606
Cash and Cash Equivalents, End of Year $3,226,451 $4,378,405
Supplemental Disclosures
Cash paid for interest - -
Cash paid for income taxes $21,677 $62,184

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
20172016 20172016
Reconciliation from Operating Income (Loss) to Adjusted EBITDA:
Operating Income (Loss) $(548,737) $(455,220) $(870,675) $(501,633)
Depreciation and amortization 227,273 225,554 455,818 449,777
EBITDA (321,464) (229,666) (414,857) (51,856)
Non-cash stock-based compensation expense, net 217,759 283,747 425,679 571,436
Adjusted EBITDA $(103,705) $54,081 $10,822 $519,580
Calculation of Adjusted EBITDA margins:
Revenues $2,550,441 $2,890,060 $5,361,185 $6,118,691
Adjusted EBITDA (103,705) 54,081 10,822 519,580
Adjusted EBITDA margins -4.1% 1.9% 0.2% 8.5%


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

Source:Payment Data Systems, Inc.