Greetings and welcome to the PaySign, Third Quarter 2019 Earnings Conference Call. At this time all participants are in only-listen mode. A question and answers session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

This presentation may include forward-looking statements to the extent that the information presented in this presentation discusses financial projections, information and expectations about the company's business plans, results of operations, returns on equity markets or otherwise make statements about future events.

Such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as should, may, intends, anticipates, believes, estimates, projects, forecast, expects, plans and proposes.

Although the company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

You are urged to carefully review and consider any cautionary statements and other disclosures including the statements made under the heading risk factors and elsewhere, our 2018 Form 10-K.

Forward-looking statements speak only as of the date of the document in which they are contained and the company does not undertake any duty to update any forward-looking statements except as may require by law.

This presentation also includes adjusted EBITDA and non-GAAP financial measure that is not prepared in accordance with nor an alternative to financial measures prepared in accordance with U.S. generally accepted accounting principles, GAAP.

In addition, adjusted EBITDA is not based on any standardized methodology prescribed by GAAP and is not necessarily comparable to similarly titled measures presented by other companies. It's my pleasure to introduce your host CEO of PaySign Mr. Mark Newcomer. Please go ahead, sir..

Thank you, Kevin. And good morning, everyone. On behalf of PaySign, I'd like to welcome you to our third quarter 2019 earnings call. I'm Mark Newcomer, Chief Executive Officer here at PaySign. I will provide a brief overview of some of the highlights for the third quarter and what will reinforce our strategic direction.

Following my remarks, I'll turn it over to our Chief Financial Officer, Mark Attinger to take us through the third quarter results. Following Mark's review, we will then field your questions. PaySign is both a vertically integrated payment processor and a prepaid card program manager.

We developed customized and innovative payment solutions in support of corporate, consumer and government programs. To learn more about our history and the services we provide and to review a copy of our most recent investor presentation, you may want to visit the investor section of our website at www.paysign.com.

I'm very excited to share the results for an outstanding quarter. We experienced record revenue and earnings. We continue to execute on our growth strategy and gone live with our premier card rolling this out to our cardholders at one of our plasma clients.

Year-to-date we have added 54 new card programs, 45 in plasma, 7 in pharma and two other corporate incentive programs. As expected, all scheduled plasma centers were onboarded at the end of September increasing the total number of centers we service by 13%. As of September 30, there were 2.86 million cardholders on our platform.

In summary revenues were record 9 million, an increase of 40% compared to the prior year. Net income was 3 million also a record and up 270% and adjusted EBITDA was 3.3 million, an increase of the 124%.

We continue to experience excellent growth and expect to see higher revenue in the fourth quarter benefiting from recently onboarded new card programs. Guidance remains 35 million to 37 million and adjusted EBITDA of 10 million to 12 million.

Strategically and consistent with our prior communications, we will continue to broaden and diversify our market focus for our prepaid card programs and will seek to introduce new products. We are evaluating the expansion of our premier card offering to other corporate incentive industry verticals.

Lastly, we are making considerable progress in evaluating several opportunities on the M&A front, however, there is nothing definitive to share at this time.

As I shared previously, we will selectively pursue acquisition candidates that have long-standing replications, corporate culture of innovation 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 little more detail..

Thanks, Mark. So I will take us through the third quarter and the year-to-date top line numbers and provide some variance commentary. Any references to year on year improvement or percentage changes unless stated otherwise refers to the third quarter ending September 30, 2019 as compared to third quarter of 2018.

Revenue for the quarter ended September 30, 2019 was $9 .008117 million, an increase of 40.3% compared to the analyst consensus estimate of $8.98 million and the prior year of $6.421396 million.

This increase in revenue was attributable to continued growth in plasma programs and our new pharma business, which represented proximally 22% of revenue for the current quarter. Revenue for the nine months was $24.901678 and increase of 50.4% year on year, compared to $16.558438 million.

Gross profit increased 76.3% to $5.4 million or 59.6% of revenues compared to $3.0 million and 47.4% revenue in 2018. The 1216 basis point improvement was primarily driven by a favorable mix towards higher margin card programs. The operating expenses were $3.1 million down from $3.4 million from the prior quarter and compared to $2.3 million in 2018.

The quarter three year-over-year increase consists primarily of $0.3 million in incremental salaries and benefits, $0.3 million increased stock-based compensation and a $0.1 million increase in outside professional services. Benefiting from higher cash balances interest income is $114,000 compared to $37,000 to the prior year.

Net income for the third quarter ended September 30, 2019 was $2.960078 or $0.06 per basic share, an increase of 269.6% compared to 8862 or $0.02 per basic share in the prior year. Fully diluted was $.05 versus $0.02.

For the first nine months net income was $5.570540 or $0.12 per basic share an increase of 186.3% compared to $1.945425 or $0.04 per basic share the prior year. For the nine month period fully diluted earnings per share was $0.10 versus $0.04 in the prior year.

Non GAAP adjusted EBITDA was $3.252332 or $0.07 per basic share, an increase of 123.6% compared to $1.454224 or $0.03 per basic share in the prior year. Furthermore, the adjusted EBITDA margin improved to 36.1%, up 1346 basis points from 22.6% in the third quarter 2018.

For the nine month period, adjusted EBITDA was $7.563486 or $0.16 per basic share, an increase of 123.1% compared to $3.390833 or $0.07 per basic share in the prior year.

We loaded $210 million to the card for the quarter versus $172 million in the prior quarter, excuse me, compared to $172 million same quarter the prior year and our revenue conversion rate of gross dollar volume loaded on cards was 4.29% or 429 bips compared to 3.72% or 372 bips in the prior year.

Worth noting and reflecting the new business on boarded in the third quarter in October $88 million were loaded into the card, compared to an average per month in Q3 of just $70 million loaded to cards.

From a balance sheet perspective consolidated cash including restricted cash is increased 30.2% or 9.6 million to 41.2 million, compared to 31.7 million at year-end 2018 as a comparison consolidated cash at October month and was $49.8 million up $8.6 million from September.

Working capital increase to $13.1 million, compared to $9.5 million at June 30, 2019 compared to $5.9 million at year end.

The $7.2 million improvement compared to last year was due primarily to increased consolidated cash but also due to increased AR from higher client billings and decreases in accounts payable, partially offset by an increase in the corresponding liability.

Our liquidity as measured by adjusting the current ratio, excluding restricted cash in cardholder funds from both balance sheet, respectively was 7.5 up from 5.4 at year-end.

As we look to the fourth quarter, we do expect to benefit from revenue, contributed from the recently on boarded and signed new business also considering the mix we expect slightly lower gross margins. And I believe that concludes my remarks at this time, I'll turn it back over to our moderator to begin a question-and-answer session. Thank you. .

[Operator Instructions] Our first question today is coming from Mark Palmer from BTIG. Your line is now live. .

Yes, thank you very much. Question on the restricted cash balance which decline sequentially from the second quarter it had been, I guess $42.6 million and $33.2 million at September 30, I know that from our conversations after the second quarter, investors are not supposed to look at this is indicative of the help of the Pharma co-pay business.

But if you could just give some commentary on what happened sequentially in and what investor should take from that?.

Thanks, Mark appreciate the question. Good to hear your voice. So one of the things we did point to is an increase in restricted cash and consolidated cash, as of October month end. It increased by $9.6 million, excuse me by $8.6 million backup to $49.8 million on from the quarter.

I know you like to look at that number it is a good number on trend over time. The other thing I would point to is that we did sign new clients in the Pharma space.

And as we talked about before this particular product provides funds to assist patients and consumers with their out-of-pocket expense on their prescriptions and early in the year for any given program. Typically, these programs load more. So there is seasonality to it. Once their deductible is met the lodes start to subside.

And then you'll see those loads go right back up in the first quarter. So part of this is normal seasonality, part of this is timing, which is why we want to point to the October month end restricted cash and part of this, we have actually new clients coming on board in the Pharma space.

That's probably the best way to answer it, is a timing and new clients and seasonality. .

Okay.

So just to confirm in terms of the $49.8 million that's a consolidated cash number at the end of October, I just wanted to see what the restricted cash number was the end of October?.

Before we get to the end I will see if I can pull it off, I don't have it handy this very moment, but the restricted cash is roughly about 49 is going to be roughly $42 million of that is restricted but I'll check that number to confirm it..

And also just wanted to see with regard to the pace on premier program, if there is any initial indication of traction being gained on the go live that you have with one client and I will get back in the queue..

We've been certainly signing up new customers, but it's too early and we do point to and have continued to reiterate that the material benefit from that program, we expect to be in 2020 but we are making good progress..

Thank you. Your next question is coming from Austin Moldow from Canaccord Genuity. Your line is now live. .

Thanks for taking my questions. First, quick housekeeping question that I'm not sure if I missed or not.

But what was the Pharma revenue contribution in the quarter and then the follow-up would be, can you give some color or context to your Pharma pipeline in terms of customers and campaigns and I feel about those relationships yielding revenue next year. Thanks..

Good question. Thanks, Austin. So Pharma represented approximately 22% of the revenue for the quarter and that was up from approximately 20% in the second quarter as you may recall.

And picking up a little bit on Mark's question, Pharma continues to be a strength for us and continues to grow nicely and Austin to that latter part of your question, yes we have signed new business in the third quarter.

I think Mark mentioned that we signed four new programs on the Pharma business this year in the actual third quarter and three of those are regular prepaid as we see in the revenue the other is actually a co-pay Pharma program.

In terms of the pipeline there are several new opportunities that were evaluating and in discussions with our clients on and as you know, we work through channel partners, who introduced us to a number programs..

Great and then my last question is -- can you talk about what you're seeing in the plasma space in terms of competition, I know that the batch that you just brought, was that something you want from a competitor.

And as you expand your market share, are you able to tap into any new relationships or is it mostly expanding within the larger networks where you already have small footprint or something?.

Our expansion in the plasma space is due to several factors, but primarily, there's is always the new center build were expanding by that method. And then there is winning business from our competitors. And yes, we were successful on what was marked 33, 34 centers those were directly across from the customers..

32 centers that we brought across on September 30 basically from with an existing client something that we had been hoping to secure earlier in the year as you probably know..

But that was win from another customer, another competitor.

So one of the things that we've shared with you as a couple of our larger clients actually split our volume between us and our largest competitor and so we continue to look to differentiate in our performance to win new business and increase our share of those two clients and to Mark's point that's this is exactly that example. .

Got it. Thanks very much for taking my questions. .

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

Thanks for taking my question.

Could you tell me what the cash flow from operations was this quarter?.

John, I will have to get back with you on that, I don't have that handy. .

Okay, so then could you talk a little bit more about why the revenue conversion was up, I mean it's almost 50 basis points?.

So typically the revenue conversion rate on the Pharma business is higher and so that higher mix towards Pharma results in a higher composite. .

Thank you, nice quarter appreciate..

Our next question is coming from Eric Wright from BW Investment. Your line is now live. .

Thanks guys. The first off congratulations on the record quarter and consistent results and also the launch of the new premier cards, and a lot of the questions have been covered. But I know margin have been increasing substantially these days and then a large portion of that is attributed to the product mix.

Is there any other factor that is causing the margin to increase this margin.

And I see also that operating expenses in Q2 2019, versus Q3 2019 actually decreased so can you also comment that?.

Good question on the margins. We will see that taper a little bit on the gross margin in the fourth quarter as you see those new plasma centers come on board and run at that rate that we saw last year on the gross margin for the plasma business, so that'll bring it down on a consolidated basis a little bit not too much of a move to keep that in mind.

From operating expense standpoint, most of that was timing of expenses that we were getting taken care of on the-- getting through our audits getting to our outside professional services and recognizing the expense for some 401(k) expenses, things that hit in the second quarter that we didn't have in the third quarter.

So I would expect the fourth quarter for our operating expenses to come back up a little bit, be a little bit closer to what they were in the second quarter. .

Okay, that's great and if we're trying to gage in terms of operating leverage, do you guys have the capabilities that you guys need to continue to execute on this growth trajectory that you guys are doing and somehow variable is that operating expense line.?.

It's a great question and one thing we continue to talk about with all of you, analysts and on these calls is that we are seeing improvements in operating leverage. If you look at last year's year on year to growth in OpEx was about 80% this year were in about the mid-30 percent range on a year-to-date basis.

And so we do not expect that to grow at the same rate that we have our revenues growing. So we should get better and better margins. .

Okay. That's great, thank you very much. .

[Operator Instructions] Our next question today is coming from Jeff Feinberg with Feinberg Investments. Your line is now live. .

Thank you very much. Nice job guys. Just want to make sure, look to me like you did beat the consensus revenue. I think you mentioned in the prepared call.

What was that coming in, I know we delivered [indiscernible]?.

Looks like it was 8.98 million as what we saw on a couple of sites that took a composite of the four else to cover us. .

That's where I got to okay, great. With regard to the margin profile couple people asked about, I like the what's the results maybe incremental EBITDA margin was particular quarter was 70%, $0.70 every dollar dropped through and for the nine months its 50%.

Can you provide more perspective with the mix shifting towards the higher margin business overtime pay sign premier and there are opportunities, how we can think about incremental margins for next year?.

Yeah, that's a good question let me just kind glance over at the models and take a quick look at it. I think that we will see probably things settle in that 60% range on gross margin basis.

We got to get a better read on exactly how well we're seeing conversion on the premier card and there's a number of factors in the premier card that affect the gross margin on that products were going to get some learning's on that. We have a number of new Pharma programs that just went live that we want to see how those perform.

We have a really good read obviously on plasma and then were also looking at some other corporate incentives programs that we will need to factor in as well as.

So there is number of dynamics here, but I think probably on a go forward basis, at least into 2020 as premier card comes on, kind of twiner between the Pharma gross margin and the plasma gross margin. I think you will see it around 60%.

I don't think you'll see that level in the fourth quarter and again, I don't believe will be a 59.6% where it was this quarter. .

I'm referring to the incremental EBITDA margins and I understand completely on the gross margin but for every dollar of revenue this particular quarter $0.70 will flow through to the EBITDA, for the nine months its $0.50, it sound like the way to think about next year, that the incremental EBITDA should probably be somewhere between maybe 60% or so.

So hypothetically the analyst are right, we grow the 60 million in revenue up from 25 million incremental revenue. $15 million so that would that would flow through. Is that the way to think about it. .

I think that's fair, if you look at our full year EBITDA margins this year, right. We're looking at on adjusted EBITDA we're looking at a full year that's at least through the third quarter we did 36% will see that taper in the fourth quarter and finished probably closer to 30% on a full year basis.

So when you look at next year that's still look like a reasonably good composite on a full year basis. .

Pretty excited, if I do the math, just mid20 in EBITDA and I really appreciate the time. Thank you..

You bet..

Thank you. We reach end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments..

Again, we're very pleased with this quarter and with our progress overall. And we continue to focus on building a world-class payments company. We appreciate your listening and for participating in this update and ourselves an outstanding week. .

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