Q1 2024 Paysign Inc Earnings Call

Participants

Mark Newcomer; Chairman of the Board, President, Chief Executive Officer; Paysign Inc

Jeffery Baker; Chief Financial Officer, Treasurer; Paysign Inc

Matt Turner; President, Patient Affordability Services; Paysign Inc

Gary Prestopino; Analyst; Barrington Research

Jon Hickman; Analyst; Ladenburg Thalmann & Co. Inc.

Presentation

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., first quarter 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.
Comments on today's call regarding Paysign's financial results will be on a GAAP basis. Unless otherwise noted, PECO's earnings release was disseminated to the SEC earlier today and can be found on the Investor Relations section of our website, cop.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 August 7, 2024. Please see Paysign's first quarter 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, and good afternoon, everyone, and welcome to our first quarter earnings call. I'm Mark Newcomer, President and Chief Executive Officer. Joining me today is Jeff Baker, our Chief Financial Officer, also available for Q&A session are Matt Turner, our President of patient affordability, and Matt Langford, our chief Payments Officer.
Earlier today, we released our financial results for the first quarter of 2024. I'm delighted to report that we have seen substantial growth in both our top and bottom lines. Our first quarter revenue reached $13.2 million, marking a robust 30% increase year over year. Most impressively, our adjusted EBITDA increased by 135% to $1.7 million or $0.03 per fully diluted share, up from $720,000 or $0.01 per fully diluted share in the previous year.
We also observed significant improvements across other key performance indicators, including a 13% rise in gross dollar load volume and an 11% increase in gross spend volume. In our previous earnings call, we highlighted the patient affordability business as a key growth driver for the Company. I am pleased to affirm that its growth trajectory has not only continued but accelerated exhibiting a remarkable 305% revenue increase from same period last year from [$590,000] in Q1 2023 to roughly $2.4 million in Q1 2024 this segment contributed 59% of our total year-over-year revenue growth.
During the quarter, we added a net total of 10 patient affordability programs, concluding with 53 active programs, many of the new programs were well established ones that transitioned from another provider delivering claims immediately upon onboarding as we continue to demonstrate the value of our solutions to pharmaceutical manufacturers in the specialty drug space, we have successfully expanded into the retail drug programs, which typically have higher claims volumes.
This expansion led to the addition of four retail programs in Q1, and we expect further launches throughout the year. Our claims process in the first quarter increased by 235% compared to Q1 2023, a trend we expect to continue. Our sales cycle remained steady at 90 to 120 days, and our pipeline remains exceptionally robust. Further enriched by our recent participation in the SMB Summit held annually in late April to early May here in Las Vegas.
This event has proven to be crucial for our marketing sales and client management efforts. And this year's summit was our most productive. Yet we engaged in over 50 targeted meetings addressing specific potential client concerns with overwhelming positive feedback. We are highly optimistic that the interactions from this year's assembly or Summit will lead to many long-term wins and further relationships with major pharmaceutical companies. Based on our current sales pipelines and the response from the Summit, we expect patient affordability revenue will increase sequentially throughout the remainder of the year.
Our plasma donor Compensation business also continued its growth trajectory, with revenue increasing to $10.4 million, up 11% from last year's first quarter. As typical of the first quarter, we experienced some seasonality due to the effects of donors receiving their tax refunds when many donors take a break from donating. Nevertheless, revenue per center grew by 5% from $7,066 in Q1 2023 to $7,414 in Q1 2024. During the quarter we added six new centers, one center was closed, and we ended the quarter servicing 469 centers. We anticipate adding 15 to 25 new centers throughout 2024, we expect moderate but stable growth in our plasma Compensation business as the plasma collection industry stabilizes after a period of rapid expansion.
In summary, Q1 2024 has been another quarter of outstanding growth, particularly for our Patient Affordability business. We remain committed to our mission to bring innovative fintech solutions to the forefront of the patient, affordability and health care ecosystems. Our team has developed what we believe to be a truly disruptive product portfolio that continues to attract significant interest from major pharmaceutical companies. Our plasma business continues to grow steadily, and we remain optimistic about its future.
We are also actively exploring other markets to enter and are investing in our people and systems to meet the rapidly growing demand for our products and services. This positions us well to capitalize on numerous opportunities ahead and deliver long-term value to our shareholders.
Jeff will now provide more insight to our financial performance for the quarter.

Jeffery Baker

Thank you, Mark. Good afternoon, everyone. As Mark said, we started off 2024 with a solid start, fueled by continued growth across all of our businesses. Plasma donor compensation revenue increased $1 million or 11% to $10.4 million, driven by more plasma centers, 469 versus 439 at the end of the period, an increase in the average monthly revenue per plasma center of $7,414 versus $7,066, a 13% increase in gross dollars card loads and an 11% increase in gross dollar spend volume all haul, the average load amounts remained fairly steady.
Pharma patient affordability revenue increased $1.8 million or 305% to $2.4 million, primarily driven by the addition of 27 net new pharma patient affordability programs launched over the past 12 months. Pharma patient affordability revenue equated to 18% of total revenue during the quarter versus 6% during the same period last year. We exited the quarter with 53 active pharma patient affordability programs, an increase of 10 programs since the end of 2023.
Other revenue increased $240,000 or 124% due to the growth in our payroll, retail and other corporate incentive businesses. As in previous calls, with all of the details we provided in the press release and that will be available in our 10-Q filing tomorrow morning. I will simply hit the financial highlights for the first quarter of 2024 versus the same period last year.
First Quarter 2024 total revenues of $13.2 million increased $3 million or 30% versus the same period last year. Gross profit margin for the quarter was 52.6% versus 49.8% during the same period last year, an improvement of 280 basis points. SG&A for the quarter increased 19.5% to $5.9 million, with total operating expenses increasing 24.3% to $7.2 million as we continue to make significant investments in IT and personnel to support the continued growth of our businesses.
We exited this quarter with 132 employees versus 112 during the same period last year. For the quarter, we posted a net income of $309,000 or $0.01 per fully diluted share versus a net loss of $160,000 or just under breakeven per share for the same period last year. We recorded a tax expense of $164,000 during the quarter for an effective tax rate of 34.7%. We expect the effective tax rate for the remaining quarters to be 25.65% for the first quarter.
Adjusted EBITDA, which is a non-GAAP measure that adds back stock compensation to EBITDA was $1.7 million, or $0.03 per diluted share versus $720,000 or $0.01 per diluted share for the same period last year. This equates to 135% year-over-year growth in our adjusted EBITDA. Fully diluted share count for the quarter used in calculating the per-share amount was 54.8 million shares, which reflects additional in-the-money options that were previously out of the money. The adjusted EBITDA margin was 12.8% versus 7.1% during the same period last year.
Regarding the health of our company, we exited the quarter with $7 million in unrestricted cash and zero debt. This was a $10 million decline from the end of 2023, primarily due to the timing of accounts receivable and accounts payable payments related to our Patient Affordability business of $9.6 million. As discussed in the past, patient affordability customers are invoiced at the end of the period to reimburse funds used to cover related co-pay amounts for monthly patient affordability claims the changes in these balances do not equate to the revenue per claim.
We charge the pharmaceutical companies for pay in such claim amounts. We expect that as the business grows. So will the fluctuations in AR, AP and unrestricted cash. Restricted cash increased $16 million to $108.3 million from the December 31, 2023 primarily due to increases in funds on cards of $2.7 million and customer deposits for our plasma and pharma customers of $13.2 million.
Restricted cash or funds used for customer card funding and pharmaceutical claims with the corresponding offset under current liabilities. As we did not complete any share repurchases during the first quarter, $3.9 million remains outstanding under our share repurchase program.
Now turning your attention to our second quarter 2024 guidance, we expect total revenues to increase by approximately 27.5% over the second quarter of 2023, with pharma revenue accounting for approximately 18% of the total, we expect adjusted EBITDA to increase 65% to 70% from the second quarter of 2023 with an adjusted EBITDA margin in the range of 13.5% to 14%.
With that, I would like to turn the call back over to Kevin for question and answers.

Question and Answer Session

Operator

(Operator Instructions)
Gary Prestopino, Barrington Research.

Gary Prestopino

Hi, good afternoon, Mark and Jeff. Because you gave us some idea of how many plasma centers you going to add this year, which is great. Can you give us are you willing to give us a range of how many new patient affordability programs do you think you're going to add this year or is that something you can't really share with us?

Matt Turner

No, I think this is Matt. Turner, by the way, I don't know that we can give a number quite yet or can you maybe as we get into the second quarter, we can probably narrow that down a little bit more, but just a lot of business in flight right now. We don't want to put a number to it.

Gary Prestopino

Okay. But is it safe to say you've got a pretty full pipeline of potential opportunities?

Matt Turner

Yes, we've stacked this business between now and the end of the year.

Gary Prestopino

And then just if you as you look at this business, right now, it's about just on this quarter, it is about 25% of your total of the pharma revenues. Are the plasma revenues that you generate this does this business have the potential over time to grow to be a bigger and bigger than the actual plasma business that you have. So the income statement would flip flop or you get more pharma revenue every quarter than plasma.

Matt Turner

Yes, absolutely.

Gary Prestopino

Okay. So there's a huge runway out there for what you guys are doing, right?

Matt Turner

Yes, I would say I mean, we have a much larger TAM associated and basically, no, from my view, and we've been looking at this for a number of years. It's not it's not a matter of if it's a matter of when it's going to surpass the plasma. So I do feel that's coming.

Gary Prestopino

And what is the TAM?

Matt Turner

So that's a really great question. But I think everybody's asking us in almost every meeting, it's very difficult to narrow down what the TAM is because the funds used to pay for this are typically part of marketing funds. So, you know, if a pharma company allocates $500 million of marketing for specific drug. We don't necessarily know what percentage comes to us. We think right now there's around 1,500 active, 1,500 to 1,600 active co-pay programs in the space right now.
And you know, kind of just backing into a guesstimate of number of claims and things like that. We certainly feel like the TAM is north of $500 million. You know, we certainly think that number is probably higher and we're kind of working with some different consultants right now to see if we could zero in on that. But right now we think the TAM is certainly north of five.

Gary Prestopino

Okay. And then just the last question, could you are there some public competitors out there and do this or is it mostly done by private firms or divisions of larger firms?

Matt Turner

Yes. So it's some there's a lot of divisions of larger firms that do this where I'll kind of I'll talk about us for just second, then I'll kind of talking about some of the people in the space. So we're one of the only companies out there that only does patient affordability. We don't trying to do a whole bunch of the other add-on services that really required entirely different subset of specialty knowledge on those would be like hub service companies on.
Certainly there may be there may be one or two other very small companies out there. When I say very small, I mean, you know point, you know, like employees in the numbers of tens that are out there doing this in conjunction with some other stuff. But if you want to look at companies that offer you no co-pay assistance as part of their overall offerings.
You know, McKesson has a subsidiary called CoverMyMeds, which was formerly Rx Crossroads. You have heard countless which until recently was named trial card. You have connective Rx, which is owned by agents, agents. They're private equity held on and Arizona, which is, I think, a VC or PE. backed company. So you know, really only why then you've got lash that's owned by AmerisourceBergen.
Obviously, you've got the two people that are publicly traded and have very been open. I mean, for for McKesson CoverMyMeds as a rounding error, as you know, with the amount of money that McKesson makes. So there's not really detailed financials out there around this business in the public sector Okay.

Gary Prestopino

Thank you.

Operator

Jon Hickman, Ladenburg Thalmann.

Jon Hickman

I had a quick question. So each four of pharma program is a individual drug, is that that's true, right?

Matt Turner

So not not necessarily. We have programs that contemplate multiple drugs. We have, you know, programs that contemplate multiple drugs, multiple offers for a single drug. So you can't it's not quite as simple as a drug is a program. You could have a program that has several drugs that you can have a program that has technically like some programs have been.
And we typically look at SOW based business when we're talking about the programs. So could you tell us how many separate pharmaceutical companies you're working born? I know I don't have the number in front of me right now. Obviously out of some 53 active programs, at least upper 40s, yet at least seen up somewhere north of 40.
And now we have at larger manufacturers now that came on, you know, during the first quarter that we were running for one of them. We're running nine programs now and have them running five. So we've got we've got some risk that, let's say repeat business, but we're getting multiple programs now for larger manufacturers that have very large portfolios of business.
So when I say we're getting now, you know, we have nine programs that have one manufacturer. That's just the start for that matter. We're going to get more programs.

Jon Hickman

So the risk for you is that a program that a drug goes generic and the growth is new drugs coming on getting approved by the FDA, as you know into?

Matt Turner

Yes. So there's a lot of the growth potential was one in new business where, if you look at our track record over the last while in the last five years, right, we have predominantly focused on transition business and it's because it delivers immediate claim volumes. Now we've gotten plenty of new to do new-to-market drugs as well, especially in the oncology space.
But as those program members tend to be for the patent accounts tend to be a lot lower, which means the claim counts are going to be lower. So our our our goal, right, is to kind of diversify the types of clients that we're bringing on to whether we do retail or specialty and whether they are transitioned or new, you know, we have a transition product and it's been out there for five years.
They made we have three years left where we're going to have really high volumes and then you'll see them slide back off. But just because the drug goes generic, does it mean that the claim volume cease to exist. If you go back to the days of Crestor, Lipitor, Plavix, right, when those drugs came out and Crest or went LOE with the loss of exclusivity, the pharma company did an amazing job in contracting of keeping that drug on Tier one formulary about generics.
So even though especially in the retail space, when a drug goes generic, it doesn't necessarily mean the end of co-pay. You look at all the Cubiro biosimilars that are out there now look at formulary coverage for Humira. There's there's like nine or 10 generics or biosimilars, lower-cost generics, but there's another 10 biosimilars available. Humira is still as tough bill in that space for a lot of plans.
So, you know, we don't want a bunch of assets coming on that are going to lose exclusivity in six or 12 months, right? So we like stuff, it's got some tail left to it to deliver some immediate volume now but we continue to build the overall long-term multiyear plan.

Jon Hickman

Okay. Thank you. That was very helpful. Nice quarter.

Matt Turner

Thank you.

Operator

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

Mark Newcomer

I'd like to thank everybody for joining us today and a special thanks goes out to all of our employees and our Board for their continued hard work and support 2024 have started off very excitingly, and I believe the rest of the year will be equally promising. We are looking forward to updating you on the next call. Thank you all very much for joining and have a great day.

Operator

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