Greetings, and welcome to the 3PEA International 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

Before we begin, please let me remind you that on today's call the company may make various remarks about future expectations, plans and prospects for 3PEA International that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors including those discussed in 3PEA's annual report on Form 10-K for fiscal year ended December 31, 2018 and subsequent in filings made by the company with the SEC.

To the extent that the company utilizes non-GAAP measures reconciliations will be provided in various press releases and on the company's website. With that, once again thank you for joining us. I'll now turn the call over to Mark for his part of the discussion and presentation..

Thank you and good afternoon. On behalf of 3PEA I would like to welcome you to our first annual earnings call. I'm Mark Newcomer, Chief Executive Officer of 3PEA International. I'll begin by sharing a brief review of 2018 and will then share our strategic direction and outlook for 2019.

Following my remarks I will turn it over to our Chief Financial Officer, Mark Attinger to take us through the numbers for 2018 and to touch on guidance for 2019. Following Mark's review we will then field your questions.

Some of you may be new to following our company and therefore may not have had the opportunity to listen to our investor presentation from February 7, so as a quick background 3PEA is both a processor and a prepaid card program manager. We develop customized and innovative payment solutions in support of corporate, consumer and government programs.

To learn more about our history and the service we provide and to review a copy of the investor presentation you may want to visit the Investors section of our website at www.3pea.com. In summary for 2018 we saw revenues increase to a record $23.4 million or 54%.

Net income increased to $2.6 million or 44%, and adjusted EBITDA increased to $4.9 million, or 65%. Mark will elaborate on these numbers in a few minutes. I'm very pleased with our growth in new clients, new programs and the traction we're seeing in the pharmaceutical industry.

In 2018, we achieved several milestones, including the commencement of trading our common stock on the NASDAQ Capital Market as of August 10, 2018. Additionally, we assembled a very experienced Board that includes our Chairman, Dan Henry who was the former CEO of NetSpend; and Dennis Triplett, who was the former CEO of Health Services at UMB Bank.

We continued to make key additions to our senior management team in 2018 strengthening our organization and preparing us for the next phase of growth. I would now like to touch briefly on 2019 and our strategic direction. In February, we guided revenues for 2019 at $38 million to $40 million.

This now represents a 62% to 71% increase versus full year 2018 actual revenue. We expect our pharmaceutical programs to materially contribute to this growth and to be complemented by our continued growth in the non-pharma business. Most of our strategic hiring for professional positions has been completed.

However, we will make incremental investments in personnel in support of our expected continued growth. Strategically, we will continue to broaden and diversify our market focus for our prepaid card programs and we will seek to introduce new products.

Furthermore to reiterate my statements at the end of quarter two we will continue to pursue acquisition candidates that have a corporate culture of innovation, provides synergies and that have demonstrated growth and profitability. At this time, I would like to turn it over to Mark to take us through the numbers.

Mark?.

Thanks Mark. I appreciate that. So I'll take us through 2018 top-line numbers and provide some variance commentary and then I'll add to Mark’s comments pertaining to 2019, including confirming our earnings guidance.

So revenue for the year ending December 31, 2018 was $23,423,675 an increase of 53.8% compared to $15,234,091 the prior year and 65% end of the guidance range which has been set at $22.75 million to $23.75 million.

The increase was primarily attributable to growth in new clients, the addition of new card programs and increased revenues for existing card programs. With respect to gross profit, it increased 70.1% to $11.4 million and was 48.7% of revenues, compared to $6.7 million and 44% of revenues in 2017.

The 470 basis point improvement resulted from both higher net interchange margins for PIN debit transactions and improved client mix. The operating expenses were $8.9 million, compared to $4.9 million in the prior year.

The increase is primarily attributable to increase in leadership and staffing that Mark touched on, investments in infrastructure and increased stock-based compensation.

At yearend the company had 55 employees up from 41 in December 2017 and when you exclude customer care which is represented in cost of sales SG&A related headcount grew from 22 employees to 32 employees last year in 2018. The annualization of those new hires in the second half of 2018 will be recognized in the full year 2019 results.

However, we do expect the rate of SG&A growth to slow in 2019. Net income for the year was $2,588,054 an increase of 44.5% compared to $1,791,141 the prior year. Basic earnings per share were $0.06 versus $0.04 the prior year. Non-GAAP adjusted EBITDA was a record high $4,904,781, an increase of 64.9% compared to the $2,974,425 in 2017.

Furthermore, the adjusted EBITDA margin improved to 21.5% up from 19.5% the prior year. From a balance sheet perspective cash on hand doubled to $5.6 million, and restricted cash, client and card holder funds ended the year at $26.1 million, an increase of [80.7%] compared to the prior year.

Our liquidity as measured by an adjusted current ratio excluding restricted cash from both side of the balance sheet was 5.7 up from 3.1 the prior year. And finally, we continue to have no debt on the balance sheet. Just shifting to 2019 and adding to Mark’s comments. We guided revenue at $38 million to $40 million.

The revenue growth will come from both the reentrance and the solutions for the pharmaceutical industry and continued growth in the non-pharma business. Please also note that revenue and margins from new products are not factored into our projections.

Today, we also would like to reiterate what we just released in the earnings announcement that the non-GAAP adjusted EBITDA guidance is $10 million to $12 million. This represents 104% to 145% as an increase in comparison to the $4.9 million 2018 results. It also represents an adjusted EBITDA margin of 26% to 30%, up from the 21.5% in 2018.

That concludes my remarks. I will turn it back over to our moderator to begin a question-and-answer session..

[Operator Instructions]. Our first question today is coming from Jon Hickman from Ladenburg Thalmann. Your line is now live..

For modeling purposes can you give me some indication of what you think the expense growth in 2019 over 2018 might be? I know you said it’s going to slow..

Yes, I mean the revenue growth if you see that we are planning as you know is basically 62% to 71%. We don’t have the level of investment in infrastructure and new hires in 2019 but we do have -- we continue to make investments into the platform and into the technology environment. There are some incremental hires but not at the same level.

But we do have some incremental expense in 2019 for the new hires that we hired in the second half of the year.

And Jon if you want to take a look at the case that we are out there that we communicated on the officers and some of those positions that were hired in the second half of the year that will give you the information you need on the annualized effect. But we are probably not going to communicate a specific percentage at this point..

[Operator Instructions] Our next question today is coming from William Gibson from Roth Capital Partners. Your line is now live..

I had an accounting question. You’ve determined the release on the revenue conversion rate, the gross dollar volume on loaded cards.

How was that determined?.

Yes, so on the revenue it’s simply our revenues as a percentage of dollars that have been loaded onto the prepaid cards..

And so that’s manual number or how often is that determined?.

So that number that we quoted to you has been reported in prior quarters also. We do evaluate that and looking at revenue as a percentage of the dollars loaded. And of course as you can imagine and you can appreciate the different types of products and industries that we support have different conversion rates if you will.

And so that number will evolve as we continue to diversify our portfolio..

[Operator Instructions] Our next question today is coming from Colin O'Donnell from Black Oak Capital. Your line is now live..

So two questions. One how should we think about the interest income in a slope? So that’s kind of the modeling question.

And then the second is kind of related to that, how should we think about free cash, I don’t know if you want to use the conversion from EBITDA to free cash flow or how sort of metric that we can think about including CapEx or capital?.

The first one I feel more comfortable answering, the second one who more goes into that. But in terms of interest as you see and you may not see it in all the detail but you do have the attachments to the press release today and what you see is interest income of 140,000.

One of the other things you see on the balance sheet is an 80% plus increase in restricted cash. So we do earn a little bit of interest on that restricted cash and that restricted cash again is cardholder funds and client funds in the case of client funds, it’s funds being prepared to be loaded to cards for the customers of our clients.

And so as you see restricted cash increase you can model and project incremental interest income revenues coming from that. And with that in mind given our revenue projections for the year we do expect interest income to be probably north of $400,000 instead of $140,000 in 2018.

With respect to the second question, I don't have a real good answer for you on converting the P&L to cash.

What I will tell you is historically you make adjustments to your adjusted EBITDA by then or to your net income by making adjustments for CapEx and so we do make a couple of $3 billion of CapEx in 2018 and we will make some additional investments of CapEx in 2019 that are obviously cash affecting.

And so that’s the one item that you might make some adjustments on. The other piece to keep in mind unlike other companies, we do not have a significant AR or AP, the AR days and AP days are very low just due to the nature of the business. So the balance sheet and income statement are pretty clean..

Could you talk about taxes too and when you start to pay cash taxes?.

We are looking at that and we don’t have any tax implications to-date and we are still modeling for 2019 and don’t have a response on that at this time..

Our next question is coming from Michael Diana from Maxim Group. Your line is now live..

You mentioned the focused issue 2019 is going to be on the pharmaceutical industry. I think you also mentioned non-pharmaceutical.

Is there anything you can tell us about what's going on there?.

Yes, obviously our focus is on the pharmaceutical side and really health life science side we are continuing to go out there pharmaceutical plasma market. And we are also on the non-pharma side. We are going after more of a corporate incentive, just a general market overall, hospitality and other areas of the corporate incentive market.

So we will continue to go after that as well..

We have reached end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments..

Yes, just on behalf of 3PEA we really appreciate the opportunity to convey this message on our first earnings call and we certainly appreciate the interest as well as the questions. So thank you..

Thank you. It does conclude today's teleconference and webinar. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..