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Payment Data Systems Announces Results for the Third Quarter of 2018

Company Reports Record Quarterly Revenues

On Pace for 2018 Record Revenues

SAN ANTONIO, Nov. 14, 2018 (GLOBE NEWSWIRE) -- Payment Data Systems (PYDS), an integrated electronic payment solutions provider, today announced financial results for the third quarter of 2018, which ended September 30, 2018.

Louis Hoch, President and CEO of Payment Data Systems, said, “With the third quarter’s record revenues and volumes, and the strong momentum across our ACH, prepaid and card processing businesses, we are on pace for a banner year.   In addition, we continue to make significant progress with our plans to grow revenues, which we expect to improve even further in the fourth quarter.  Most exciting, organic revenue growth was 18% this quarter compared to our 14% organic growth in Q2 2018, primarily due to our fifth consecutive quarter of growth in our ACH business.  We also ended the quarter in a strong financial condition, which together with the anticipated continued improvement in cash flow generation, is providing sufficient resources to fund the exciting growth initiatives that are gaining traction in our Prepaid and PayFac operations. The outlook has never been brighter, and we are committed to capitalizing on the significant opportunities we see in order to leverage our proprietary technology and to build value for our shareholders.”

Third Quarter 2018 Financial Summary

Revenues were $6.5 million for the third quarter of 2018, up 80% compared to $3.6 million in the same period last year.  The primary drivers of the revenue growth included organic growth of 18% for the quarter, excluding Singular Payments in both periods, plus three months of Singular Payments results in 2018 compared to one month in 2017.   Organic growth in the second quarter of 2018 was 14%.

Gross profits were $1.5 million, up 77% from $0.8 million in the same period last year.  Gross margins improved to 22.5% in the third quarter of 2018 compared to 23.0% in the same period last year.   The primary driver for the improved gross margin came from strong revenue growth and improved profits in the ACH business line.

Operating loss was $0.8 million in the third quarter of 2018 compared to $0.9 million in the same period last year and $1.0 million in the second quarter of 2018.

Adjusted EBITDA was a loss of $60,653 for the third quarter of 2018, improving from an adjusted EBITDA loss of $0.3 million in the third quarter of 2017.

Net loss for the third quarter of 2018 was $0.8 million or ($0.07) per share compared to a net loss of $0.9 million or ($0.10) per share for the same period last year. The earnings per share loss for the current quarter was based upon 12.1 million shares outstanding whereas the earnings per share loss in the same period last year was based upon 8.9 million shares outstanding.

Net loss improved $0.2 million to a loss of $0.8 million compared to a net loss of $1.0 million in the second quarter of 2018.

More than $885 million total dollars were processed during the third quarter of 2018, which is the Company’s highest volume in the last three years.

Payment Data Systems continues to be in solid financial condition with $2.7 million in cash and cash equivalents and no debt at September 30, 2018.

Electronic check transaction volumes during the third quarter of 2018 were up 28% versus the same time period last year.  Returned check transactions processed during the third quarter of 2018 were up 34% versus the same period last year.

Credit card transaction volumes during the third quarter of 2018 were up 109% compared to the same period last year.  Credit card dollars processed during the third quarter of 2018 were up 112% compared to the same period last year.

Financial Results for the Nine Months of Fiscal 2018

Revenues for the nine months ended September 30, 2018 were $18.6 million, up 108% from the same period last year.

Gross profit in the nine months ended September 30, 2018 was $4.0 million, up 64% from the same period last year.

Gross margins were 21.8% for the nine months ended September 30, 2018 compared to 27.5% in the same period last year.

Operating loss for the nine months ended September 30, 2018 was $2.9 million compared to $1.8 million for the same period last year due to continued investments in the Prepaid and PayFac growth initiatives. 

Adjusted EBITDA for the nine months ended September 30, 2018 was a loss of $0.6 million compared to a loss of $0.3 million for the same period in the prior year.

Net loss for the nine months ended September 30, 2018 was $2.9 million or ($0.24) per share compared to a loss of $1.7 million or ($0.20) per share in the same period last year.

Conference Call and Webcast

Payment Data Systems, Inc.’s management will host a conference call with a live webcast today at 5:30 p.m. Eastern Time to provide a business update.  To listen to the conference call, interested parties within the U.S. should call 1-844-883-3890. International callers should call +1-412-317-9246. All callers should ask for the Payment Data Systems conference call. The conference call will also be available through a live webcast, which can be accessed via the company’s website at www.paymentdata.com/invest.

A replay of the call will be available approximately one hour after the end of the call through November 28, 2018. The replay can be accessed via the Company’s website or by dialing 1-877-344-7529 (U.S.) or +1-412-317-0088 (international). The replay conference playback code is 10125759.

Payment Data Systems, Inc. (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 services 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 Franklin, Tennessee, just outside of Nashville. 

Websites: www.paymentdata.comwww.singularpayments.comwww.payfacinabox.com, www.akimbocard.com, and www.ficentive.com. Find us on Facebook® and Twitter.

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."

FORWARD-LOOKING STATEMENTS DISCLAIMER
Except for the historical information contained herein, the matters discussed in this release include forward-looking statements which are covered by safe harbors. Those statements include, but may not be limited to, all statements regarding management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. These forward-looking statements are identified by the use of words such as "believe," "intend," "look forward," "anticipate," "schedule", and "expect" among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the Company's business that could cause actual results to vary, including such risks related to the realization of the anticipated opportunities from the Singular acquisition, the management of the Company's growth, the loss of key resellers, the relationships with the Automated Clearinghouse network, bank sponsors, third-party card processing providers and merchants, the security of our software, hardware and information, the volatility of our stock price, the need to obtain additional financing, risks associated with new tax legislation, and compliance with complex federal, state and local laws and regulations, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the fiscal year ended December 31, 2017. One or more of these factors have affected, and in the future, could affect the Company’s businesses and financial results in the future and could cause actual results to differ materially from plans and projections. The Company believes that the assumptions underlying the forward-looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to management. The Company assumes no obligation to update any forward-looking statements, except as required by law.

                                                                                
Contact:
Joe Hassett, Investor Relations
joeh@gregoryfca.com
610-228-2110


PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

  September 30, 2018   December 31, 2017
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 2,716,316     $ 4,800,554  
Accounts receivable, net 1,147,482     969,674  
Settlement processing assets 34,767,837     38,027,984  
Prepaid expenses and other 179,330     176,945  
Notes receivable, net 72,500     150,000  
Current assets before merchant reserves 38,883,465     44,125,157  
Merchant reserves 13,602,562     14,977,468  
Total current assets 52,486,027     59,102,625  
       
Property and equipment, net 2,050,221     2,105,186  
       
Other assets:      
Intangibles, net 3,926,426     4,676,427  
Deferred tax asset 1,394,000     1,394,000  
Other assets 303,759     157,565  
Total other assets 5,624,185     6,227,992  
       
Total assets $ 60,160,433     $ 67,435,803  
       
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable $ 251,906     $ 300,736  
Accrued expenses 1,217,307     1,006,262  
Settlement processing obligations 34,767,837     38,027,984  
Deferred revenues 35,000      
Current liabilities before merchant reserve obligations 36,272,050     39,334,982  
Merchant reserve obligations 13,602,562     14,977,468  
Total current liabilities 49,874,612     54,312,450  
       
Non-current liabilities:      
Deferred rent 58,457      
Total liabilities 49,933,069     54,312,450  
       
Stockholders’ equity:      
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at September 30, 2018 (unaudited) and December 31, 2017, respectively      
Common stock, $0.001 par value, 200,000,000 shares authorized; 17,020,180 and 16,874,235 issued, and 15,943,624 and 16,201,634 outstanding at September 30, 2018 (unaudited) and December 31, 2017, respectively 185,447     186,299  
Additional paid-in capital 74,371,930     74,041,083  
Treasury stock, at cost; 1,076,556 and 672,601 shares at September 30, 2018 (unaudited) and December 31, 2017, respectively (1,797,442 )   (831,059 )
Deferred compensation (6,372,735 )   (7,012,544 )
Accumulated deficit (56,159,836 )   (53,260,426 )
Total stockholders’ equity 10,227,364     13,123,353  
       
Total liabilities and stockholders’ equity $ 60,160,433     $ 67,435,803  


PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2018   2017   2018   2017
                 
Revenues   $ 6,473,743     $ 3,588,853     $ 18,601,283     $ 8,950,038  
Cost of services   5,014,603     2,764,236     14,551,621     6,486,587  
Gross profit   1,459,140     824,617     4,049,662     2,463,451  
                 
Selling, general and administrative:                
Stock-based compensation   289,038     230,206     961,893     655,885  
Other expenses   1,519,793     1,172,021     4,613,720     2,800,033  
Depreciation and amortization   473,225     314,789     1,389,164     770,607  
Total selling, general and administrative expenses   2,282,056     1,717,016     6,964,777     4,226,525  
                 
Operating (loss)   (822,916 )   (892,399 )   (2,915,115 )   (1,763,074 )
                 
Other income and (expense):                
Interest income   23,327     16,381     50,244     88,927  
Other income (expense)   1,423     993     (539 )   (121 )
Other income and (expense), net   24,750     17,374     49,705     88,806  
                 
(Loss) before income taxes   (798,166 )   (875,025 )   (2,865,410 )   (1,674,268 )
Income taxes   15,000     15,000     34,000     36,677  
                 
Net (loss)   $ (813,166 )   $ (890,025 )   $ (2,899,410 )   $ (1,710,945 )
                 
Basic (loss) per common share:   $ (0.07 )   $ (0.10 )   $ (0.24 )   $ (0.20 )
Diluted (loss) per common share:   $ (0.07 )   $ (0.10 )   $ (0.24 )   $ (0.20 )
Weighted average common shares outstanding                
Basic   12,145,323     8,954,831     12,098,828     8,637,169  
Diluted   12,145,323     8,954,831     12,098,828     8,637,169  



PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

  Nine Months Ended September 30,
  2018   2017
Operating activities:      
Net (loss) $ (2,899,410 )   $ (1,710,945 )
Adjustments to reconcile net (loss) to net cash (used) by operating activities:      
Depreciation 639,164     564,920  
Amortization 750,000     205,687  
Provision for loss on note receivable 72,500      
Bad debt expense     71,667  
Stock based compensation 961,893     655,885  
Issuance of stock to consultant for services 7,911     15,400  
Changes in current assets and current liabilities:      
Accounts receivable (177,808 )   30,733  
Prepaid expenses and other (2,385 )   (84,783 )
Other assets (146,194 )   64,440  
Accounts payable and accrued expenses 162,215     220,100  
Merchant reserves (1,374,906 )   (894,741 )
Deferred revenue 35,000      
Deferred rent 58,457      
Net cash (used) by operating activities (1,913,563 )   (861,637 )
       
Investing activities:      
Purchases of property and equipment (584,198 )   (344,611 )
Purchase of Singular Payments, LLC     (900,000 )
Notes receivable 5,000     (600,000 )
Net cash (used) by investing activities (579,198 )   (1,844,611 )
       
Financing activities:      
Purchases of treasury stock (966,383 )   (109,382 )
Net cash (used) by financing activities (966,383 )   (109,382 )
       
Change in cash, cash equivalents and merchant reserves (3,459,144 )   (2,815,630 )
Cash, cash equivalents and merchant reserves, beginning of period 19,778,022     19,924,379  
       
Cash, cash equivalents and merchant reserves, end of period $ 16,318,878     $ 17,108,749  
       
Supplemental disclosure of cash flow information:      
Cash paid during the period for:      
Interest      
Income taxes $ 49,000     $ 21,677  
Non-cash transactions:      
Issuance of common stock in exchange for purchase of Singular Payments, LLC     3,500,000  
Forgiveness of note receivable in exchange for purchase of Singular Payments, LLC     600,000  
Issuance of deferred compensation to Vaden Landers     630,000  
           

 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
       
  Three Months Ended   Nine Months Ended
  September 30,   September 30,   September 30,   September 30,
2018 2017   2018 2017
               
Reconciliation from Operating (Loss) to Adjusted EBITDA:              
Operating (Loss) $ (822,916 )   $ (892,399 )   $ (2,915,115 )   $ (1,763,074 )
Depreciation and amortization 473,225     314,789     1,389,164     770,607  
EBITDA (349,691 )   (577,610 )   (1,525,951 )   (992,467 )
Non-cash stock-based compensation expense, net 289,038     230,206     961,893     655,885  
Adjusted EBITDA $ (60,653 )   $ (347,404 )   $ (564,058 )   $ (336,582 )
               
               
Calculation of Adjusted EBITDA margins:              
Revenues $ 6,473,743     $ 3,588,853     $ 18,601,283     $ 8,950,038  
Adjusted EBITDA (60,653 )   (347,404 )   (564,058 )   (336,582 )
Adjusted EBITDA margins -0.9 %   -9.7 %   -3 %   -3.8 %