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Edited Transcript of PYDS earnings conference call or presentation 15-May-19 9:00pm GMT

Q1 2019 Payment Data Systems Inc Earnings Call

San Antonio May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Payment Data Systems Inc earnings conference call or presentation Wednesday, May 15, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph Hassett

Payment Data Systems, Inc. - IR

* Louis A. Hoch

Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO

* Lowell Thomas Jewell

Payment Data Systems, Inc. - Senior VP & CFO

* Vaden C. Landers

Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer

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Conference Call Participants

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* Brian David Kinstlinger

Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst

* Gary Frank Prestopino

Barrington Research Associates, Inc., Research Division - MD

* Michael Keelan Diana

Maxim Group LLC, Research Division - MD

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Presentation

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Operator [1]

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Good day, and welcome to the Payment Data Systems' First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note today's event is being recorded.

I would now like to turn the conference over to Joe Hassett with Investor Relations. Please go ahead, sir.

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Joseph Hassett, Payment Data Systems, Inc. - IR [2]

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Thanks, Rocko, and thank you, everyone. Welcome to Payment Data Systems' First Quarter 2019 Financial Results Conference Call.

The earnings release, which Payment Data issued earlier this afternoon, is available on the company's Investor Relations website at paymentdata.com/invest under News.

On the call today are Louis Hoch, President and CEO; Vaden Landers, EVP and Chief Revenue Officer; Tom Jewell, Senior Vice President and Chief Financial Officer; and Houston Frost, Senior Vice President of Prepaid Services. Management will provide prepared remarks, and then we'll open the call to your questions.

Before we begin, please remember that comments on today's call include forward-looking statements. Forward-looking statements can be identified by the use of such words as estimate, anticipate, expect, believe, intend, may, will, should, seek, approximate or plan or the negative of these words and other similar words and phrases.

Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements, including risks related to the realization of the opportunities from the Singular acquisition; management of the company's growth; the loss of key resellers; the relationships with the Automated Clearing House Network, bank sponsors, third-party card processing providers and merchants; the volatility of stock price; the loss of key personnel; growing competition in the electronic commerce market; the security of the company's software, hardware and information; compliance with complex federal, state and local laws and regulations; and other risks detailed in the company's filings with the SEC.

These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Payment Data expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made today to reflect any change in Payment Data's expectations with regard thereto or any other changes in the events, conditions or circumstances on which any such statement is based, except as required by law.

Please refer to the company's SEC filings on its Investor Relations website for additional information.

With that, I would now like to turn the call over to Louis. Louis?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [3]

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Thank you, Joe, and welcome, everyone. Payment Data Systems had a solid start to the new year with revenues of $6.6 million, a 13% increase over the first quarter of last year. This was the highest quarterly revenue in the company's history. And all the revenue growth was organic.

Our bottom line was little changed from a year ago, as we continue to use the positive cash flow being generated by our ACH business to fund our prepaid and PayFac growth initiatives. ACH continues to be our biggest business line and has led our growth. We also saw steady progress in our growth platforms, PayFac and prepaid.

First quarter total dollars processed were $856 million, a 9% increase compared to $783 million in the first quarter of 2018. And for the second -- seventh consecutive quarter, ACH transactions processed increased sequentially in the first quarter, with transaction volumes increasing 20%, while returned checks processed increased 16% as compared to the first quarter a year ago.

Since ACH industry volumes were up only 5.8% in the first quarter, according to NACHA, our growth was once again more than double that of the industry. The overall industry growth is a strong tailwind that NACHA forecasts and continued due to the growing adoption of ACH as an increasingly efficient economical payment option.

Our ACH business continues to benefit from the -- from our industry-leading technology, NACHA certification and increasing demand from niche applications such as the ability to manage reoccurring payments found in the utility, insurance, mortgage, nonbank lending and similar industries.

ACH is also being integrated with our software plans. Every PayFac integration now includes an ACH option. As part of our API libraries, we've made it very easy to integrate ACH. So if you're one of our PayFac merchants, you won't have to -- you won't want to -- to offer your customers the ability to pay either with ACH or card. You don't have to coordinate between 2 separate vendors.

I'm particularly pleased with the progress being achieved in our prepaid business, where the ability to deliver a virtual card directly to a smartphone wallet is setting pace in the industry. Snowfly Performance Incentives is just the latest new customer to join the FiCentive family, which already includes recognizable brands as Bowen Center, University Fancards, UniTeller and OpenTable. And we expect to be adding more new customers over the remainder of 2019.

Prepaid revenue growth in the first quarter was up 70% as compared to the first quarter of 2018. We continue to layer new programs on to our existing base, and we expect to enhance our reoccurring revenue.

Finally, our card business also made significant progress in the quarter. Credit card dollars processed were up 7% on fewer transactions, as a commercial software vendor is adopting our PayFac technology and now processing on the platform are driving up the size of our average ticket. Several software vendors have completed their integrations and have implemented the technology with the merchants. So that volume is beginning to ramp.

From a final -- financial perspective, we ended the quarter with $4.5 million in cash, which includes the proceeds from our February financing. The operating cash flow after adjusting for merchant reserves, operating lease and lease liability impacts was positive for the quarter, although modest. And we are debt-free. Thus, we have more than sufficient resources to continue to invest in our various growth strategies. For these reasons, we believe that fiscal 2019 will be another year of 20% organic growth.

With that, I'd like to turn the call over to Tom Jewell, our Senior Vice President and Chief Financial Officer, to discuss the financial results in more detail. Tom?

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Lowell Thomas Jewell, Payment Data Systems, Inc. - Senior VP & CFO [4]

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Thank you, Louis, and welcome, everyone. Let me provide a brief review of our financial results before turning the call over to Vaden.

Let me start by reiterating Louis's thoughts that the year is off to a good start and that the momentum we have created continues to drive our performance.

Turning to the results for the quarter. Revenues were up 13% to a first quarter record of $6.6 million. All of the first quarter growth was organic, with our established ACH business once again delivering the strongest performance.

Gross profits were up 5% to $1.3 million with gross margins of 20.3% for the quarter. Margins this quarter are a function of the increased proportion of card transaction processing revenues, which carry lower margins than ACH.

General and administrative expenses for the quarter were $1.7 million or 25.2% of revenue, which on a percentage basis is essentially flat with the year ago. Expenses continue to reflect our commitment to responsible investment in the funding of our growth initiatives.

The operating loss for the quarter was $1.1 million, also essentially unchanged from a year ago. Adjusted EBITDA was -- for the quarter was a loss of $0.3 million, up just a bit from the first quarter of last year.

For the quarter, the net loss was $1.1 million or $0.09 per share based upon 12.6 million shares outstanding. The net loss was also $1.1 million a year ago -- in the year-ago quarter, which also was $0.09 per share.

At March 31, 2019, the balance sheet was strong with cash and equivalents of $4.5 million, which includes the net proceeds from the first quarter financing. Considering the increase in cash over the last 3 months is basically the same as the financing net proceeds, this is indicative that we're running in a slightly positive cash flow, although modest, again after adjusting cash flows for changes in merchant reserve fluctuations and the recording of the new GAAP lease assets and lease liabilities as Louis mentioned earlier.

In summary, it was a good start to the year, maintaining our positive momentum. Our ACH business continues to grow in the high teens, remaining extremely profitable and is growing off cash. Again, we are committed to our strategy to invest cash into our growth initiatives of prepaid and PayFac businesses plus key initiatives in our ACH business.

Over the long-term, we are committed to growing the business and believe our growth strategy will position us to capitalize on the growth in electronic payments, and in the process, create value for our shareholders.

At this time, I'd like to turn the call over to Vaden. Vaden?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [5]

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Thanks, Tom. I am pleased to report that our commitment to a disciplined process around our payment facilitation business model is beginning to produce the intended results. The growth we've experienced thus far in 2019 is a result of our ability to successfully move a number of the 50-or-so organizations that we talked about in previous calls down the path, out of development and into various phases of integration and implementation.

Let me quickly provide an update on the progress we have achieved with a few examples of those successful engagements.

We have formed a strategic partnership agreement with another payment organization to leverage our PayFac technology. They have already boarded 2 software companies utilizing our platform, representing significant annual ACH and card processing volumes being processed.

A long-term health care client implementation went live this month, with 60 of their 95 facilities leading to the electronic presentment of 9,000 bills, and payments have started to flow across our network. The remaining sites will go live over the next 4 months.

PracticeSuite, a customer that has been in our implementation pipeline, has taken the bold step of hiring their own internal manager responsible for ensuring the success of their implementation. Their thousands of health care providers will be the subject of a concerted marketing effort undertaken by PracticeSuite beginning in June and for which PracticeSuite management is anticipating broad adoption, leading to our mutual success.

We have also signed an ISV client that offers preregistration software for large hospital systems, and we have begun to introduce the PayFac option to the prospective new and existing client base by way of targeted cross-sell efforts. Our pipeline is rich and continues to grow with new signings. There is no shortage of opportunities, there is no shortage of integrations taking place, and there's no shortage of implementations happening.

At this early stage of the game, pace continues to be our biggest challenge. But as you've seen with these successes to date, we're incorporating logic and valuable lessons learned from these early wins to create efficiencies and implement best practices that we expect will better control the speed and pace of the overall process as we move forward.

We're also developing and deploying creative solutions to help speed adoption. We have begun to put more teeth into our deals, specifically demanding client commitments that provide incentives to implement. We are supporting incentive-based pricing where software vendors provide their customers who adopt the PayFac-In-A-Box solution with preferential pricing.

Finally, we have launched an aggressive new lead generation campaign across multiple mediums. Over the last 30 days, we have cultivated approximately 40 qualified inbound inquiries that our team is diligently working on.

The focus of our PayFac team remains on rapidly growing the business. Our product development teams are working tirelessly on continually innovating and improving our platform through the strengthening of and adding new features and functionalities. Most importantly, we have redoubled our efforts to reduce the time from signing to processing.

The revenue impact from PayFac will become more obvious and prevalent towards the back half of 2019 and is expected to contribute to our 20% internal organic growth goal. And we have our sights set on levels in excess of that.

Having the level of visibility that I have into the pipeline, and more importantly, being engaged with our software partners to the degree that I am on a day-to-day basis, I couldn't be more encouraged about our future.

Now let me turn the call back over to Louis before we open it up for questions.

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [6]

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Thank you, Vaden. Before opening the call to questions, I'm pleased to announced that Payment Data Systems intends to change its name to Usio, Inc.

Over the past several years, the evolution of our business towards a true fintech platform has accelerated. And through our recent acquisitions, we now offer solutions covering processing needs from issuing to acquiring and offering interfaces ranging from mobile apps to application programming interfaces. We believe the market and industry at large has not fully recognized or appreciated this evolution. This new brand strategy will help better position the company and communicate the value proposition to the marketplace.

The new name, Usio, represents the fusion of many products, many services, many people and infinite possibilities created through innovative technology.

I would like -- I would now like to open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Today's first question comes from Gary Prestopino of Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [2]

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Vaden, on the last call, you said you signed up ISVs that represent about $1 billion in annual processing volume. Where does that stand right now in total potential volume?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [3]

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Gary, you're talking about in terms of what's the potential universe of opportunity amongst those ISVs?

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [4]

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Well, yes. I mean, the -- what the ISVs that you have signed up -- you said you signed up some new deals. What's the potential processing volume?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [5]

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I can't tell you the exact number. I can tell you that it's well in excess of $1 billion.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [6]

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Okay. All right. And then in terms of getting the merchants boarded and processing, I mean are -- how many of these agreements are you trying to drive that -- where the ISV is going to mandate that they use you? And then if they don't mandate, can you maybe just go into a little bit more detail or description of how you're trying to drive that adoption at the merchant level?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [7]

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Sure. Yes, every conversation starts with the mandate approach. I mean, that is what we believe very strongly is the key to both our customers' success and our success as well as the downstream merchants' success. I mean, going through the time and effort, energy and investment to get a platform like this in place without being committed to large-scale adoption doesn't make a lot of sense. And we oftentimes invite ISVs to go integrate with another platform if they aren't ready to and willing to demonstrate that level of commitment. So the simple answer to the question is all conversations start there. We are having some success in terms of getting folks to that place. Where we don't, we try the alternative approach, which is what we're going to be deploying with PracticeSuite. And that is the preferred pricing approach, which means basically if you -- let's just say that you have a software fee -- a monthly software fee of $250 in place today prior to the integration, and then post-integration, you're going to roll this platform out, there would be a price incentive for adopting the platform. And let's just say, for sake of discussion, it's $150 instead of $250 or whatever the number is. But that's sort of the secondary approach. And then the third approach is one that is tied to some sort of call-behind effort, whether it's done by the customer or by ourselves. So we would batch board the customers, we would send the e-mails and the marketing materials out. And then either collectively or individually, we would begin to call into that base and assist with the click-to-agree process that allow these merchants to activate their processing account. So one of those 3 approaches are ideal. Anything sort of outside of that tends to not work for us, and it's not really the kind of client that we're after. We're looking for, again -- and I said this a few times, we're targeting software platforms who have kind of gotten to the size and magnitude that payments is something that they're looking at as a meaningful part of their business strategy. And so when engaging those conversations, it's not something that is totally surprising or shocking to them. So we've been seeing some good traction and success in that regard, Gary.

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Operator [8]

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(Operator Instructions) Today's next question comes from Brian Kinstlinger of Alliance Global Partners.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [9]

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Your yields and gross margins and dollars processed varies based on whether your volume and growth is weighted towards credit cards versus ACH volumes, you've highlighted that. As PayFac begins to be a driver of growth, especially in the second half of the year, how does that impact revenue per dollars processed as well as the gross margins?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [10]

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Gross margins will decline and revenue will increase. So revenue per dollars processed off a PayFac transaction is higher than an ACH transaction.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [11]

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So is the PayFac essentially credit card, or is it better or worse in margins than that?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [12]

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PayFac is credit card process.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [13]

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Right. But is there a piece that you have to pay out to a partner, so it would actually lower revenue yields and margins? Or is it similar?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [14]

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Yes. On credit cards, we pay the card associations. We often pay a partner like the ISV. We may even pay an agent, and then the remainder is ours.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [15]

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Okay. So as we think about 2018, you had a gross margin of about 22%, as high as 23-and-change, are you thinking the first quarter, the 20% is something more of how the business is going to look going forward as PayFac is the main driver of growth?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [16]

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It's definitely going to trend down unless -- I mean, it's depending -- obviously, we're playing a mix game all the time. And depending upon the fluctuation of ACH versus credit cards, the more ACH is going to fluctuate a little bit up and the more ACH -- or credit card is going to fluctuate downward.

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Lowell Thomas Jewell, Payment Data Systems, Inc. - Senior VP & CFO [17]

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And Brian, if I could just add to that, one of the things that we're very focused on in the PayFac selling strategy is: A, to a comment Louis made in his prepared remarks, we are encouraging and making it very easy for every single PayFac submerchant to sign up for both card and ACH on the front end. We are not trying to sell ACH in a commoditized fashion like you would typically see it sold out in the marketplace, at a few pennies a transaction. In fact, we've been successful in selling ACH for north of 2% of the amount in some of our implementations so far. So it's too early to tell or predict how that will impact margins across the board. But as we have more success and we get more traction and we get more volume on the system and we prove out that we are able to sort of hold the line as it relates to getting better margins on ACH through the PayFac model, that will be interesting to see how that factors into our growth strategy and certainly in the cash flows and margins for the business as a whole.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [18]

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Got it. And then my second question is, can you talk about the business development team for PayFac? Is it separate? And are you increasing the capital allocation for this business, as it seems to be one of the primary drivers of growth -- organic growth?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [19]

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Louis, you want me to talk about that?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [20]

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Sure, Vaden.

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [21]

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Yes. So right now we have 2 internal guys that are full time that their lives are hunting ISV partners. Obviously, I spend a significant amount of my time doing that as well. We have a gentleman who is heavily involved in the product innovation strategy around PayFac who also spends a significant amount of his time cultivating leads. And in our marketing, our Head of Marketing, Matt Morris, who we brought over from one of the most successful software role at PayFacs in the marketplace, a company called Ministry Brands, he brought with him a significant rolodex of ISV prospects and partners that he had worked with and engaged with in the past. And we've been able to cultivate some of those opportunities. And we also have a stable of strategic partners that we work with that are also delivering business opportunities to the table and assisting and aiding in our growth strategies. So there's lots of sort of lines in the water, if you will, in terms of how we're reaching into the space. And we just, as I mentioned earlier, initiated some lead generation efforts that are approving, at least in the very early stages of that process, to generate significant numbers of highly qualified leads in terms of ISV prospects. So I'll tell you, we -- the pipeline is not our issue. The -- we're choking on opportunities. What we really are focused on is obviously closing them and getting them into the integration phase of things, but getting them moved out of that and into the base where they can actually put volume on the system that translates to revenue and cash flows.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [22]

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And then, Vaden, in an ideal world, would that require to get rid of some of that bottleneck you have twice? I mean, you -- it sounds like you have 4 salespeople essentially including yourself. Would you need twice that? More? I mean, what would be ideal for you?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [23]

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No, I think if we could get the sales guys to spend more of their time just closing deals and really doing what they are designed to do as opposed to closing some, pushing them into the pipeline and then working with everybody else to sort of getting them out of the pipeline, I think if anything, we may add a team of what I would call a counter implementation managers that take the baton from them at some stage of the game, probably earlier than they do today, and see it through all the way to completion. So I don't see an immediate near-term need to increase the team from a business development perspective. But as we get more proficient in terms of moving them through the pipeline with better pace and being able to control that, I think we'll end up probably needing to add an account manager or 2 that can handhold that process.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [24]

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Great. Last question I have, you mentioned a 20% organic growth is an internal goal. And at that, you'd be at revenue in 2019 of about $30 million. And at the rough margins, you're looking at about $6 million in gross profit, maybe a little bit more depending on the mix. So it seems to me, $30 million of business certainly isn't the scale that you need to drive meaningful profitability. So talk about M&A plans and how aggressive are you looking at augmenting organic growth with acquisitions to drive scale?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [25]

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Well. First thing is the 20% number is a number we're comfortable with. And we are actively looking at acquisitions. As you are aware, there's a lot of consolidation going on in our industry, larger players than us. But there are still a lot of properties out there that could have meaningful value to us. So we're actively engaged in those discussions.

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Operator [26]

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And our next question today is a follow-up from Gary Prestopino of Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [27]

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Yes. I just want to make sure I've got this right. You say you're going to -- your target is 20% organic growth for the year? Or is that 20% growth exiting Q4 on the revenue side?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [28]

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I'm not sure I understand the difference.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [29]

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Well, here -- Louis, the difference is if you're going to do 20% growth for the whole year, you've got a lot of catching up on the back end of the year as you get there, basically, versus where you started the year off. So I just want to make sure everybody is clear on that. Are you going to do 20% internal growth for the entire year? Or into -- as you exit Q4, you'll be at a 20% growth rate year-over-year coming out of Q4?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [30]

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It's 20% exiting the year. There's going to be a ramp.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [31]

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We're not looking at total 20% revenue growth for the company this year, it's a ramp. Okay. That's fine. And then...

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [32]

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I think you misunderstood. Maybe I've stated it wrong. At the end of the year, 20% year-over-year.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [33]

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Okay. For the full year, 20% year-over-year?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [34]

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Yes.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [35]

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Okay. And then just interestingly, as you start selling the ACH business through the PayFac's platform, how many of -- do your ISVs have a strong appetite as well, do you think, and their merchants for bundling the ACH with the credit card processing?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [36]

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Yes, I'll let Vaden answer that question because he's been actively involved in securing the ACH deals around PayFac. Vaden?

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Vaden C. Landers, Payment Data Systems, Inc. - Executive VP & Chief Revenue Officer [37]

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Yes. Gary, the answer is yes. There -- and it really is industry-specific. So there are some industries where ACH just isn't a good fit. But in health care, utility and property management and some of these other verticals where we're playing heavily, it certainly is a factor, and it's certainly part of all the discussions. And really to make it much easier on the downstream, merchants that are going to sign up for this service, absent a platform -- an enrollment platform or system like we've created, you would have to go out and find an ACH vendor after you find your credit card processing vendor, complete an integration with both of those vendors to your own software system. And then you'd be faced with or your customers would be faced with 2 separate enrollment processes to get accounts on each. And when you click a button on our enrollment system, you get an account, you get an ACH account and you get a credit card processing account, and you don't have to think about it. You just have to start processing payments and the money starts to flow. So we've made it very simple and easy to do both. And we don't even oftentimes allow the option to take one or the other. If you click the button, you're going to get both. Whether you use them both or not is totally up to you and your particular business model.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [38]

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Okay. And then, Louis, could you maybe just talk a little bit about what is driving the kind of accelerated growth or the 7 consecutive quarters of growth in the ACH side?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [39]

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Yes. It's a couple of things. We continue to enhance our technology that's gaining a lot of interest with -- among clients. Having the NACHA certification has given us visibility into -- not visibility, access to more clients because we're unique in that certification. And a lot of our existing clients are just growing. So we're gaining more transactions from existing clients and landing some pretty cool deals because of the certification and because of our technology.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [40]

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Okay. And then last question, as you cross-sell more ACH on the PayFac's platform, shouldn't that be accretive to gross margins because basically most of that revenue is going to flow to you guys? Is that a correct assumption?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [41]

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Yes. ACH is better for gross margin. I mean, ACH runs 60% gross margin.

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Operator [42]

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And our next question today is a follow-up from Brian Kinstlinger of Alliance Global Partners.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [43]

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Just a quick question on expectations for the second quarter. Again, your credit cards made up obviously a greater proportion of revenue in the first quarter and a little bit lower total volume. If we look at the second quarter, does that high yield create a difficult comp from the first to second quarter? Because I realized -- Vaden also said that he expects PayFac to drive much more of second half of the year revenue. So is 2Q over 1Q a difficult comp or any seasonality involved in that?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [44]

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I think we're going to see increases on all business volumes. I do feel that credit cards will outpace the growth on ACH in Q2.

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Brian David Kinstlinger, Alliance Global Partners, Research Division - Head of TMT Research, MD & Senior Technology Analyst [45]

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Okay. Meaning revenue? If I take those numbers, it means revenue should increase, but margins should look like they do in the first quarter because credit cards continue to outpace.

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [46]

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I think that's a good assumption.

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Operator [47]

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And our next question today comes from Michael Diana of the Maxim Group.

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Michael Keelan Diana, Maxim Group LLC, Research Division - MD [48]

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Louis, could you just talk a little more about the name change?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [49]

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Sure. We -- as you know, this is our 21st year as a company. We've been known as Payment Data for the last 16 years. We feel that, that name is tired and it doesn't represent our technology today. We have very rich technology set and we are a true fintech player. We're an innovator. And we were the first one to implement Apple Pay and Samsung Pay and Google Wallet for prepaid cards. We're the only company that we're aware of that can actually deliver a card directly to a phone, a virtual card. So those types of innovations doesn't seem to ring well with data systems. So we wanted a -- to fuse all of our brands. And when we started talking about fusing all our brands, we came up with the word fusion. And we really like the word Usio, which by the way is -- if we move to that name, will be our -- will also be our stock symbol and will also be our domain name, which will give us ability to market on the Internet, enhanced stability to the market on the Internet. And we think it's just -- it's fresh and represents who we are.

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Michael Keelan Diana, Maxim Group LLC, Research Division - MD [50]

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Yes. How do you spell it?

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Louis A. Hoch, Payment Data Systems, Inc. - Co-Founder, Vice-Chairman, President, CEO & COO [51]

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U-S-I-O.

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Operator [52]

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And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may disconnect your lines, and have a wonderful day.