Q4 2019 Earnings Call
[music].
Greetings and welcome to the pace five 2019, you're an earnings call.
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This presentation may include forward looking statements to the extent that the information presented in this presentation.
Discusses financial projections information or expect expectations about the company's business plans results of operations. The impact of Cobot 19 returns on equity expected gross margins markets or otherwise make statements.
About future events such statements are forward looking.
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Although the company believes that the expectations reflected in these forward looking statements are based on reasonable assumptions. There are so there are a number of risks and uncertainties that could cause actual actual results could differ materially from those such forward looking statements.
Sure urged to carefully review I consider any cautionary statements and other disclosures.
Including the statements made under the heading risk factors and elsewhere and our 2019 form 10-K.
Forward looking statements speak only as of the date of the document in which there contained.
And the company does not undertake any duty to update any forward looking statements, except as may be required by law.
This presentation also includes adjusted EBITDA.
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 gap.
In addition, adjusted EBITDA is not based on any standardized my thought methodology prescribed by gap and is not necessarily comparable to similarly titled measures presented by other companies.
I would now like turn the conference over to our hosts Chief Executive Officer, Mark can you cover. Please go ahead.
Thank you Diego good afternoon, everyone and thank you for joining us for a discussion about our full year 2019 financial results [laughter], Hi, Mark Newcomer President and Chief Executive Officer pay sign with me. This afternoon as Mark out in Europe, Our Chief Financial Officer.
Before I begin my commentary on the business I would like to address the delay in the filing of our 10-K delaying our filing was due to several rounds of auditor request for additional data, which took several days to complete I would like to point out that there were no changes to the preliminary financial numbers, we reported on March nine on March 16.
More can touch on this in more detail during his discussion I'm very pleased to be able to deliver strong results for the full year performance, even with the best related to our revenue guidance.
For the full year, our revenues were a record 34.7 million an increase of 48% compared to the prior year. Our full year net income was up 188% were 7.5 million also a record.
And our adjusted EBITDA was 10.1, an increase of 106%.
I'm very happy with these results Im extremely proud of our team and their contributions towards our continued growth.
We experienced strong growth in our existing industry verticals and as we expanded into new verticals and 29 team. We built out a new business line added 49, new card programs, including 38 and plasma seven in pharma and for other card programs and we now have an excess of 2.9 million card holders on our platform.
I'm, especially pleased with revenue growth in our pharmaceutical programs, which increased from 366000 over 7.3 million in just one year.
With new opportunities opening in the space, we have expanded beyond our longstanding pharmaceutical payment offerings and establish the patient affordability business line to include other services required by our hub services clients. These new services include pharmacy pharmacy, based copay medical claims processing and payments centralized billing and payment.
Services as well its other products.
You'll be hearing the term hub for most quite often moving forward as we grow this business lines, so till deploying hubs.
Hub service providers or companies that pharmaceutical manufacturer she used to maintain a connection with the patients during all phases of the prescription delivery process.
Over the past few years, there has been a consolidation of service providers the consolidation and the industry. That's turned l. I'd companies into competitors. Therefore created an opportunity for us to provide these new offerings to hub service providers that lack or choose not to provide these services in house.
In response to this opportunity we have made the decision to increase our capabilities to cater to the sub service providers with programs currently onboarded and performing to initial expectations.
Over the course of the past year, we have continued to build out this business line and have onboard a new personnel to meet the needs of this unique market.
[noise]. This represented a substantial investment into new software development architecture and human capital.
Drawing from industry experience, we designed developed and deployed a best in class solution to meet the needs of our patient affordability partners.
These enhanced capabilities will further our reach into the patient affordability space and allow us to onboard new clients for multiple sectors.
We have continued to build out to strengthen our entire team here at paid time in the latter part of 2019. We also increased the bench strength of our executive team with the addition of Mt. Lanford as our Chief product Officer, and Kim surgeon as our Chief marketing officer, they have been instrumental and creating new products features and functionality for our clients as well.
It is refreshing our brand I'm very pleased to have them as part of our team.
I'd like to touch for a moment now when cobot 19, and would like to reiterate that our highest priority remains the safety the safety of our employees card holders and customers.
We have taken immediate actions to protect our people customers and business by executing on our business continuity plans.
So with especially important as the main sectors, we serve a crucial to the health and wellbeing of the general public.
We have implemented measures to manage potential disruptions in many time real time communications across entire organizations with our clients and cardholders to date there've been no work stoppages and no employees testing positive for Cobot night team of course, we will continue to monitor the situation very closely.
The impact to cope with 19 door business. So far has been minimal with no apparent effect on our pharma and patient affordability business lines.
We continue to see excellent growth and only a slight impact to our plasma business. However, we're expecting at this time to see continued growth year over year and the plasma business on March.
March 19th 2020 of the U.S. Department of Homeland Security released the guidance document that enumerated sourced plasma donation and pharmaceutical supply as part of the critical infrastructure.
[noise] plasma donation centers have been classified as being within the category of essential critical infrastructure health care and pharmaceutical supply that is exempted from general locked down more closure directives.
Looking forward to the other side of the pandemic two things first is that we expect the economic fallout from the pandemic will lead to an increase in the number of donors as donor compensation and bring an extra $500 a month to frequent donors and secondly, if plasma collected from people with the cobot 19 antibody is bound to be a component of any therapies.
That would treat the virus, we would expect to see a sizable increase the number of plasma donations both from the current donor demographic and the general public.
Looking ahead, we will continue to broaden and diversify our market focus for our card programs and we'll seek to introduce new products.
We are developing new business to business solutions, enhancing our customer web and mobile applications and building new form a patient affordability offerings. We expect continued growth in pharma and plasma and to continue to expand into new markets.
With regards to piece on Premier we continue to refine the product that is offered through our one of our plasma clients to date, we have minimized our marketing next but our marketing expense for the Premier card as we have chosen to deploy the majority of our focus and resources on the expansion of the previously mentioned initiatives.
Lastly, we will continue to evaluate acquisition opportunities in 2020, we have evaluated several candidates. Today. However, if there was nothing definitive to share at this time before I turn it over I'd like to address the question of Dan Henry.
As you all know Mr. Henry has served as our chairman and then as an independent director since 2018.
On March 25th it was announced that Mr. Henry was appointed Chief Executive Officer, President and as a board member at Green Dot Corporation.
After discussion with paid after discussion with the pace on board and Mr. Henry It was unanimously decided there would be no change to Mr. Henry status with company.
Mr. Henry remains with pace on its our chairman and as an independent director.
At this time I'd like to turn it over to our CFO, Mark Gettinger, who will take us through the numbers in more detail and we'll touch briefly on Socs for all four b.
Thank you Mark so I'm going to take us through the full year results provide some various commentary touch on Socs for all four b and give you some insights into quarter, one performance and digesting our earnings and the 10-K I'm sure you've noticed we've disaggregated revenue a bit and enhanced our commentary.
As I perceived references to your on Europe improvements or percentage changes unless stated otherwise for first to the full year 2019 as compared to 2018 revenue for the year ending December 30, Onest 2019 was 34 million 666, 653, an increase of 48.
Zero per cent compared to the 23 for 23 675. The prior year revenue consisted of 27.0 million or 78% and support of the plasma industry 7.4 million or 21% pharma and zero point, threemillion or 1% and other revenue.
Although quarter $4 loaded the cart performed as expected the revenue conversion rate on plasma up 3.42% was down from 3.80% and Q3. This unexpected degradation combined with lighter pharma span contributed to the full year revenue shortfall versus guidance gross profit.
Increased 68.8% to 19.3 million or 55.5% of revenues compared to 11 point Fourmillion and 48.7% of revenues in 2018. The 685 basis point improvement was driven primarily to favorable mix towards higher margin card programs. The operating expenses were three.
13.1 million, an increase of 47.2% versus 8.9 million in 2018. The increase consisted primarily of 2.5 billion in salaries and benefits 1.1 million of stock based compensation and a 0.4 million increase in depreciation and amortization.
Benefiting from higher card balances and interest income was 441000 compared to 140000 the prior year.
Net income for the year was 7 million for 50, 4319, or 16 cents per basic share an increase of 188.0% compared to 2 million 580, 854 or six cents per basic share. The prior year fully diluted was 14 cents per share compared to five cents non-GAAP adjusted EBIT.
<unk> was 10 million one one for 980 or 21 cents per basic share an increase of 106.2% compared to 4 million nine or four 781 or 11 cents per share at the prior year. Furthermore, the adjusted EBITDA margin improved to 29.2% up 824 basis points.
From 20.9% in 2018.
We loaded $859 million loaded to the car versus 621 billion the prior year and our revenue conversion rate of gross dollar volume loaded on cards was 4.04% or 404 basis points compared to 3.77% or 377 basis points the prior year.
I'd also like to point out that are near final 2021st quarter pharma net dollars loaded the card increased approximately 70% versus quarter, one 2019 and increased 275% versus the prior quarter loads. This illustrates both the seasonal nature of pharma business and the significant year on year growth.
From a balance sheet perspective, consolidated cash, including restricted cash has increased 43.9% for 13.9 million to 45.6 million compared to 31.7 million at year end 2018, as a point of reference at a seasonal peak for our current programs consolidated cash at February month end with.
61.6 million also although we haven't completed a reconciliation we expect our quarter ending consolidated cash to be approximately 54 to 55 million, including unrestricted cash of approximately 9.5 million consistent with your end.
Working capital increased to 13.6 million compared to 5.9 million at December 30, Onest 2018, the 7.7 million improvement was due primarily to increased consolidated cash partially offset by an increase in the card funding liability our liquidity as measured by an adjusted current ratio.
Putting restricted cash and cardholder fronts from both sides of the balance sheet, respectively reflected not 7.9 times coverage at year end 2019 up from 5.4 at 2018.
I'd like to speak for a moment regarding Sarbanes Oxley for all four be at the end of quarter to our market cap resulted in being classified as an accelerated filer and subject to an independent audit of our internal controls over financial reporting a deferral for b.
The objective of Sarbanes Oxley and the Coso framework is to make sure that your processes and controls helped to prevent any inaccuracy using your financial reporting.
So when preparation we brought in the third party advisory firm as many companies do to aid us in preparing for for all four be subsequently pay sign and our auditors identified material weakness over internal controls for financial reporting we take this very seriously and have taken immediate steps to remediate the idea.
Refied weakness, we added staff to aid in the assessments, we implemented at appropriate separation of responsibilities, we improved our documentation and strengthen our processes with respect to systems use or access to add change control. We will continue to make improvements during 2020.
Please refer to item 98 of the 10-K for more information.
In light of the identified control weaknesses, the auditors for extra diligent and their assessment of the financial audit leading to an extended duration. This resulted in the completion of our third year with our current auditors and once again the audit opinion stated the financial statements present fairly and all.
All material respects the financial position of the company as of December 30, Onest 2019, and the opinion further states results of operations cash flows burnt conformity with generally accepted accounting principles.
Also for those of you interested in looking more closely at quarter for our financial results of course of do roll. Therefore full year less September year to date does reflect our Q4 earnings and financial activity.
As we looked at 2020, we will refrain from issuing revenue guidance at this time to allow for a further evaluation of cobot 19, and any impact on our business pharma and plasma are both defensive in nature as our CEO has stated plasma has been deemed critical infrastructure, we do expect to benefit.
It from continued revenue growth and also similar gross margins to 2019, we also expect experienced moderate opex growth as we continue to make select and sound investments and our sales technologies and operations capabilities. Although we have not completed our month end at quarter end closing procedures for the first.
Order, we do anticipate revenue of approximately 10.4 to 10.5 million up 43% to 45% versus 7.3 million the prior year.
I think that concludes my remarks at this time I'm going to turn it back over to our moderator to begin a question and answer session. Thank you.
Thank you.
Ladies and gentlemen at this time, we will conduct our question and answer session.
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Our first question comes from Peter Heckmann with Davidson. Please state your question.
Good morning, gentlemen, good do I get the call going.
What.
The revenue conversion rate.
Talked about that popped up in the fourth quarter can you give us a little bit more background on that and.
Anything that may have changed in terms of mix and and how that what that implies for the next couple of quarters.
Yes, Hey, Peter.
Thank you for the question so that revenue conversion rate.
What I quoted was specifically plasma.
And we saw a significantly lower revenue conversion rate for the new centers. We brought on in the September Thirtyth all of those turned up at the same time.
We did see the loads that we were expecting in fact Q4 loads were up a little more than 20% versus the plasma Q3 loads.
But the conversion rate on those due to the behavior of those particular customers and where they were located.
Led to less interchange revenue and cardholder transaction fee revenue.
We have not been able to evaluate that just yet since we're in our closing procedures for first quarter to see how that may have changed we expect that to improve as those.
Performances, and we did we did actually make some changes with our partners and banking in Mexico that should help with our overall gross margins on those centers, putting in place a bilateral agreement to improve.
The cost of ATM transactions that will help of gross margin on those but beyond that I can't look too closely just yet at the revenue conversion rate for Q1.
Got it that's helpful. And then just as a follow up question in terms of investment spend.
Sure, it's a little bit hard to quantify but but can you talk about some of the investment spend that you had in 2019 on things like.
Premier.
Corporate loyalty.
Generally items that didn't generate much revenue and and then how you're thinking about that number for 2020.
So I think that.
Our CEO it touched on new hires in the build out patient affordability.
You also see as you look at the cash flow statement, you can see our investments and capital expenditure is about 3.2 3.3 million.
So there were investments last year was little higher than I anticipated early in the year of about 2.25 to 2.5 million.
Just to give you a little more insight as we look to 2020.
We've modeled in Capex of 3.2 to 3.7 million.
Great. Thank you I'll get back into queue.
Thank you. Our next question comes from Austin molded with Canaccord Genuity. Please state your question.
Hi, Thanks for taking my questions.
The seven pharma contracts in 2019, how many are those still active or renewed in 2020, and how many new contracts have been signed.
Remainder of 2020, and what does the pipeline look like for pharma for the rest.
This year and if there's any impact from the virus.
Sure So with respect to pharma just to give you a little bit of history. We ended 2018 with three programs.
We added seven programs in 2019, taking us to 10, we had two programs that ended so we ended the year 2019 with eight programs and in quarter. One we've added two additional programs.
Okay got it.
And can you also repeat the Q1 pharma load.
Growth numbers, you mentioned and what those growth rates exactly.
You know are related to and and how you expect or I'd like to understand better what you expect that cadence of pharma to be.
Through the year.
So im just stepping back up to my notes looking back on my comments.
The.
From a loads for Q1 versus Q1 2019.
Increased 70%.
The loads increased roughly 275% versus the fourth quarter and this is the one this is one of the things that Weve continued to reiterate with with analysts and those that follow us as they asked questions about.
The the loads in how to translate.
Changes in cash balances into their understanding of our business.
As we've talked about before the pharma business tends to be seasonal since the out of pocket for consumers is greatest in the first quarter prior to having met their deductibles and at that point, you see the pharmaceutical manufacturers and our payment solution standing and from.
Lighting that assistance that co pay assistance, if you will.
So as I mentioned, the cash balance in February as 61 million at tends to be a seasonal peak last year.
It hit a seasonal peak in March this year it appears to be at least for our current customers hitting that in February.
As we look forward, we do have a couple of additional clients that we just onboarded.
Those will contribute to this year.
And we have several new.
Pharma clients in the pipeline actually and contracting as we speak so we're expecting some additional wins on the pharma business.
And that the combination of Onboarding new clients.
Along with.
The slow degradation on seasonality of existing pharma business should netting that lead to strong growth on a full year basis for pharma.
We saw an increase to 7 million and roughly.
21% of our business was pharma in 2019.
We do expect.
A solid growth. This year end to give you give you a little bit of a flavor. Let me just dropped back down to look at a couple of things that I thought I would share of the questions arose.
We are expecting.
The full year mix to be approximately 65% plasma, 25% to 30% pharma and roughly 5% to 10% other business.
Great and sorry, one last one if I could sneak it in do you expect the pharma revenue conversion rate.
Just a roughly the same 2020.
Yes, I don't I mean, it's hard to predict.
It's based on the performance of those programs and exactly how each new program comes onboard relative to the current programs, but theres nothing at the moment that indicates that it would change, but I hedge a little bit.
Up or down it frankly.
Got it thanks very much for taking my questions.
John.
Thank you just a reminder, tacit question at this time press Star one on your telephone keypad.
Once again to ask a question press star one on your telephone keypad.
Chris start to.
Move your question from the Q, we'll pause for a moment to pull for questions.
Our next question comes from Jon Hickman with Ladenburg Thalmann. Please state your question.
Hi.
So my question has to do with could you give us some idea about the cost of the Socs for.
For for B and your audit.
Pretty extensive.
I take it that won't repeat itself in Q2, but.
If you give us some idea of what that cost you in Q1.
Sure so.
As you can probably imagine we had to engage our auditors.
It early last year.
On a regular financial audit.
In the middle of the year after we trip the higher.
Market cap and became an accelerated filer, we signed an additional engagement where they would conduct the oral for be assessment.
If I am not mistaken that was somewhere around $70000 incurred in 2019.
And given the extended period of time that we.
Encountered with our auditors in 2020.
They upped that by I believe about an additional $50000.
In the first quarter.
And then the consulting.
The the third party advisory firm was $61500.
Okay, and that was incurred and too and that was incurred in 2019.
Okay. So we do we've tried to we've tried to we've tried to limit that expense and.
Yeah.
Pretty good job.
So the other questions.
Good answer thank you so much.
Our next question comes from Peter Heckmann with Davidson. Please state your question.
Hey, Jim I, just wanted to clarify you went through a lot information fairly quickly but.
So at the end of the first quarter. It sounds as if you had debt and in pharmaceutical payment assistance you had.
Approximately 37, and yes really kind of at the end of the first quarter.
Two ended the fourth quarter two were added in the first quarter.
For what is that correct to the number two.
The pharma valued loaded.
In the first quarter that up 70% number.
That that reflects that.
Fair enough cash you kind of gave us the walk.
But from from December to March, but that $55 million.
At the end of March would represent somewhere around 45 46 million and restricted cash.
With that I'll correct.
Yes, we ended with 10 million.
Roughly.
To excuse me, we ended with 10 clients, you're right and that does the two that were added in the first quarter have generated very little activity to date. So those are not really reflected in our first quarter results.
And yes, roughly 9.4 to 9.5 million is unrestricted cash so the balances restricted on that 50 455 million you quoted correct.
Okay, Great and then just in terms of the pace anchor Amir sounds like at.
Direct it's in marketing dollars to some other initiatives.
In terms of how we see that business rolling out.
This year you do you feel like.
There may be opportunities there to grow the business through other affiliates are partners or it just in terms of near term returns you just you seem relatively more potential.
On the farmer side.
So.
As Mark stated, we are marketing it to existing customers.
In partnership with one of our larger clients.
We are continuing to tested how to best and most economically drive customer conversions before expanding further.
However, our focus has been on the kind of a larger opportunities in front of us, but we will continue to work on Premier card also.
Got it okay. That's helpful.
Thank you just a reminder to ask a question press star one on your telephone Keypad press star to on your telephone keypad Threerd with your question from Q.
Our next question comes from Austin model with Canaccord Genuity. Please state your question.
Hi, just two more please.
No other revenue still small just 1% 2019 total revenue can you talk.
About what card programs are in that is it just the DTA cards, which means that revenues concentrate in Q4.
Or.
Are there other loyalty and incentive programs and that too.
Yes, it's a combination of card programs, it's not any single program.
Okay.
And can you talk about how those programs and other revenue do they have the same they're the same dynamic where there.
Loaded funds at the top and you take revenue and there's a revenue conversion on that.
Is there any color about what kind of it kind of good signs are.
Associated with those small programs.
So yes, it's a bit of hybrid part of it is transaction processing that we're doing on card programs part of it has dollars loaded to card and a traditional kind of revenue conversion rate as you've looked at our other programs.
Okay and.
Last question. It if you did see headwinds to the top line from the virus.
Is there any flexibility there with expense reductions or you know have heavy tested the model now you sort of worst case scenario.
Yep apps, absolutely so definitely have done some sensitivity analysis one of the questions that we anticipated was around cash burn and cash flows.
And in all of our scenarios that we've looked at we do anticipate being cash flow positive.
However that said we will.
Look closely at the paycheck loan process available through the SBH, but the government's announced.
Since employers with less than 500 employees can have access to those funds as a contingency.
We're also looking at other levers.
As considerations as well, although we again expect continued positive cash flow.
Alright, thanks very much.
Thank you there no further questions at this time I'll turn it back to management for closing remarks.
So.
Look it is a.
It's a difficult time for our country right now and for the World and we're all digesting, what's occurring and how to protect our families and loved ones.
Those who we work with or.
With that said please make no mistake about it we remain as focused as ever on executing each day and each week and delivering valuable services to our clients and customers and continuing our growth and profitability.
Thank you again for your interest for your questions and your participation in this call and be safe and have a good evening and Mark did you want to add to that yeah again, Thank you Diego and thanks, everyone for joining us today, and we look forward to staying in touch in future quarters.
Have a nice day, and you'll take care and stay safe Delta.
Thank you. This concludes todays conference all parties may disconnect have a great day.