PaySign, Inc. (NASDAQ:PAYS) Q4 2023 Earnings Call Transcript

PaySign, Inc. (NASDAQ:PAYS) Q4 2023 Earnings Call Transcript March 26, 2024

PaySign, Inc. beats earnings expectations. Reported EPS is $0.1046, expectations were $0.02. PAYS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Kevin and I’ll be your conference operator today. At this time I’d like to welcome everyone to the PaySign Inc., Fourth Quarter and Full Year 2023 Earnings Conference Call. After the speakers remarks, there will be a question-and-answer session [Operator Instructions] As a reminder this conference call is being recorded. But comments on today’s call regarding PaySign’s financial results will be on a GAAP basis unless otherwise noted. PaySign’s earnings release was disseminated to the SEC earlier today and can be found on the Investor Relations section of our website paysign.com which includes reconciliations of non-GAAP measures to GAAP reported amounts Additionally as set forth in more detail in our earnings release.

I’d like to remind everyone that today’s call will include forward-looking statements regarding PaySign’s future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance is summarized at the end of PaySign’s earnings release and in our recent SEC filings. Lastly a replay of this call will be available until June 26, 2024. Please see PaySign’s fourth quarter and full year earnings call announcement for details on how to access the replay. It’s now my pleasure to turn the call over to Mr. Mark Newcomer, CEO. Please go ahead.

Mark Newcomer: Thank you, Kevin. Good afternoon, everyone and thank you for joining our earnings call. Today we’re thrilled to discuss PaySign’s performance for the fourth quarter and the full year 2023. I’m Mark Newcomer, President and Chief Executive Officer, joining me today is Jeff Baker, our Chief Financial Officer. Additionally, Matt Turner, our President of Patient Affordability and Matt Lanford, our Chief Payments Officer will also be joining us for the Q&A session. Earlier today, we announced our 2023 fourth quarter and full year financial results. We are extremely pleased with our performance as we continue to grow revenue, net income and adjusted EBITDA. Our fourth quarter revenue grew to 13.7 million, a robust 29% increase year-over-year.

For the full year, we saw 24% revenue growth to 47.3 million. Most notably our net income increased by 528% to 6.5 million or $0.12 per fully diluted share from 1 million or $0.02 per fully diluted share the prior year. Full year adjusted EBITDA also saw an increase of 21% from 5.5 million in 2022 to 6.7 million in 2023. Our plasma donor compensation business continued its strong performance contributing 42 million in 2023 versus 34.7 million in 2022 up 21% from 2022. The fourth quarter alone showed a 14% increase in the average revenue per center from $7293 in Q4 2022 to $8297 in Q4 of 2023 and we expect this ongoing expansion of the revenue per center to continue. In 2023, we expanded our reach to 464 centers. We onboarded 38 centers and lost 18 centers, 14 of the 18 lost centers were closures and the remaining 4 were sales to non-client plasma collection companies.

Following an extended period of rapid growth in new centers, in 2023 our plasma clients began to shift their focus from new center openings to increasing plasma yield per center concentrating on donor acquisition and retention. As a result, we are expecting 15 to 25 new centers in 2024. The patient affordability segment has emerged as a significant growth engine for the company as we launch programs for some of the world’s largest pharmaceutical manufacturers. In 2023, we launched 24 net new programs and ended the year with 43 active programs marking a 126% increase over the prior year. This segment saw 122% rise in claims volume for 2023 with even higher expectations for 2024. Fourth quarter claims volume increased 215% from the same period the previous year.

Our sales cycle remained in the 90 to 120-day range, a marked improvement from prior years and our pipeline remains extremely robust. Patient affordability revenue increased 172% year-over-year. We expect patient affordability revenue to continue to grow at triple digit rates in 2024. I would like to add some additional context regarding our claim volumes as it is a key performance indicator for a patient affordability business. In Simple terms we received medical and pharmacy claims. Medical claims are typically submitted by a doctor’s office practice or hospital and can be for physician administered or infused drugs. Pharmacy claims are dispensed by a pharmacy and include retail claims which are claims that originate from retail brick-and-mortar corner drugstores and specialty claims which are being filled by mail-order pharmacies that work with high-cost drugs such as biologics.

A well-rounded portfolio is key to addressing long-term growth as drugs gain approval or lose exclusivity. To build a well-diversified revenue model, we pursue programs in all three categories. In 2024, we expect to see an increase in retail claims helping us diversify the balance of our mix of claims. During the fourth quarter, we onboarded a total of 9 net new patient affordability programs. Of note, we successfully transitioned the oncology portfolio of a major pharmaceutical manufacturer consisting of four programs. These are mature programs that deliver claims immediately upon onboarding. We also launched 2 additional programs for this client, and they have already awarded us 3 more programs in 2024. It should be noted that transition programs, which is an existing program serviced by another vendor outnumbers our program launch of new-to-market drugs.

It is very important to call out that transition programs are far more difficult to win. Transitioning a patient affordability program requires a detailed and comprehensive approach with zero margin for error. As a seamless transition is of the utmost importance to the program sponsor and the patients that rely on a well-run program. We are pleased that we have been able to provide solutions where the value offered is so compelling that our clients are willing to change mid-program. I want to take a moment to talk about the recent disruptions to the patient affordability sector. On February 21, there was an unprecedented cyberattack on the U.S. health system and the change health care claims and payment infrastructure. This had a substantial impact to consumers, providers and many of our competitors, leaving their pharmaceutical manufacturer clients scrambling for a solution to the prolonged outage.

As a result of the fallout, we were able to secure and launch 8 new programs from 2 manufacturers in less than ten days, adding substantial revenue and approximately 1 million additional claims to our 2024 claims volume. We are confident that this will lead to additional programs in 2024 from these and other manufacturers as we continue to assist our current partners and filled new requests. Much like our payment platform, our patient affordability platform has been purpose-built for high availability and utilizes multiple redundant network connections to assure continuity. These multiple process or connections enabled us to quickly move to other processors not impacted by this event. To catapult PaySign’s innovative fintech solutions to the forefront of patient affordability and the health care ecosystem, we made a number of executive changes, which we believe both sharpen our focus on the accelerating growth of our patient affordability segment and better enable us to enter new markets.

This year Matt Turner assumed leadership of the patient affordability segment being promoted to President of Patient Affordability. We appointed Cosimo Cambi to the position of Chief Operating Officer, leveraging his 12 years of experience in both patient affordability and fintech space. Most recently as Director of Data Science and Vice President of operations here at PaySign. Mr. Cambi succeeds Matt Lanford, who transitioned to the newly formed position of Chief Payments Officer, where he will rely on his 35 years’ experience in payments to lead our new product and project management office. Mr. Lanford’s fintech expertise, leadership and guidance will be instrumental in the development of new products and the opening of new markets. In summary, we are pleased with our 2023 results as we reported another year of strong growth.

We are especially pleased with the trajectory of our patient affordability segment as we continue to execute on our mission to bring innovative fintech solutions to the forefront of the patient affordability and healthcare ecosystem. We believe we have assembled an excellent team coupled with what we believe to be a truly disruptive product portfolio that continues to gain acceptance in the industry. Our plasma segment continues to grow at a steady pace, and we believe this will continue for the foreseeable future. We will continue to invest in our people and systems to meet the rapidly growing demand for our services. And I believe we are well-positioned to capitalize on the many opportunities that lie ahead of us. Jeff over to you for more insight into our financials for the quarter and year end.

Jeff Baker: Thank you, Mark. Good afternoon, everyone. As Mark said we closed 2023 with a solid fourth quarter capping off what was a nice 2023. Ever since exiting from COVID getting our plasma business back to pre-COVID results was the focus of the investment thesis and that has materialized as expected. We also have been telling investors that we were committed to investing in other attractive vertical markets such as our fast-growing Pharma patient affordability business to help diversify the financial concentration we had with our plasma business. Today I can tell you that thesis has also materialized as expected. Our plasma business was 84% of total revenue in the fourth quarter of 2023 versus 91% compared to the same period last year and we expect that business mix shift to continue in 2024.

Looking more closely at our plasma business. We experienced strong growth and gross dollars loaded to cards, total number of loads, gross spend volume and the average revenue per plasma center. For the fourth quarter, gross dollars loaded to cards increased 9%. Total number of loads increased 14%. Gross spend volume increased 8% and the average revenue per plasma center increased 14% to $8,297. Fourth quarter plasma revenues increased 19% to $11.5 million, and we added 2 net new plasma centers during the quarter exiting the year with 464 plasma centers, this equates to a 39% U.S. market share at year-end. As Mark mentioned we have seen a strategic shift by our plasma partners from opening new centers to increasing the plasma yield per center as financing rates remain elevated compared to the previous 10 years.

The guidance for 2024 that I will provide in just a moment reflects this strategic shift. Moving to our pharma patient affordability business, you heard Mark talk about the traction we experienced in 2023, which has continued into 2024. Fourth quarter pharma patient affordability revenues of $1.7 million or 12% of total revenue versus 5% during the same period last year. We launched 9 net new programs in the fourth quarter exiting the year with 43 pharma patient affordability programs and have already launched an additional 10 new programs in the first quarter of 2024. With the hyper growth we have experienced in our pharma patient affordability business, we expect it will continue to make up a greater percentage of total revenue in 2024. As in previous calls with all of the details we provided in the press release and that will be available in our 10-K filing tomorrow morning, I will simply hit the financial highlights for the fourth quarter of 2023 versus the same period last year.

Fourth quarter 2023 total revenues of $13.7 million increased $3.1 million or 28.9%. Gross profit margin for the quarter was 52.2% versus 51.9% during the same period last year, which marks the first quarter in which we have seen gross profit margin expansion since exiting our pharma prepaid business in 2022. SG&A for the quarter increased 23.2% to $4.6 million with total operating expenses increasing 25.3% to $6.5 million. We have made significant investments in IT and employees over the past year to support this continued growth of our business, exiting this year with 123 employees versus 110 during the same period last year. For the quarter, we posted a net income of $5.6 million or $0.10 per fully diluted share versus $713,00 or $0.01 per fully diluted share for the same period last year.

We recorded a tax benefit of $4.3 million during the quarter as we released the valuation allowance on our deferred tax assets related to both federal and state taxes. Without this benefit, net income would have been $1.4 million or $0.03 per fully diluted share, an increase of over 90% versus the prior year period. The fourth quarter adjusted EBITDA, which is a non-GAAP measure that adds backstock compensation to EBITDA, was $2.5 million or $0.05 per diluted share versus $1.7 million or $0.03 per diluted share for the same period last year. This equates to a 43% year-over-year growth in our adjusted EBITDA. The fully diluted share count for both quarters used in calculating the per share amounts was 53.8 million in both periods. Regarding the health of our company, we exited the year with $17 million in unrestricted cash and zero debt, a $7.3 million increase over a year in 2022.

We did not complete any share repurchases during the fourth quarter. But we did use $1.1 million to repurchase almost 395,000 shares during the year. Now turning your attention to our initial guidance for 2024. We expect total revenues to be in the range of $54.5 million to $56.7 million, reflecting year-over-year growth of 15% to 20% with plasma making up between 80% and 85% of total revenue. Pharma revenue is expected to grow at least 100% year-over-year as we receive a full year benefit for all pharma patient affordability programs added in 2023 and continue to add new pharma patient affordability programs throughout 2024. Full-year gross profit margins are expected to be between 52% and 54%, reflecting increased revenue contribution from our pharma patient affordability business and stable plasma gross margins.

Operating expenses are expected to be between $29 million and $31 million as we continue to make investments in people and technology, of this amount depreciation and amortization are expected to be between $6 million and $6.5 million, while stock-based compensation is expected to be between $2.7 million and $3 million. Given our large unrestricted and restricted cash balances in the current interest rate environment, we expect to generate interest income of $2.6 million to $2.9 million. Taking all of the factors above into consideration we expect net income to be in the range of $2 million to $3 million or $0.04 to $0.06 per diluted share and adjusted EBITDA to be in the range of $8 million to $9 million or $0.15 to $0.17 per diluted share.

For the first quarter of 2024, we expect total revenue to be in the range of $12 million to $13 million reflecting the seasonal impact of tax refunds on our plasma business offset with a strong start to the year with our patient affordability business. Gross profit margins are projected to be between 52% and 53% driven largely by an increased revenue contribution from our pharma patient affordability business. Operating expenses are expected to be between $7 million to $7.5 million of which depreciation and amortization will be approximately $1.3 million. This reflects investments largely required to support our pharma patient affordability growth. Adjusted EBITDA is expected to be in the range of $1.2 million and $1.5 million. With that, I would like to turn the call back over to Kevin for question and answers.

Operator: Thank you. [Operator Instructions] Our first question is coming from Peter Heckman from DA Davidson. Your line is now live.

Peter Heckmann: Great results and good to see the strong guidance for 2024, I want to dig into patient affordability a little bit more and maybe there isn’t an average program. But could you talk a little bit about kind of how you would explain to an investor the range of sizes of programs that the average term how long they last? And then if you could go over that that statistic you made that competitive takeaways versus new programs and some of the competitive advantages that that allowed you to do that.

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Q&A Session

Jeff Baker: Hey, Pete. So that’s a long-winded question. So let me try to answer all your points. Number one, the size of the programs can vary all over the board. We have some programs, not many, but we have some programs who have a copay program in place just as an insurance policy. We may not do any claims with them and we just received monthly management fees. We have some programs that are generating quite an extensive number of claims that we get paid every month on top of management claims. So there is no average, unfortunately, I wish it was that easy.

Matt Turner: And Jeff, I can give some more color here too if you’d like me to.

Jeff Baker: Yes. Go ahead.

Matt Turner: Yes. I think we’ve talked about this kind of on previous calls, kind of going back into last year. There isn’t, as you look at kind of the plasma business, one of the metrics we talked about is how much a plasma center is worth, kind of on average. Unfortunately with affordability programs, right? It’s just like drugs. You’ll have a drug that’s a rare orphan drug and you may have 50 people in the country that have that disease state and need that drug. And then you could end up with something like, a blockbuster drug right like an Enbrel and Humira, right? Those can do, tens to hundreds of thousands of claims a month. So there’s not really an example of hey, here’s what an average program looks like. I think, when we look at the business, we do evaluate kind of what’s the long-term profitability of a program versus with one that is more transactionally based versus one that’s more kind of admin fees based. Does that kind of help there?

Peter Heckmann: Yes, that does.

Matt Turner: Then you kind of rephrase the second half of the question there.

Peter Heckmann: Sure. And just trying to talk them through the term, I remember some of the older programs that were one or two years. Can you talk about kind of how you expect these terms to average and if you we think about you have some programs rolling off and then having to replace others.

Jeff Baker: Yes. I’ll take that. All right, let me get that. So Pete, most of these contracts are typically a stub period if they come in during the year and then they’ll have a full year after that with evergreen Terms Act, for years beyond that. I will honestly say we have not lost a program to competition yet knock on wood. The only program and it’s — I think it’s one is that we had a provider that decided that they were no longer going to offer a copay program because their drug went generic. But those are far slim and far between. So it’s like anything else if you do a good job for your partners they’re going to stay with you and if you don’t then they won’t be here and we earn their business every day and every year and hopefully we’ll continue those relationships for a long time.

Peter Heckmann: Got it. Got it. And then follow up. I’ll get back in the queue. But I was I did take note of that change health care security breach and some of the ramifications. Can you talk a little bit more about how you work around that whether that was partners or PaySign’s proprietary network?

Jeff Baker: Matt, you want to take that.

Matt Turner: Yes. We were in a really good position kind of going out the door there. To our knowledge, we are the only vendor in space that had 3 processor connections. So we had a very diverse network that we could leverage to stand up programs for new clients to be able to get them on board very quickly. We’ve also worked really hard to kind of develop better partnerships with these processors than a lot of other people have and that really paid off here in spades because we had an existing client that had their business split between us and another company. And we were able to go over while their current vendor was kind of floundering for lack of a better way to put it. We were able to walk in the door and say “Hey we can get this set up; we get set up quick.

Do you just want to go and move the business over?” So yes, the disruption for us was minimal on our side. We did have a few programs over on the chain side that were very small. We had all those programs transitioned over fairly quickly. And then, we immediately started working on kind of the new business wins that came in. So the disruption was there but again for us very minimal.

Operator: Next question is coming from Gary Prestopino from Barrington Research. Your line is now live.

Gary Prestopino: Could you on this patient affordability business because I’m still kind of fuzzy on it. Could you give an example of how this works, I mean does this start in the actual doctor’s office where they put a prescription in, and they give some kind of voucher and then you process it through the pharmacy. Can you just maybe just very simply walk us through what you’re doing?

Matt Turner: Yes. So it does kind of initiate at the doctor’s office at the time of prescription is written. There’s a little bit of kind of variance there as to whether it’s a specialty drug or a retail drug, right? So again going back to Mark’s comment. The specialty drug is like a SKYRIZI, Enbrel, Humira Stelara very expensive drug shipped by mail order that often happens like at the doctor’s office. They say “hey, we need to put you on this drug because you have rheumatoid arthritis or whatever else. And hey, there’s a copay coupon that’s going to help buy down your insurance in health.” Retail drugs not always the same thing, right? You may be written a prescription for a retail drug. The example I’d to give people is, your kid gets written by Vyvanse because they have ADD ADHD.