Good day, everyone, welcome to today's Paysign 2020 first quarter earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question- and answer -session, you may register to ask a question at any time by pressing the star and one on your touch-tone phone. This presentation may include forward-looking statements. To the extent that the information presented in this presentation discusses financial projections, information, or expectations about the company's business plans, results of operations, the impact of COVID-19, returns on equity, expected gross margins, markets, or otherwise makes 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, anticipate, believes, estimates, projects, forecasts, expects, plans, and proposes.
Although the company believes that the expectations reflected in these forward-looking statements are based on a reasonable assumption, 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 in our 2019 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 be required by law. This presentation also includes adjusted EBITDA, a non-GAAP financial measure that is not prepared in accordance with, nor an alternative to, financial measures prepared in accordance with the 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. Please note this call is being recorded. It is now my pleasure to turn today's program over to CEO, Mark Newcomer. Please go ahead.
Thank you, Priscilla. Good afternoon, everyone, and thank you for joining us for a discussion about our first quarter 2020 financial results. I'm Mark Newcomer, President and Chief Executive Officer here at Paysign. With me this afternoon is Mark Attinger, our Chief Financial Officer. Before I begin my commentary on the business with regards to COVID-19 pandemic, we hope all of you and your families are staying safe during this unprecedented time. We continue to work hard to best ensure the health and welfare of the Paysign team and continue to provide the highest level of service to both our customers and our cardholders. I remain very pleased with the company's performance and extremely proud of everyone here at Paysign and their exceptional contributions towards our continued growth, which has contributed to strong results on all fronts.
For the first quarter, our revenues were a record $10.6 million, an increase of 48% compared to the prior year. Net income was $1.5 million, an increase of 77%, and our adjusted EBITDA was $2.6 million, an increase of 52%. In the first quarter, we added two pharmaceutical programs to the patient affordability business line and added several pharma and patient affordability programs to the pipeline. Our pipeline remains robust in all segments. In the first quarter, we began offering digital banking solutions, which include use of the Paysign Premier card for corporate use, all which is being well received. Our plasma pipeline has expanded and now includes blood and blood product collection centers. We now have in excess of 3.1 million cardholders on our platform.
We did not see much of an effect during Q1 related to the COVID-19 pandemic, although we are beginning to see some effect, which Mark will address during his remarks. That being said, many centers have started to recruit recovered COVID-19 patients as convalescent plasma donors for use in possible COVID-19 therapies. These plasma collection centers are generally located in areas with large affected populations. At this time, about 175 of our centers are recruiting donors for this program. These donors are compensated at a significantly higher level than standard plasma donors. Not being affected by the pandemic, we continue to see excellent year-over-year growth in our Patient Affordability Solutions and traditional pharmaceutical programs with no apparent effect from the current pandemic. I remain very confident of the future growth and profitability of the company.
As I had shared previously, with new opportunities opening in the space, we have expanded beyond our longstanding pharmaceutical payment offerings and established our Patient Affordability business line to include services requested by our hub service clients, which include pharmacy-based co-pay, medical claims processing and payments, centralized billing and payment services, as well as other products. In the first quarter, we've continued to build out this business line and expand the Paysign team with proven industry veterans. These steps have been instrumental in creating new products, features, and functionality for our clients, as well as refreshing our brand. If you haven't had the opportunity to visit our website recently, please visit www.paysign.com.
This past Monday, we went live with a much-improved website providing clients, investors, and prospects access to relevant information and more effectively conveying our strategy and the composition of our products and offerings. Looking ahead, we will continue to broaden and diversify our market focus. We will continue to develop new business-to-business solutions to enhance and create new value-added services and continue to build out our Patient Affordability offerings. We remain extremely enthusiastic about the long-term growth of the company, and we'll continue to focus on maximizing shareholder value. At this time, let me turn it over to our CFO, Mark Attinger, who will take us through the financials in more detail. Mark?
Thank you, Mark. I will take us through the first quarter results, provide some variance commentary, and touch briefly on April. Before I begin, I did want to mention that while our results have been released through Business Wire, the issuance to all registered investors by our investor relations team has been submitted to Nasdaq, but it appears to be slowed in the division, excuse me, in the distribution by Nasdaq due to volumes. You should see that come out shortly. As I proceed, references to year-on-year improvements, percentage changes, or comparisons to 2019, unless stated otherwise, refers to Quarter one 2020 as compared to Quarter one 2019. Revenue for the quarter ending March 31st, 2020, was $10,576,473, an increase of 46.0% compared to the prior year of $7,257,290.
Revenue consisted of $7.3 million, or 69%, in support of the plasma industry, a 25% year-on-year improvement, $3.0 million or 29% pharma, a 120% improvement, and $0.2 million or 2% in other revenue. Gross profit increased 51.5% to $5.7 million or 54.1% of revenues compared to $3.8 million and 52.0% of revenues in 2019. The 207 basis point improvement was primarily driven by a favorable mix towards higher margin programs. Total operating expenses were $4.3 million, an increase of 42.5% versus $3.0 million in 2019. The increase consisted primarily of $0.7 million in salaries and benefits, $0.2 million in outside professional services, $0.2 million in depreciation and amortization, and $0.1 million as an increase in stock-based compensation. Reflecting the impact of the reduction in the Fed funds rate occurring intra-quarter, our income was just $62,000 compared to $119,000 the prior year interest income.
Net income for the year was $1,540,965, or $0.03 per basic share, an increase of 76.8% compared to $871,671, or $0.02 per basic share the prior year. Fully diluted EPS was also $0.03 compared to $0.02. Non-GAAP adjusted EBITDA was $2,617,812, or $0.05 per basic share, an increase of 52.4% compared to $1,717,479, or $0.04 per basic share the prior year. The adjusted EBITDA margin improved to 24.8%, up 109 basis points from 23.7% the prior year. We loaded $326 million to the card versus $215 million the prior year, up 52%. Our revenue conversion rate of gross dollar volume loaded on cards was 3.24%, or 324 basis points, compared to 3.38%, or 338 basis points the prior year. Recognizing the unique timing of dollar loads, spend, and revenue recognition, the first quarter is seasonally our lowest revenue conversion rate.
For example, in quarter two 2019, the revenue conversion rate increased to 4.21%. Similarly, reviewing our key indicators for April 2020, the preliminary revenue conversion rate was 4.23%. From a balance sheet perspective, consolidated cash, including restricted cash, has increased $9.3 million or 20% to $54.8 million compared to $45.6 million at year-end 2019. Working capital ending quarter one 2020 increased to $14.9 million compared to $13.6 million at year-end 2019 and compared to $7.2 million ending quarter one 2019. Our liquidity, as measured by an adjusted current ratio excluding restricted cash and card funding liability, reflected 5.9 x coverage versus 7.9x at year-end. I'd like to touch a little bit further on cash and pick up on the PPP question from the prior call. Currently, we have $9.4 million in unrestricted cash. We modeled three different scenarios versus our baseline plan.
We expect to generate cash on a full -year basis under all scenarios, adding to an already strong current cash position. However, we had immediately applied for the Paycheck Protection Program loan and received funds on May 1st. After completing our modeling, we determined that we do not have a business need, nor do we project a need. We have therefore submitted a bank request to return the funds, nullifying our application and the receipt of the loan. With respect to April, although we have not completed our closing for the books for the month just yet, preliminary plasma revenue appears down approximately 15% versus April 2019. The existing pharma business is performing as expected. As we look forward, we continue to refrain from issuing revenue guidance to allow for a better understanding of the implications of COVID-19.
As we grow the patient affordability division and additional lines of business, we expect to benefit from continued revenue growth and similar gross margins to 2019. I think that concludes my remarks at this time. I'll turn it back over to Priscilla, our moderator, to begin our question and answer session. Thank you.
At this time, if you would like to ask a question, please press the star and one on your touchtone telephone. You may remove yourself from the queue at any time by pressing the pound key. Once again, if you would like to ask a question today, please press star and one on your touch-tone phone. We'll go first to Peter Heckmann from Davidson. Your line is open.
Hey, good afternoon, everyone. Thanks for taking my question. I was hoping you could dig in a little bit more within pharma, the two campaigns or programs that you added in first quarter, when might those start? As well, you went over some of the new opportunities within Patient Affordability fairly quickly, and if you could go over those a little bit in more detail, and if you have had some early success in any of those areas, if you could let us know.
Yeah. I'll touch on the two pharma programs that Mark referenced and that we referenced on the last call that were added in the first quarter. If you recall, Pete, we talked about ending the year with eight, but adding back two, getting back to 10. Those two programs that we referenced, one of them is live, but the other one has not gone live. They've both started up and have generated a little bit of startup fees and professional fees to make those programs active. One of them is loading a little bit, the other is giving themselves a little bit more time before they begin loading. That's the status of those two programs. With respect to Patient Affordability, our CEO is better suited to answer that.
In respect to Patient Affordability, we're talking along the lines of pharmacy co-pay cards and vouchers. Most of what we're providing is in support of our hub service providers and other folks that are providing co-pay sales and other co-pay sales organizations. Basically, we're providing tools for them to meet brand needs and the goals of the brands, such as pharmacy co-pay cards and vouchers, virtual debit cards, physical debit cards, medical claims such as processing of payments of paper and electronic medical claims and Patient Affordability programs, centralized billing solutions used to deliver solutions to limited network medical practices and to address patient-specific needs such as travel and/or per diems, and also patient prescriber portals designed to deliver affordability products direct to a prescriber or patient. These portals can show various levels of detail to enhance the patient's or prescriber's awareness.
It's obviously a large topic of conversation to cover, but those are just some of the solutions that we're offering.
Got it. That's helpful. Whether this is related or not, I thought I'd also heard you said you had started offering some digital banking services enabled by the Paysign Premier card, did you say for corporate accounts? That would be like for travel or per diem, is that correct?
Digital banking services are very similar to the Paysign Premier card that we're offering. That would be being offered to other businesses. You could think of that in the way of insurance companies or other companies that might have a need for those types of services for the distribution of funds.
Got it. Generally, one-time use cards, or would those be reloadable?
Those would be reloadable in most situations or one-time . It depends on the opportunity.
Okay, great. I'll get back to you. Thanks.
As a reminder, if you would like to ask a question today, please press the star and one on your touch-tone phone. We'll go next to Austin Moldow from Canaccord. Your line is open.
Thanks very much for taking my questions. Can you talk about the gross margin in just the plasma segment and how it compares to last quarter, when you noted you had some less favorable transactions that led to a bit of contraction there?
Yeah, give me a moment to take a look at that, Austin. We did see an improvement in both revenue conversion rate and gross margin for plasma in quarter one relative to quarter four. We are seeing some normalcy there. What's interesting is typically we see a slightly lower revenue conversion rate in the first quarter
As customers receive other tax benefits and other monies that they don't have as much of a need in February, March timeframe to convert the revenue that they donate. You see a little bit lower spend and revenue conversion rate in the first quarter. However, that said, and I think partly addressing some of the, I would say, lackluster performance in the fourth quarter on the revenue conversion rate for plasma, we actually saw an increase in the first quarter compared to the fourth quarter. Our margin improved several hundred basis points on the plasma business relative to the fourth quarter.
Got it. Thanks for that clarity. I think I heard a comment on working with blood centers. Can you sort of clarify what you meant when you mentioned that, and if it means you're partnering with other kinds of donation centers?
Yeah. In relation to blood collection and blood product collection centers, those are just some new product lines that have come into our pipeline and something we're pursuing.
Okay.
Those are opportunities that are available to the company.
Got you. One last question, if I can. You mentioned that, I think, the pipeline is robust for plasma and pharma. Is there any more color you can give for the pharma contract as you did last quarter, kind of maybe anticipated signings or closings?
Probably not. What we can say, and we don't like to talk about things until they occur, we indicated to you when we did our call last, even though we hadn't closed the first quarter, since we had that slight delay in the year-end call, we mentioned to you in the first quarter that we signed two new pharma clients. If we had something signed in the month of April or the beginning of May, we'd certainly want to go ahead and tell you about that. We have several opportunities that we're well into, but it would be premature to say more than that.
Okay. Thanks very much.
You bet.
Once again, if you would like to ask a question today, please press star and one on your touch-tone phone. We'll go next to Jon Hickman with Ladenburg. Your line is open.
Could I get a little color on what you expect for your SG&A levels to kind of grow this year on a year-over-year basis?
Yep, taking a look at it, Jon. I have a general idea, but let me just take a peek one more time.
Okay.
We've talked a little bit about this.
I'm asking because there was a fairly healthy jump from Q4 to Q1.
Understood. I have it rolled up into a consolidated line. Let me take a look specifically at SG&A. Need to make sure I give you halfway decent direction on that. Nothing mysterious about that. Actually, I was going to say 42.5%. It looks like it's about 42.6% at the moment is what we've got modeled. There's some play in that as we look at different opportunities. We're making sure we make the investments for the future of the company. As Mark talked about, the patient affordability business, that's a tremendous opportunity, a very significant total addressable market. We're making investments in people, in infrastructure, in technology capabilities. That's something we don't want to be light on to achieve a short-term objective. We want to make the right investments and build it right from the get-go.
That's what you're seeing in that first quarter. We should see about the kind of in that 40%-45% range is what we're projecting for this year.
Okay. Can I ask a little bit about the competitive environment for the plasma? Your main competitor is having some, I don't know, maybe financial difficulties it looks like. Is anything changing there? Do you see plasma centers unhappy? I know you gathered quite a few last year. Can you talk about that at all?
I understand what you're saying about our competitor that is having the problems, and I can't really speak too much to that at this point in time. We're going to do what we always do, which continue to go out and try to take market share. In relation to preempting that with anything further, I think I'm going to take a pass at this point.
Okay. You can't comment if it's getting easier or harder to take market share?
Right now, I don't think it's currently making too much of a difference. I'm sure that it's not wearing well on our competitors. Yeah, I don't have too much else to say about it.
At the very end of your comment about growth for the year, did you say that you expect similar revenue growth year-over-year as in 2019? Is that what I heard you say?
No, similar gross margins. We expect to see continued growth and as a separate statement, similar gross margins to 2019.
Okay.
I think we haven't changed anything. If you go back and look at the prior call, we gave a range on guidance for revenue growth. That was about all we said.
Okay. Thank you. That's it for me.
You bet, Jon.
We'll take a follow-up question from Peter Heckmann with Davidson. Your line is open.
Just a couple of quick follow-ups. Could you give us a projection, maybe a range, of what we might see in terms of net new plasma centers this year? Do you have some in the contracted queue you can talk about? If so, the timing that they might come on through the year?
Don't have a projection. As you know, we added 32-40 centers, something like that last year. This year, at the moment, I think we're sitting with 287 centers, 10 pharma programs, and four other programs. That's where we sit right now with 301 combined programs. Difficult to project. We would be guessing. There's obviously conversations occurring for new business. In some cases, those can be a handful of centers. In other cases, that can be a large number of centers. Therefore, picking exactly which item in the pipeline is going to be secured is a bit tenuous.
All right, got it. Just in terms of the decline then in terms of when you were talking about plasma in April, I believe that was a revenue figure is down about 15%. Would that be almost exclusively unit, number of units were down the same amount as revenue? Were there other changes in terms of revenue conversion or anything else that you can think about?
Yeah, I didn't go back and look specifically at the conversion rates for the month of April last year. We did look at revenue. We did look at the current conversion rate for April of this year. We did look at the quarter and the fourth quarter and the quarter last year, but not specifically at April's conversion rate last year. I can't comment on that. I would tend to think it's probably dollars loaded, i.e., donations being down and similar conversion rates, and therefore, just that trickling through to overall revenue being down.
Right. Well.
Yep, go ahead.
Well, that's good. Mark Newcomer, you're the only one on the call, I think, who has a reference for the financial crisis. Historically, when you've seen spikes in unemployment, but a flowing economy, has that generally resulted in more volume coming through the system? If so, does that have any effect on the compensation that plasma centers are giving, or does that stay constant as volume goes up?
There are several factors that change the compensation that they're giving. Whether or not it's specialized plasma and things like that, it's quite possible that it could raise some of the prices that they're offering as they try to collect more plasma. It's a very competitive market out there to collect the plasma. I can't speak too much to what they will do. Typically, in these downturn markets, however, from what we've seen, we've done fairly well, and we haven't seen much of an effect. If anything, it seemed to be an upturn, not a downturn.
Yeah. Obviously, COVID-19 is a completely different animal.
Well, I think we're still trying to understand and get our heads around the COVID-19. Until that starts to stabilize a little bit, it's hard to say.
Got it. That's helpful. Thank you.
You're welcome.
Once again, if you would like to ask a question today, please press star and one on your touch-tone phone, and we'll pause for a moment to allow any further questions to queue. I am showing that we have no further questions at this time. I'll turn the call back for any additional or closing remarks today.
Thank you, Priscilla. Again, I'm very pleased with the strength of this quarter. We will continue to focus on our mission to grow the company. Thank you for your continued interest, your questions, and your participation in the earnings call. You all have a nice evening.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.