Payment Data Systems Announces Record First Quarter Results

Revenues up 13% to a Quarterly Record $6.6 Million

Revenue increases generated broadly across PayFac, ACH and Prepaid operations

SAN ANTONIO, May 15, 2019 (GLOBE NEWSWIRE) -- Payment Data Systems (NASDAQ:PYDS), an integrated electronic payment solutions provider, today announced financial results for the first quarter 2019, which ended March 31, 2019.

Louis Hoch, President and Chief Executive Officer of Payment Data Systems, said, "The new year is off to a good start, sustaining the momentum we have created across our ACH, prepaid and card processing businesses. We believe this is the foundation for another year of continued growth. In ACH, we recorded our seventh consecutive quarter of sequential growth in transactions processed. Prepaid also had another growth quarter of growth due to newly implemented card programs that are now producing additional recurring revenue. Revenue is now being recognized on the PayFac platform, which is the natural progression we anticipated after boarding merchants of software vendors that have been integrated over the last several months. Our success continues to be based on our robust technology. And, in the first quarter we maintained our commitment to investing in technology to further advance our competitive advantages. We are proud our investments remain internally funded from the consistent, predictable positive cash flow generated by our ACH business. As electronic payments continue to become an integral and larger part of our economy, we believe Payment Data Systems' comprehensive portfolio of products is ideally positioned to capitalize on this growing trend."

Financial Results for First Quarter Ended March 31, 2019

Revenues were $6.6 million for the first quarter, up 13% compared to the same period last year. The drivers of growth included growth in our profitable ACH business coupled with revenue growth in our prepaid and PayFac initiatives.

Gross profits were $1.34 million, up 5.1% from $1.27 million in the same period last year. Gross margins were 20.3%, down from 21.7% in the same period last year. The primary driver for the change in gross margin came from a shift in volume from our profitable ACH business to our Credit Card revenues, which has a lower profit margin.

Operating loss was $1.1 million for the quarter, essentially unchanged from the same period last year.

Adjusted EBITDA was a loss of $326,000 compared to an adjusted EBITDA loss of $228,000 a year ago.

Net loss was $1.1 million, or ($0.09) per share, compared to a net loss of $1.1 million or ($0.09) per share, essentially unchanged from the same period last year. In fiscal 2019, earnings per share were based on approximately 12.6 million shares outstanding compared to approximately 12.0 million shares used in the first quarter 2018 calculation.

More than $856 million of total dollars were processed in the first quarter, up 9% year-over-year.

Payment Data Systems continues to be in solid financial condition. Cash and cash equivalents at March 31, 2019 were $4.5 million, which includes $1.8 million net of fees of additional equity capital the Company raised in the first quarter. The Company is debt free.

Conference Call and Webcast

Payment Data Systems' management will host a conference call with a live webcast on Wednesday, May 15, 2019 at 5:00 p.m. Eastern time to provide a business update. To listen to the conference call, interested parties within the U.S. should call 1-844-883-3890. International callers should call +1-412-317-9246. All callers should ask for the Payment Data Systems conference call. The conference call will also be available through a live webcast, which can be accessed via the company's websites: www.paymentdata.com/invest.

A replay of the call will be available approximately one hour after the end of the call through May 29, 2019. The replay can be accessed via the Company's website or by dialing 1-877-344-7529 (U.S.) or +1-412-317-0088 (international). The replay conference playback code is 10131549.

About Payment Data Systems, Inc.
Payment Data Systems, Inc. PYDS, a leading integrated payment solutions provider, offers a wide range of payment solutions to merchants, billers, banks, service bureaus, and card issuers. The Company operates credit, debit/prepaid, and ACH payment processing platforms to deliver convenient, world-class payment solutions and services to their clients. The strength of the Company lies in its ability to provide tailored solutions for card issuance, payment acceptance, and bill payments as well as its unique technology in the prepaid sector. Payment Data Systems is headquartered in San Antonio, Texas and has offices in Franklin, Tennessee, just outside of Nashville.

Websites: www.paymentdata.com, www.singularpayments.com, www.payfacinabox.com, www.akimbocard.com, and www.ficentive.com. Find us on Facebook® and Twitter.

About Non-GAAP Financial Measures
This press release includes non-GAAP financial measures, EBITDA and adjusted EBITDA, as defined in Regulation G of the Securities and Exchange Act of 1934, as amended. The Company reports its financial results in compliance with GAAP, but believes that also discussing non-GAAP measures provides investors with financial measures it uses in the management of its business. The Company defines EBITDA as operating income (loss), before interest, taxes, depreciation and amortization of intangibles. The Company defines adjusted EBITDA as EBITDA, as defined above, plus non-cash stock option costs and certain non-recurring items, such as acquisitions. These measures may not be comparable to similarly titled measures reported by other companies. Management uses EBITDA and adjusted EBITDA as indicators of the Company's operating performance and ability to fund acquisitions, capital expenditures and other investments and, in the absence of refinancing options, to repay debt obligations.

Management believes EBITDA and adjusted EBITDA are helpful to investors in evaluating the Company's operating performance because non-cash costs and other items that management believes are not indicative of its results of operations are excluded. EBITDA and adjusted EBITDA are supplemental non-GAAP measures, which have limitations as an analytical tool. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP financial measures do not reflect a comprehensive system of accounting, may differ from GAAP measures with the same names, and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. For a description of our use of EBITDA and adjusted EBITDA, and a reconciliation of EBITDA and adjusted EBITDA to operating income (loss), see the section of this press release titled "Non-GAAP Reconciliation."

FORWARD-LOOKING STATEMENTS DISCLAIMER
Except for the historical information contained herein, the matters discussed in this release include forward-looking statements which are covered by safe harbors. Those statements include, but may not be limited to, all statements regarding management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. These forward-looking statements are identified by the use of words such as "believe," "intend," "look forward," "anticipate," "schedule," and "expect" among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the Company's business that could cause actual results to vary, including such risks related to the realization of the anticipated opportunities from the Singular acquisition, the management of the Company's growth, the loss of key resellers, the relationships with the Automated Clearinghouse network, bank sponsors, third-party card processing providers and merchants, the security of our software, hardware and information, the volatility of the stock price, the need to obtain additional financing, risks associated with new tax legislation, and compliance with complex federal, state and local laws and regulations, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the fiscal year ended December 31, 2018. One or more of these factors have affected, and in the future, could affect the Company's businesses and financial results in the future and could cause actual results to differ materially from plans and projections. The Company believes that the assumptions underlying the forward-looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to management. The Company assumes no obligation to update any forward-looking statements, except as required by law.

Contact:
Joe Hassett, Investor Relations
joeh@gregoryfca.com
610-228-2110

PAYMENT DATA SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Cash and cash equivalents	$	4,465,718		$	2,695,177
Accounts receivable, net	1,134,767			1,214,355
Settlement processing assets	35,173,205			44,139,861
Prepaid expenses and other	241,569			101,722
Note receivable, net	108,750			108,750
Current assets before merchant reserves	41,124,009			48,259,865
Merchant reserves	11,297,894			12,645,803
Total current assets	52,421,903			60,905,668

Property and equipment, net	1,849,035			1,932,660

Other assets:
Intangibles, net	3,426,427			3,676,427
Deferred tax asset	1,394,000			1,394,000
Operating lease right-of-use assets	2,616,128			—
Other assets	320,831			306,757
Total other assets	7,757,386			5,377,184

Total Assets	$	62,028,324		$	68,215,512

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	220,375		$	308,178
Accrued expenses	1,957,044			1,388,196
Operating lease liabilities, current portion	184,570			—
Settlement processing obligations	35,173,205			44,139,861
Deferred revenues	5,000			20,000
Current liabilities before merchant reserve obligations	37,540,194			45,856,235
Merchant reserve obligations	11,297,894			12,645,803
Total current liabilities	48,838,088			58,502,038

Non-current liabilities:
Operating lease liabilities, current portion	2,564,923			—
Deferred rent	—			79,748
Total liabilities	51,403,011			58,581,786

Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; -0- shares outstanding at March 31, 2019 (unaudited) and December 31, 2018, respectively	—			—
Common stock, $0.001 par value, 200,000,000 shares authorized; 17,961,132 and 17,129,680 issued, and 16,863,222 and 16,043,630 outstanding at March 31, 2019 (unaudited) and December 31, 2018, respectively	186,392			185,561
Additional paid-in capital	76,429,299			74,568,627
Treasury stock, at cost; 1,097,910 and 1,086,050 shares at March 31, 2019 (unaudited) and December 31, 2018, respectively	(1,835,368		)	(1,813,546		)
Deferred compensation	(6,045,880		)	(6,270,675		)
Accumulated deficit	(58,109,130		)	(57,036,241		)
Total stockholders' equity	10,625,313			9,633,726

Total Liabilities and Stockholders' Equity	$	62,028,324		$	68,215,512

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended
	March 31, 2019			March 31, 2018
Revenues	6,588,032			5,843,665
Cost of services	5,252,301			4,572,758
Gross profit	1,335,731			1,270,907

Selling, general and administrative:
Stock-based compensation	283,408			374,378
Other expenses	1,661,739			1,498,651
Depreciation and amortization	486,548			458,663
Total operating expenses	2,431,695			2,331,692

Operating (loss)	(1,095,964		)	(1,060,785		)

Other income:
Interest income	23,074			11,521
Other income (expense)	1			(1,542		)
Other income and (expense), net	23,075			9,979

(Loss) before income taxes	(1,072,889		)	(1,050,806		)
Income taxes	—			—

Net (Loss)	$	(1,072,889	)	$	(1,050,806	)

Earnings (Loss) Per Share
Basic earnings (loss) per common share:	$	(0.09	)	$	(0.09	)
Diluted earnings (loss) per common share:	$	(0.09	)	$	(0.09	)
Weighted average common shares outstanding
Basic	12,621,857			12,026,622
Diluted	12,621,857			12,026,622

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended
	March 31, 2019			March 31, 2018
Operating Activities
Net (loss)	(1,072,889		)	(1,050,806		)
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
Depreciation	236,548			208,662
Amortization	250,000			250,001
Non-cash stock based compensation	283,408			374,378
Amortization of warrant costs	8,985			—
Changes in operating assets and liabilities:
Accounts receivable	79,588			77,518
Prepaid expenses and other	(139,847		)	(192,569		)
Operating lease right-of-use assets	(2,616,128		)	—
Other assets	(14,074		)	(25,125		)
Accounts payable and accrued expenses	481,045			(74,161		)
Operating lease liabilities	2,749,493			—
Merchant reserves	(1,347,909		)	102,765
Deferred revenue	(15,000		)	90,250
Deferred rent	(79,748		)	—
Net cash (used) by operating activities	(1,196,528		)	(239,087		)

Investing Activities
Purchases of property and equipment	(152,923		)	(29,502		)
Net cash (used) by investing activities	(152,923		)	(29,502		)

Financing Activities
Proceeds from public offering, net of expenses	1,793,905			—
Purchases of treasury stock	(21,822		)	(956,134		)
Net cash provided (used) by financing activities	1,772,083			(956,134		)

Change in cash, cash equivalents and merchant reserves	422,632			(1,224,723		)
Cash, cash equivalents and merchant reserves, beginning of year	15,340,980			19,778,022

Cash, Cash Equivalents and Merchant Reserves, End of Period	$	15,763,612		$	18,553,299

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	—		$	—
Income taxes	—			—

PAYMENT DATA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

				Additional Paid - In Capital		Treasury Stock			Deferred Compensation			Accumulated Deficit			Total Stockholder's Equity
	Common Stock
	Shares	Amount

Balance at December 31, 2018	17,129,680	$	185,561	$	74,568,627	$	(1,813,546	)	$	(6,270,675	)	$	(57,036,241	)	$	9,633,726

Issuance of common stock, public offering	769,230	769		1,793,136		—			—			—			1,793,905
Issuance of common stock under equity incentive plan	62,222	62		58,551		—			—			—			58,613
Warrant compensation costs	—		—	8,985			—			—			—		8,985
Deferred compensation amortization	—	—		—		—			224,795			—			224,795
Purchase of treasury stock	—	—		—		(21,822		)	—			—			(21,822		)
Net (loss) for the year	—	—		—		—			—			(1,072,889		)	(1,072,889		)

Balance at March 31, 2019	17,961,132	$	186,392	$	76,429,299	$	(1,835,368	)	$	(6,045,880	)	$	(58,109,130	)	$	10,625,313

Balance at December 31, 2017	16,874,235	$	186,299	$	74,041,083	$	(831,059	)	$	(7,012,544	)	$	(53,260,426	)	$	13,123,353

Issuance of common stock under equity incentive plan	68,889	69		147,231		—			—			—			147,300
Deferred compensation amortization	—	—		—		—			227,078			—			227,078
Purchase of treasury stock	—	—		—		(956,134		)	—			—			(956,134		)
Net (loss) for the year	—	—		—		—			—			(1,050,806		)	(1,050,806		)

Balance at March 31, 2018	16,943,124	$	186,368	$	74,188,314	$	(1,787,193	)	$	(6,785,466	)	$	(54,311,232	)	$	11,490,791

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

	Three Months Ended
	March 31,			March 31,
	2019			2018

Reconciliation from Operating (Loss) to Adjusted EBITDA:
Operating (Loss)	$	(1,095,964	)	$	(1,060,785	)
Depreciation and amortization	486,548			458,663
EBITDA	(609,416		)	(602,122		)
Non-cash stock-based compensation expense, net	283,408			374,378
Adjusted EBITDA	$	(326,008	)	$	(227,744	)


Calculation of Adjusted EBITDA margins:
Revenues	6,588,032			5,843,665
Adjusted EBITDA	(326,008		)	(227,744		)
Adjusted EBITDA margins	-4.9		%	-3.9		%

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