OREANDA-NEWS. August 12, 2016.  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 Companys 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 Companys 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 managements 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%