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Edited Transcript of VPY.V earnings conference call or presentation 8-Aug-19 1:00pm GMT

Q2 2019 Versapay Corp Earnings Call

Toronto Oct 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Versapay Corp earnings conference call or presentation Thursday, August 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig O'Neill

VersaPay Corporation - CEO & Director

* Shouvik Roy

VersaPay Corporation - CFO

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Conference Call Participants

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* Brenna Phelan

Raymond James Ltd., Research Division - Equity Analyst

* Daniel Rosenberg

Haywood Securities Inc., Research Division - Analyst of Technology

* David Kwan

PI Financial Corp., Research Division - Technology Analyst

* Gavin Fairweather

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

* Suthan Sukumar

Eight Capital, Research Division - Principal

* Babak Pedram

Virtus Advisory Group Inc. - President

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to VersaPay Q2 2019 Financial Results Conference Call. (Operator Instructions) I would like to remind everyone that this call is being recorded on August 8, 2019. And I would like to turn the conference over to Babak Pedram, Head of Investor Relations. Please go ahead.

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Babak Pedram, Virtus Advisory Group Inc. - President [2]

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Thank you. Good morning, everyone.

Before we begin, I will read our cautionary notes regarding forward-looking information. Certain information we discuss during this corporate update contains forward-looking statements within the meaning of applicable securities laws, including among others statements concerning the company's 2019 objectives, the company's strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.

Such forward-looking statements reflect management's current beliefs and are based on information currently available to management and is subject to a number of significant risks and uncertainties that could cause the actual results to differ materially from those anticipated.

I'd now like to turn the call over to Shouvik Roy, CFO of VersaPay Corporation. Please go ahead.

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Shouvik Roy, VersaPay Corporation - CFO [3]

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Thanks, Babak. Good morning, everyone, and welcome to VersaPay's Second Quarter 2019 Investor Call. I will provide a brief overview of the second quarter 2019 financial results, followed by CEO, Craig O'Neill, who will provide further commentary about our performance and strategy. After our remarks, we look forward to your questions and comments.

With that, I'll summarize the Q2 2019 consolidated results which reflects the adoption of IFRS 16 related to lease accounting. Revenues for the second quarter were $2.18 million, 88% higher than the $1.16 million in revenues for the same period last year. We converted 69% of our subscription backlog from the end of Q1 and finished Q2 2019 with approximately $1.18 million in our subscription backlog and another $830,000 in our professional services backlog. This will be converted to recognize revenue in the next quarter or two and if you look at our current ARR, this will bring the business to over $8.6 million in recurring revenues alone.

Gross margin percentage was 81% for the second quarter 2019 compared to 75% in Q2 2018. The year-over-year improvement is mainly due to favorable change in product mix as ARC, a much higher-margin business than our other lines, now represents 73% of our recurring revenue business. Total operating expenses were $5.03 million in Q2 2019 compared to $4.5 million for the same period last year. This represents an increase of $530,000 or 12%. The increase is mainly comprised of salaries and benefits, research and development initiatives and increase in marketing and promotion activities in Q2, which is consistent with the growth trajectory of the company.

As explained previously, G&A optically looks higher year-over-year but most of that increase is due to reorganization of people in their departments and how they roll up in 2019, and the adoption of IFRS 16 standard on leases has increased our depreciation expense much more than the offset to our rent expense.

Adjusted EBITDA was a loss of $2.62 million in Q2 2019 compared to a loss of $2.81 million in Q2 2018. Comprehensive net loss for Q2 2019 was $3.45 million or $0.08 a share on a diluted basis compared to a loss of $3.6 million in the second quarter of last year or $0.09 a share on a fully diluted basis.

Turning to the balance sheet. At June 30, 2019, we had a cash and cash equivalents balance of $6.55 million compared to $11.12 million at December 31, 2018, and $8.59 million at the end of Q1 2019. This represents a cash decrease of $2.53 million and $2.03 million for Q1 and Q2 2019, respectively. As you can see, our cash burn is improving markedly as expected. In addition, we have signed a term sheet with a tier 1 Canadian bank to provide an operating line when needed. Details of the agreement will be announced when closed, but this will provide the company with additional liquidity as necessary.

Our accounts receivable increased to $1.59 million by the end of June 30, 2019, compared to $1.25 million at the end of December 31, 2018, thanks to the increasing revenues. Subsequent to quarter end, we collected 33% of our outstanding receivables.

With that, I would like to hand it over to our CEO, Craig O'Neill, who will speak further about the business.

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Craig O'Neill, VersaPay Corporation - CEO & Director [4]

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Okay. Thank you, Shouvik, and good morning, everyone. Thanks for joining our call today.

Let me start with a few words on our financials. Once again, revenue growth is noteworthy this quarter. As the quarterly build and backlog chart in our MD&A shows, we continue to have good momentum in sales to build the backlog and good conversion rates to translate backlog into revenue quarter-over-quarter. As a result, and for the first time ever, we've crossed the $2 million mark in quarterly revenues to about $2.2 million and that's up 88% year-over-year. ARC accounted for more than 3/4 of this result, up 156% year-over-year. And the recurring portion of our ARC revenues, that's the software and payments portion of our revenues, was the lion's share of this, up from $1.4 million to about $1.7 million -- sorry, of -- $1.4 million of the $1.7 million, also up about 156% year-over-year and 24% quarter-over-quarter. We also crossed the 80% margin line for the first time ever, again thanks to the strong growth in ARC recurring revenues.

From an overall recurring revenue run rate perspective, or ARR, we're also seeing very encouraging progress. We've grown ARR from $4.2 million a year ago to $7.5 million at the end of June, and all of this growth is attributed to ARC, up from $2.3 million last year to $5.5 million at the end of Q2, or up about 140%.

I pointed out last time that the conversion rate from backlog to revenue in Q1 was uncommonly high, around 90%, thank you -- thanks to the nature of and the timing of the mix of deals that were in the backlog at that point in time. Turns out we had another good quarter in Q2, converting almost 70% of Q1's backlog or over $750,000 in ARR. After adding back about $900,000 in ARR to the backlog due to Q2 sales, we finished the quarter at close to about $1.2 million in ARR yet to be converted to revenue. While 70% conversion is closer to what we expect in terms of backlog, I will mention that the timing of signings in Q2 along with new clients' expectations that projects would get off to a slower start in the summer months, we anticipate the conversion rate in Q3 will be a little lower and then increase once more back in Q4.

Our nonrecurring ARC revenue, and that's professional services revenue related to implementation project, was down slightly in Q2 after a record high quarter in Q1. And this is due to the pace of projects. We actually have a growing backlog of PS revenue. In Q2, it grew from $470,000 to $830,000 and we're working hard to move projects along and realize this revenue. Having said that, again due to the summer months we don't expect to see a significant difference in Q3 PS revenue just that -- because of the pace of projects and thanks to vacation schedules at clients.

As for expenses, they were up from Q1, but still well below Q4 levels. Sales and marketing spending increased by about $400,000 over Q1 due to go-to-market initiatives running at a higher pace than in Q1 and completely in accordance with our Q2 go-to-market plans. We will see this come down a little again in Q3 and then rise once more in Q4.

G&A accounted for the other roughly $400,000 increase quarter-over-quarter and about $350,000 of this was onetime or timing related. The breakdown is as follows: about $125,000 was timing of legal, audit, regulatory and bank fees; $125,000 was due to severance; $50,000 roughly was due to a more conservative bonus and vacation accrual policy; and $40,000 was due to a bad debt provision. The remaining $50,000 of the $400,000 is ongoing expense related to growing our clients' success and support team to support our growing client base. Despite our higher expenses, cash burn was down nicely from $800,000 per month in Q1 to about $675,000 per month in Q2. As we've been saying, we expect to see this burn rate continue to decline as revenues increase and our expenses remain relatively flat.

Okay. So that's enough on finances. Let me talk about some nonfinancial metrics, ARC's platform metrics, for a few moments. Of course, these metrics are an important indicator of the value our clients are getting from the platform, and good value for clients means happy clients and good client references, which is key to our continued sales and revenue growth. Here's our latest numbers.

At the end of Q2, over 182,000 end customers were active, up from 162,000 the quarter before or 12%. 680,000 invoices worth about $1.5 billion were delivered in the quarter. And about 280,000 invoices were paid or $265 million. That's 21% growth in payments quarter-over-quarter and it means we've been consistently seeing 20% plus growth quarter-over-quarter for more than 6 quarters now in terms of payment volumes. So great progress there. 128,000 payments were made in Q2.

And we continue to see over 80% adoption by our client customers, and about 45% of customers that are coming online are paying online as well. We also continue to see the mix of payments roundabout 60-40, bank transfers versus credit cards, and that's again an uncommonly high volume of credit card payments by business-to-business or B2B standards.

As of the end of last week, we are still seeing good progress and metrics, especially given that we're in the summer. We're now at 187,000 end customers, 290,000 new invoices have been delivered and 116,000 have been paid. About 52,000 payments have been made worth about $126 million.

On the sales front, we're pleased with our results in Q2 versus our internal forecast going into the quarter. While the result wasn't our biggest quarter, the team beat our internal forecast based on our visibility to the pipeline and the expected timing of deals. That was a great outcome given that the largest deal expected in the quarter actually slipped to Q3.

We signed 15 new ARC deals in the quarter worth approximately $900,000 in ARR. And we signed 25 deals total, including credit card processing and services add-on, by far our biggest quarter in terms of number of contracts signed. And we had one very notable deal, a major worldwide brand that's signed in Canada and a first step towards signing in the U.S. where we're also getting strong interest for late this year or early next.

Referral partners assisted on about 35% of the new ARC sales in the quarter, but all referrals, the actual signings were all done direct. This is expected. As I mentioned before, we kind of drained the reseller pipeline in the last couple of quarters and we think it will take another quarter or 2 to build that back up and start seeing resellers closing deals.

Speaking of partners, I don't have any material news to share on our bank partners other than to say that we continue to work on a sales engagement plan with RBC, and we're very close to signing and announcing a relationship with a bank in the U.S., one that I alluded to last time. But of course, there is some big news on the partner front that I can talk about and that's the news about the "global fintech partnership" that I've mentioned previously. I trust you all saw the announcement that we made this past month about this relationship. And I'm happy to say I can now talk openly about MasterCard.

Needless to say, this is an important deal that we're quite excited about. First, I want to explain what it is that we've launched together, and then I'll outline why it's a compelling opportunity for the company. The service that we've introduced is called the Virtual Card Receivables Service, virtual cards or credit cards without the plastic, they're defined in software, and they've become a popular form of payment with large buyers for a variety of reasons. They're easy to use. They're secure. They're all electronic. And they often come with financial incentives from the buyer's card-issuing bank. As a result, the use of virtual cards has been growing rapidly, and MasterCard has become the worldwide leader in the market. Even so there are 2 issues that are holding back even higher growth of virtual card acceptance, the credit card fees and also the process and some data-related problems that virtual cards create for suppliers who agree to accept virtual cards.

To solve this second issue, MasterCard decided to search for a partner that could help them provide a seamless, straight-through process for suppliers that would eliminate the friction associated with accepting virtual cards and give them clarity on what customers were paying for. After carefully evaluating VersaPay and the other players in our space, MasterCard chose VersaPay ARC as their preferred solution. For the past 6 months, we've been developing our joint offering and for the past month or so we've been in market introducing it to MasterCard card issuers, that's banks and other financial services institutions.

So far, we're seeing very strong interest in this service and already one of these issuers is preparing to launch a pilot program later this quarter. We expect others will follow suit before the end of the year. What we've offered banks and their customers is a freemium version of ARC. It is a lite version of ARC funded by MasterCard and provided at no charge as a key new feature of MasterCard's virtual card offering. So it's actually one of the easiest sales pitches we've ever had to make. We're providing a great new service that solves a recognized pain point, and it's free. For MasterCard, this is an investment with a clear ROI as they believe it will help drive much higher acceptance of virtual cards.

Once more, we anticipate that many of the suppliers that use the freemium version of ARC, and again I want to be clear it's free to the supplier, free to the card-issuing bank. MasterCard is paying us for the solution. But users of the freemium version will be interested in upgrading to the full paid version. And early on, we're already seeing the banks that we're talking to are anticipating the same thing. If that turns out to be true, the freemium offering will do 2 things for VersaPay. First of all, it will produce healthy revenues once we start to achieve scale, and we think that will happen in 2020. And second, it will generate a large number of new leads for the full version of ARC. We also believe it may lead to additional bank channels, that is partnerships between MasterCard, VersaPay and MasterCard card-issuing banks to work together to actively upsell ARC to their customers.

One final point on this, our initiative with MasterCard is entirely in line with our broader aspiration to sell services to our end customers. We're approaching 200,000 end customers now and we have another roughly 300,000 in the implementation pipeline. So we're confident we're headed towards having 500,000 businesses on the platform in the foreseeable future.

And clearly we want to monetize this network of companies and we believe one of the best ways to do that is to sell them electronic payments, in other words, a service that will allow them to pay all of their suppliers, not just their suppliers that are ARC. This is exactly what we're doing with MasterCard although of course in this case it's MasterCard that's paying for the payments versus the end customer. For us, it's a first and we think ideal step towards being able to offer a compelling electronic payment offering to thousands and thousands of end customers on the platform.

Okay. That's it from me today. Let's go ahead and move to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will be from Brenna Phelan at Raymond James.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [2]

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So the reference you made to referral partners in the U.S. assisting on 35% of the new signings, is this the bank partner that you expect to announce in the early stages of your arrangement?

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Craig O'Neill, VersaPay Corporation - CEO & Director [3]

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It is some from them, and some from others as well, so a variety of partners. And in our total of 15 deals, we didn't do any large deals. In this quarter, we did 15 kind of average size, small -- small- to medium-sized deals. And so we had a few different partners that were helpful with roughly 1/3 of those deals.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [4]

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Okay. And the reference you made to largest expected deal in the pipeline getting pushed to Q3, was that the one that you press released end-quarter?

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Craig O'Neill, VersaPay Corporation - CEO & Director [5]

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No, that was a different deal and that one is still not signed, although very, very close. We're just dealing with vacations and whatnot. Getting ink on paper is taking a bit of time, but we're feeling pretty confident it will happen in Q3.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [6]

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Okay. And the press release deal that you put out recently, that will be in Q3 sales numbers?

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Craig O'Neill, VersaPay Corporation - CEO & Director [7]

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No, that was actually a Q1 deal. So we -- the reason for the delay, we worked for a long time to try and get their okay to actually use their name. It is a great brand, but eventually we realized we weren't going to get to use their name and we presented it generically.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [8]

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Okay. And just a clarification, you said the update with the RBC team, you were working towards signing an engagement. Did you say you were working...

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Shouvik Roy, VersaPay Corporation - CFO [9]

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Yes, I mentioned...

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Craig O'Neill, VersaPay Corporation - CEO & Director [10]

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Working on sales engagement. Yes. So we've been historically working alongside the product group at RBC. We've had some success getting the sales leadership involved directly to begin the rollout to sales versus relying on their own product team. And Harry, our new channel leader, has been very effective engaging the sales leadership. Of course, it's summer months, everything tends to be a bit slower, but plans are kind of formulating now to roll out this -- the offering properly across the sales force. So no big news yet other than we're cautiously optimistic that the sales leaders being involved, we'll start to get some traction with the sales force.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [11]

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Okay. Great. And then your commentary on the 21% sequential growth in payments that you've seen for 6 quarters now, how should we think about the revenue that you're monetizing from this growth?

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Craig O'Neill, VersaPay Corporation - CEO & Director [12]

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Yes. Probably that's a great question and I don't have a great answer for it because still a little bit difficult to come up with a model to monetize that. Some of it is our processing through First Data, some of it is third party and we're getting a flat cents per transaction. So we don't have a real good way to let you model that right now. But we are very pleased with the fact that we're getting such high adoption. And as we over time convert more and more clients, both existing and new to First Data, then we'll -- that will drive really good revenues. That's taking some time as well of course, but we are seeing some good traction in that.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [13]

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Okay. And just on the MasterCard partnerships, so you'd expect contribution in the third quarter and ramping through Q4 and into 2020?

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Craig O'Neill, VersaPay Corporation - CEO & Director [14]

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Not sure about the ramping, but yes, we expect it'll start to have some contribution. I don't think it's going to be terribly meaningful right away. And my reason for saying that is the way MasterCard goes to market of course is through large banks, and we just know that things take time with large banks. Once it starts to go, we think it's got tremendous potential, but we don't have a good gauge yet on how quickly these banks will move. We're really pleased that one of them that we've only been engaged with for maybe a little over a month is going to dip their toe in the water already in Q3. We think they'll find that very successful and then that could have an impact in Q4.

Quite honestly, as you can imagine, because this is a great feature that's no charge, our hope is -- although it's not been agreed to, but our hope is at some point MasterCard and the banks just say we're not going to be asking, we're just going to turn it on and people can turn it off if they want, but really why would they because it doesn't cost them anything. And then of course it'll go like gangbusters. But we're not quite there yet. We're going to watch and see and we'll start to learn how quickly the banks can react to it.

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Brenna Phelan, Raymond James Ltd., Research Division - Equity Analyst [15]

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Okay. And last one for me, the term sheet on the credit facility, can you size that for us?

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Shouvik Roy, VersaPay Corporation - CFO [16]

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Brenna, it's probably still a little bit early. We're going to hope to close fairly soon in the next probably couple of weeks, so I can probably share a little bit more details then.

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Operator [17]

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Next question will be from Suthan Sukumar at Eight Capital.

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Suthan Sukumar, Eight Capital, Research Division - Principal [18]

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You guys recently signed a major deal in the media space. I haven't seen that announcement -- that vertical announced in a while. Can you give us a broader update on what your pipeline currently looks like across regions and markets? Are you seeing any particular areas with trends or momentum? And also curious if you're seeing any change in sales cycles given the current macro backdrop?

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Craig O'Neill, VersaPay Corporation - CEO & Director [19]

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Yes, for sure. So going into the year we had made the decision that we're going to focus a large proportion of our sales and marketing effort, certainly our marketing spend, in 2 important verticals for us, and we'd be opportunistic everywhere else. And so media is one of those industries that we'll be opportunistic. To the areas that we're focused on is where we're getting the best result of course, we're getting a good return on that investment. And those 2 areas are commercial real estate because we already had traction there and felt that we could really leverage the momentum and build even more momentum. We're seeing that happening.

And then the other one, because we just think it's such a perfect fit, it's wholesale distribution. So those are the 2 that we're putting most of our time and attention to and as a result they're definitely where we're getting most of our results as expected, so that plan is working out as expected. And then we've got a whole variety of media, technology, business services, and other industries where we're being kind of opportunistic. I think what's interesting is we're -- certainly we continue to see and it's not like a huge spike, but we continue to see every quarter growth in the number of inbound queries that we get, companies like this media company that are coming to us versus us reaching out and chasing them.

So we're really pleased about that. We are seeing some contraction in the sales cycle and in fact in Q3 in particular, never over till it's over, but we've got a handful of deals which are relatively new deals that actually could close in the quarter. So we're seeing more of that now, but it's a little early to call that a trend that we're going to rely on. But we're cautiously optimistic that sales cycles are getting a little shorter.

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Suthan Sukumar, Eight Capital, Research Division - Principal [20]

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Great. On the MasterCard partnership, could you expand on the regions and maybe the end market that this channel will focus on initially kind of sort of where you expect to see initial traction? And what is the pipeline kind of look today beyond that the bank that you mentioned earlier?

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Craig O'Neill, VersaPay Corporation - CEO & Director [21]

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Yes. So -- and this is of course new for us. We've got more to learn about how to forecast what it's going to look like in the quarters ahead. But I'll do my best to answer your question. So first of all start by saying the go-to-market, the way -- you can think of virtual grows almost like physical cards that we would use as consumers. MasterCard and Visa issue those cards, provide that card-issuing capability to banks. Banks issue cards to their customers and then the customers pay with the cards of course.

So virtual cards work the same way. MasterCard has a virtual card program. They provision the card numbers. It's the issuing banks that actually provide the credit cards, although there's no plastic to the buyers, none of the buyers use them. So they've got a large number of, like, in the dozens of -- and the high dozens, many dozens of banks around the world that issue virtual cards that are MasterCard branded. The intent is that all of them will get this capability over time. Starting in North America, there's already interest in the U.K., early interest, so we'll see where that goes. But starting -- the intent is to start in North America.

MasterCard can present the offering to the bank. It's really up to the bank on how quickly they sort of roll it out and explain it to their customers. So that's the part that we don't know. What we do know is I think we've talked to 5 banks now and all have said great. It's been kind of comical because they do say, okay, how much does this cost? And they ask a couple of clarifying questions when MasterCard says there's no cost. And then once they're convinced that there's no cost, they kind of say, okay, great, when can we get started? Now again it's a bank, so that doesn't mean that they start overnight. But one of those is starting really quickly.

So we'll see how quickly that rolls out. But ultimately the goal is that the dozens and dozens and dozens of banks that are issuing cards to large numbers -- I don't have the exact number, but large numbers of buyers that are paying tens of thousands of suppliers will all have this capability. And therefore the capability will put the freemium version of ARC into thousands and thousands of suppliers who then we can upsell to.

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Suthan Sukumar, Eight Capital, Research Division - Principal [22]

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Good color. And kind of lastly for me on professional services, that's given the strong pace of client wins in recent quarters, do you anticipate making any further investments on the PS side to support further client deployment capacity as your backlog continues to increase?

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Craig O'Neill, VersaPay Corporation - CEO & Director [23]

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We do. We -- really we run our professional services team as a profit center, but we're not looking to make a lot of money on PS. We're not looking to have big, big, big project costs. We want to keep our projects quick and efficient and lean and really get customers up and running and satisfied with the platform. So we're not looking for big, big margins out of PS. But the mandate of the group is as long as you've got the work to support it, and as long as you can do it profitably, you can grow your team. So there will be some growth around that, but of course it will be profitable work that we're doing there.

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Suthan Sukumar, Eight Capital, Research Division - Principal [24]

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Okay. Okay. Good. And let me just squeeze in one last question. Could you provide an update on your cash application feature? What does adoption look like since you've launched this offering? And what's been some of the early feedback from the base?

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Craig O'Neill, VersaPay Corporation - CEO & Director [25]

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Yes, great question. I debated about including some remarks on that, but I didn't want to go too long. So good question, Suthan. So we launched it really into the market looking for a beta client in Q2. We thought we had one and ended up not having one, that deal did not close. We currently have and we've been -- it's been a very controlled rollout because we didn't want to get ahead of ourselves. Ideally, we wanted to win one client, get them up and live, iron out any wrinkles before we go after more. So it's been a very controlled sales process. But nonetheless, I think of our deals that we expect could close in this quarter, there's about 7 that include cash app.

So that's a good proportion of our deals for Q3. So none of them signed yet, but we're very close on several. So we're actually seeing really good interest, although we've yet to sign the first one. I think couple of quarters from now, it will be a very different story. I think we'll be talking a lot about sales of the cash app module.

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Operator [26]

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Next question will be from Daniel Rosenberg at Haywood.

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Daniel Rosenberg, Haywood Securities Inc., Research Division - Analyst of Technology [27]

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I had a question about the gross margin. You saw a nice improvement year-over-year and mentioned it's due to the product mix. I was wondering in terms of the pipeline and the mix of backlog that you have is this a new level for you? Or do you continue to see a positive momentum in the coming quarters?

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Shouvik Roy, VersaPay Corporation - CFO [28]

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Yes. I think -- yes, I can start off, Craig. Yes, I think the gross margin is around that 80% mark is where we expected to kind of stay for the next little while. I mean our product mix, as we mentioned earlier, is definitely shifted towards ARC, which is much more profitable. I mean as other different product lines start to generate additional revenue like payments and things like that, we can see some downward pressure on the gross margin because they were lower-margin businesses, but right now for the rest of 2019 we expect it to be around that 80% mark.

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Daniel Rosenberg, Haywood Securities Inc., Research Division - Analyst of Technology [29]

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And in terms of the sales channels direct versus channel, I know you guys are kind of replenishing the channel partner pipeline. I was wondering what the mix was in this quarter?

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Craig O'Neill, VersaPay Corporation - CEO & Director [30]

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Yes, I -- my best guess, obviously it's far from certain, but my best guess is it's likely similar, we think we're going to have a strong direct sales quarter, but it's likely going to be all -- almost all direct. The deals in the pipeline for resellers are earlier stage.

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Daniel Rosenberg, Haywood Securities Inc., Research Division - Analyst of Technology [31]

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Okay. Great. And then lastly just a couple of data points. I was wondering -- I know in your opening remarks you mentioned the amount of bank transfers versus credit card payments, but I missed the number. Could you please repeat that?

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Craig O'Neill, VersaPay Corporation - CEO & Director [32]

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Yes, the split is about 60-40. But I mentioned the total number, I can go back and look that up for you, and then the split between them is 60-40. So we did 128,000 payments altogether. 60% of those were bank-to-bank or ACH -- EFT/ACH and 40% were credit card. And the notable thing really about that metric is that's really high from a credit card perspective in B2B transactions. Our theory was that we could generate higher credit card volumes and we're definitely seeing that quite consistently quarter-over-quarter.

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Daniel Rosenberg, Haywood Securities Inc., Research Division - Analyst of Technology [33]

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Great. Yes, and it speaks to the value that you could bring to MasterCard. Last one from me, I was just wondering what your head count is. I know you had to hire given some of the growth, but just wondering where you're at currently?

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Shouvik Roy, VersaPay Corporation - CFO [34]

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Yes, we finished the quarter with about 81 people. That's actually pretty much flat to last year. So there's been a little bit of ebbs and flows, but we finished the year -- quarter at 81.

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Craig O'Neill, VersaPay Corporation - CEO & Director [35]

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Yes, at any snapshot point in time there are -- different teams are ebbing and flowing. I'd mentioned that the client success support team was larger. Sales was a little bit smaller. So -- and some of that is just attrition or performance management and some is due to other factors, but yes, we have 81 in the quarter.

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Daniel Rosenberg, Haywood Securities Inc., Research Division - Analyst of Technology [36]

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Okay. And lastly could you speak about just how you guys are viewing the competitive landscape? Have you seen any changes out there as you're approaching new customers and new partnerships?

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Craig O'Neill, VersaPay Corporation - CEO & Director [37]

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No real material change. We continue to be feeling -- we don't want to be overconfident, but we're quite confident facing competitors. We've -- for the last few quarters now we've consistently I would say gotten feedback that we compare extremely well. And we've gotten some of that just recently again, both with some very large prospects and midsize clients that on a kind of apples-to-apples basis we come out very, very strongly. We tend to be the premium-priced product against our competition. So that's been about the same. We're not resting on our laurels. We're working hard to keep improving the platform all the time to make sure that we kind of stay, we like to call it staying in the pole position.

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Operator [38]

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Next question will be from David Kwan at PI Financial.

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David Kwan, PI Financial Corp., Research Division - Technology Analyst [39]

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On getting back to the MasterCard partnership in kind of the revenue model there, I think in the past you've talked about kind of a minimum payment they're providing. Does that payment scale as more cards -- more I guess bank assurers adopt the platform? Or is that effectively just to cover the fact that the kind of freemium model across all their bank partners?

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Craig O'Neill, VersaPay Corporation - CEO & Director [40]

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It does scale and the minimum commitment is relatively small, but then it's really -- beyond that it's based on payment volume. So once it starts to go, we think that the first -- depending on which one goes first or which one goes first at scale I should say, the first issuer could kind of blow through that minimum, and then it grows based on overall payment volumes. The first -- the issuer is doing the first pilot. If they choose to, if they elect to roll out at scale, I think they could by themselves get through that minimum, and then it just grows from there based on overall payment volumes every month.

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David Kwan, PI Financial Corp., Research Division - Technology Analyst [41]

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Okay. That's helpful, Craig. And then on the RBC side, I guess it sounds like there's still some work to be done there. Do you expect that by the end of this year you could start to see material revenues being generated I guess outside of that minimum payment that they're providing to you? And your commentary I guess on these partnerships contributing a material amount of revenue as seen in the year, where do you see that coming from?

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Craig O'Neill, VersaPay Corporation - CEO & Director [42]

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Yes, so I'm cautious about any comments with respect to RBC because we have so little control over their timing of things. So I would maybe not use the word expect, but we are hopeful that we're going to start to see some incremental revenue from RBC by the end of the year. Not really counting on it before, but we're hopeful that we'll see by the end of the year some incremental revenue. We think that the MasterCard minimum will exceed that by the end of the year. And again, that's largely out of our control. But given the early reaction from issuers, we think there's a good likelihood of exceeding that minimum and seeing that start to grow nicely.

And then we have the bank in the U.S. that I don't want to talk too much about because we're not in a position to announce yet, but all signs are that they're going to be able to get a -- get off to a very quick start. And I do think we'll be announcing that in the next 4 to 6 weeks -- 4 to 8 weeks, so fairly soon. And I think we'll -- as we announced that the firing going to go off and they're going to get off to a quick start. They've done a lot, we've had a lot of sales engagement, they've got themselves lined up and ready to go. So we're hopeful that's going to contribute fairly quickly.

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David Kwan, PI Financial Corp., Research Division - Technology Analyst [43]

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So it sounds I guess, Craig, that in terms of -- if you had to kind of rank these partnerships as it relates to potential revenue generation that MasterCard and potentially this U.S. bank would be ahead of RBC?

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Craig O'Neill, VersaPay Corporation - CEO & Director [44]

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Yes.

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David Kwan, PI Financial Corp., Research Division - Technology Analyst [45]

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For the remainder of the year?

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Craig O'Neill, VersaPay Corporation - CEO & Director [46]

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Yes. In terms of incremental new revenue, yes.

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David Kwan, PI Financial Corp., Research Division - Technology Analyst [47]

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Okay. That's helpful. Just one more question here then. On the accounts receivables side, you guys had indicated I guess you collected 33% after the quarter. Was that mostly in the past 2 categories because I noticed that was up, I guess it was a percent of the overall AR this quarter versus a year ago?

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Shouvik Roy, VersaPay Corporation - CFO [48]

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Yes. Yes, it's a good question. So yes, most of that question was in the over 90-days bucket. There's only like basically 2 or 3 companies -- actually 3 companies that are making up the bulk of that outstanding receivable and there is really large customers that we basically have delayed collection on just because we've gotten a little bit of a later start on the implementation. So we've just made an -- a mutual agreement to extend payment terms on that particular cases. So we expect to collect shortly. We expect to -- in the next, hopefully in the next few weeks to be able to collect the rest.

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Operator [49]

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(Operator Instructions) Your next question will be from Gavin Fairweather at Cormark.

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Gavin Fairweather, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [50]

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Wanted to chat quickly on average deal size. When I look at the ARC ARR kind of per client, it's more than doubled over the past year at about 28,000 in my model. So maybe you could just talk from a high level about the drivers of that? And then as a side -- as an aside when you look at the mix of clients in your pipeline where do you think you can continue pushing that number higher and where ultimately it can go over time?

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Craig O'Neill, VersaPay Corporation - CEO & Director [51]

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Yes, it's definitely our intent to push it higher. We have seen it growing. I think for the last couple of quarters it's been reasonably consistent. But we generally are seeing more and more large deals. Now as I mentioned earlier, we didn't close any of the big deals in Q2. We closed 15 kind of midsized deals. So that may pull down your average deal size quarter -- or kind of since inception based on Q2 because of that. But there are a bunch of large -- many large deals in the pipeline.

We're definitely seeing more and more large companies in the market interested, feeling quite compelled to do something, which is great. And that's some of our work and I think our competitors well doing a good job of creating awareness. So there's just generally more awareness in the market with big companies and they're out looking. So that's going to we think push the average deal size up.

The other thing of course which we believe will push the average deal size up is our cash app module. I do think that there'll be a reasonably larger proportion, at least 1/3 of the deals that will include cash app, if not more, which will gross up the deal size by somewhere between 25% and 50%. And then of course there's the First Data, the payments, and that's been a little slow to get off the ground. That's been taking a little time to get existing clients to convert. And then they're very, very careful to make sure that their payment relationships work and that there's no risk of processing. But we're also having I think a fair bit of success with new deals where we're signing them up on payments on First Data right away. So that will have an effect as well.

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Gavin Fairweather, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [52]

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Okay. The rest of my questions have been asked.

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Operator [53]

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At this time, I would like to turn the call back over to Mr. O'Neill.

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Craig O'Neill, VersaPay Corporation - CEO & Director [54]

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Great. Well, thanks again everyone for joining us today. It's summertime, but despite that fact we will be working hard to close deals and build momentum with MasterCard and launch and announce a new partnership with the American bank that I've alluded to. So stay tuned for news on all of those fronts. And also I'd like you to stay tuned for details on an event that we're planning for the fall, an Investor Day that will include speakers from MasterCard, some of our other partners and some key clients as well. So till then, all the best and enjoy the rest of your summer.

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Operator [55]

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Ladies and gentlemen, this does indeed conclude your conference call for today. Once again thank you for attending and at this time we do ask that you please disconnect your lines. Enjoy the rest of your day.